New Overtime Rule to Impact Small Businesses

WASHINGTON – A new regulation established by the U.S. Department of Labor will restore and extend the right to overtime pay to many salaried workers, the department announced.

Overtime protections have been part of the Fair Labor Standards Act since 1938 and were enacted to protect workers from exploitation and to benefit workers, their families and our communities, per the Department of Labor.

Starting July 1, most salaried workers who earn less than $844 per week and $43,888 annually will become eligible for overtime pay and on Jan. 1, most salaried workers who make less than $1,128 per week and $58,656 per year will become eligible for overtime pay, according to the Department of Labor.

Per the Department of Labor, unless exempt, an employee covered by the Fair Labor Standards Act must receive overtime pay for all hours worked over 40 in a workweek at a rate not less than one and one-half times their regular rate of pay.

The department estimates that in the first year, the rule will impose approximately $1.4 billion of direct costs on employers. The department also estimates that the rule will result in an income transfer of approximately $1.5 billion from employers to workers during the first year.

Some workers are exempt from the FLSA's minimum wage and overtime protections, including bona fide executive, administrative or professional employees.

The Labor Department estimates four million lower-paid salary workers who are exempt under current regulations will become eligible for overtime protections in the first year under the new rule, the Associated Press reported.

The department last updated the exemption regulations in 2019, setting the salary threshold to be eligible for overtime at $684 per week, equivalent to a $35,568 annual salary.

Future updates to the salary and compensation levels will occur every three years and will apply up-to-date wage data to the salary and compensation methodologies in the regulations at the time of the update, per the Department of Labor. The next three-year update will take place on July 1, 2027.

Jill Avery-Stoss, chief operating officer for The Institute, a Wilkes-Barre based data analysis, research, and consulting organization, noted that while the new regulation may pose a problem for firms from the start, the structure could help them in the long term.

"I think small businesses will probably struggle with the adjustment a little bit," she said. "I can understand why, perhaps, it might not be very popular among some small business owners but, if nothing else, I think the automatic updates to the changes every three years – when the formula is recalculated – will benefit businesses in that they can better prepare for it and know what is to be expected."

Avery-Stoss stressed preparation among small businesses will be critical to navigate the challenges.

"They'll have to be diligent about how they're scheduling workers or what responsibilities and timelines their employees have," she said.

Avery-Stoss also believes the new regulation may inspire people to join the workforce.

"I think it will incentivize more people knowing that, in a sense, some of their time will be a little bit more protected," she said.

The new regulation also creates more planning and expenses for local firms. said Lisa Hall Zielinski, director of the University of Scranton Small Business Development Center.

"I think a lot of people, at least from what we're hearing, are able to bear the July increase, but I think that January one is going to present some challenges," she said. "This is a hard one because there are positives to it – people getting what is fair for doing a job – and then there are the negatives of the impact. I think that large jump ($844 to $1,128) is really a big impact. If it were more gradual, it might be something people could work with."

Hall Zielinski suggests businesses who seek clarity of new regulation contact the center for assistance.

"Sometimes it can be mind boggling, so we're happy to sit down with people and look at how it impacts them," she said. "Sometimes taking a step back to reassess can be helpful."

Additionally, knowing there will be an adjustment every three years will allow the center to help their clients prepare financially, Hall Zielinski said.

"That will be something we would build right into our consulting when helping people project their expenses out," she said.

Jim Brogna, vice president of strategic partnership development for Allied Services Integrated Health System, stated the organization will feel more of the brunt from the new regulation starting next year.

"Fortunately, it has minimal impact right now because we only have a very small amount of people for July 1," he said. "Our next big impact is going to be on Jan. 1. As it stands right now, there will be more than a $200,000 impact on the system if all staff remain in exempt positions."

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