New Overtime Laws and Your Small Business: How can You Prepare?

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Following debates surrounding the federal minimum wage, small business owners are now in the center of yet another struggle regarding a proposed change in the way they must pay their employees. As reported by smallbiztrends.com, President Obama signed an executive order last month calling for an increase in the threshold of earnings over which employees become eligible for overtime pay. In plain English, the law would raise the threshold from the current $445 per week mark to somewhere around a suggested $640 and include more white collar and managerial employees in the group who would qualify for overtime pay.

The rationale behind the law is to give back to those who work hard for the economy. As corporate America has begun to make more profit, the idea that these revenues should be shared with the employees who put in extra hours to make them seems like it makes a lot of sense. However, many warn that small businesses will become unintended collateral damage. While profitable corporations will usually have enough cushion to soak up the effects of the new law, small businesses, many of whom are struggling and find it difficult to obtain financing, could be forced to lay off staff or reduce hours in order avoid paying more salaries than they can effectively support.

What can small business owners do to prepare for the possible changes? Many small business owners rely on their employee’s dedication and willingness to work longer hours out of a non-monetary sense of reward. For example, small business employees might be inclined to work harder because they feel that in the end they will share in the success of their company, or because they crave valuable experience that can make them more valuable in the hiring pool, ideally leading towards a raise or a promotion. If these employees will suddenly start making overtime for the hours they spend after their official time is up, then small business owners need to create a strategy that will allow them to adapt.

  • If your employees become eligible for overtime, it’s essential that they are as productive as possible. This means that they should go into each work day knowing clearly what it is that they have to do and by what time they are expected to have finished it. A lot of the time, business owners will realize things that they can do in order to improve their efficiency, but they might not do them because of a whole slew of reasons (“I don’t have the time” being one of the top contenders). If you expect your employees to work more efficiently, then it’s only fair that you get your act together and remove as many barriers to productivity as you can.
  • Clarify what responsibilities cannot wait, and which ones can be put down until the following work day. Overtime pay is theoretically for when an employee must finish a project and is willing to stay past their regular hours in order to make sure that it gets done. It’s not for taking an extra two hours to review emails, chat and drink free coffee. In keeping with the first point, all of your employees should have a clear understanding of what is their highest priority and know when it’s appropriate for them to work overtime hours.
  • You may consider filling certain positions on a part time basis, but before you do in order to keep costs down, you should probably think about whether or not you really need someone to work for you full time. If you are trying to simply cut corners in an area that is pretty essential for your operations, you could be shooting yourself in the foot by hiring a freelancer with other responsibilities who may be working remotely. The key to determining whether or not you need a full time employee around is thinking honestly about not only the volume of work they handle, but how accountable and present you need them to be. Remote work like web design is one thing, but having a major part of your business go down outside of the office isn’t always a great idea and can wind up costing you more.

Photo Credit to Phil Whitehouse on Flickr

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