Increasing Labor Costs for the Small Business

The Labor Department announced new regulations that will increase the number of employees who qualify for overtime pay when they work more than 40 hours/week.  The current threshold is an annual salary of $23,660, which was set more than 12 years ago in 2004.  The new threshold being proposed is $47,476 and would go into effect December 1, 2016. 

What does this new regulation mean for the small business?  Small businesses rely on low salary employees as they get their businesses up and running and often these employees  work more than the standard 40 hours/week.  Under the new ruling, any employees earning less than $47,476, will be eligible for overtime pay which is calculated at a rate above their normal pay. 

Small businesses should review their current payroll structure and job descriptions for all positions earning less than $47,476.   To minimize the cost impact of this ruling, businesses need to consider:

1 – Expand job descriptions to include additional responsibilities and increase salaries over the $47,476 threshold.  You may be better off promoting key positions rather than leaving them at a lower salary with potential for overtime payments.

2 – Certain jobs may be able to be staffed by two part-time employees at an hourly rate rather than one full-time employee on salary.  When conducting this analysis, keep in mind that minimum wages are also rising in many parts of the country and hourly employees are already entitled to overtime.

3 – You may want to consider outsourcing non-core and administrative functions to service providers.  Rather than keep full-time employees on staff, you can contract hours and support as needed and scale based on your business performance and growth.

4 – Evaluate additional technologies that can increase worker productivity and drive efficiencies across the organization.  Many small businesses rely on manual processes to run their business.  There are many technology platforms and software designed and priced for the small business.  Labor is expensive  so it is important for small businesses to invest in technologies and tools, which support employee productivity.