March 24, 2014

Small Businesses Suffer from Large-Scale Decisions: Exempt Employees, Overtime, and Your Manager

being a small business can feel like you're tiny
As I began discussing in our last post, President Obama signed an order on March 13 directing the Department of Labor to look at and redefine the rules governing who can and cannot be paid as an exempt employee, and is therefore excluded from overtime pay requirements. It appears th

at the administration also wants to raise the base salary requirement for exemption, which is currently $455 per week, and is higher in a few states like California.

At this time, any comments as to how they intend to make or arrive at these changes would be pure conjecture. But one thing that does concern me is the amount of misinformation out there regarding the existing exempt/non-exempt classification rules. One recent New York Times article contains not just oversimplifications but even outright errors. The further we look, the more it appears that no one writing about this subject even understands the current rules.

Want examples of the misapprehensions out there? Take a look at paragraphs 15-19 of the above-mentioned NYT piece. And then consider the following facts: 1) under current rules, workers already cannot simply be “deemed” executive, administrative, or professional and thereby exempt; 2) an employer cannot simply “declare” what an employee’s primarily responsibility is if it doesn’t truly constitute a primary job duty and involve a requisite amount of time/authority; and 3) the percentage of time an employee spends on managerial job functions (as the “primary duty” of their job) already matters.

Ostensibly this rewriting of the rules is aimed at large companies who are seen as hoarding profits, with the goal of making them pay out more of those profits as wages instead. I don’t know about you, but “hoarding” is not the typical issue I have when it’s time to make payroll.

So what could this mean to you or me as an employer?

It’s not news to you that most small business owners try to solve most of their problems by working harder and putting in more of their own hours – and that’s the problem I see here. I rarely buy into the overused, overreaching, and much-exhausted argument against all regulations, “this legislation will cost jobs!” But in this case, I’m on the bandwagon and you can quote me. Handled improperly, these rule changes could not only cost jobs, they could bankrupt small businesses.

The trouble is that small businesses, in order to grow to the next level, need to be able to hire managers and pay them what the market demands. Yet if these changes are made, these small business owners may instead have to follow rules that make limiting their own work hours to only, oh, 50 or so per week, impossible if they also want to hire and pay a manager. (So much for taking that week-long vacation once every 5 years!) Telling these (tired) owners that, regardless of our market, we have to pay exempt managers base salaries that cannot be supported by the business model, simply doesn’t make sense.

Here’s an example. One of the sources cited by the same New York Times piece stated that the base should be 52K per year. I’d like to see her own a small business in Middle America, try to support a family on her earnings, and pay a manager that amount. She’d last about 2 payrolls before she’d realize she can’t afford to ever take time off herself, let alone pay her manager. If you are thinking that this owner could just charge more for products or services, keep that in mind the next time someone charges you $30 for a large pizza.

I am actually for raising the floor – just not through the roof.

I would agree that the federally-required base salary of $24,000 per year is not adequate. That figure can and probably should be raised, so that no employee charged with managing for a company could be asked to work for what amounts to about $9.20 per hour. That’s 24K divided by 50 hours per week. But how do we come to a sensible resolution?

As this country and its workforce evolve, we need to ask ourselves, does the model where our politicians are so polarized that they can’t compromise and come up with reasonable solutions to anything, work for us? The president has signed an executive order directing the DOL to rewrite the rules – but unfortunately, it’s not the corporate giants who would suffer most.

(Ironically, when it comes to small business suffering: just last year, the DOL also created a referral system connecting private attorneys to employees with wage complaints, so that they can sue employers – large and small – more easily. Now, however modest your practice, aren’t you glad you have that “Dr.” in front of your name to make you a tantalizing legal target?)

Maybe Bank of America and AT&T are hoarding. We know for sure they aren’t spending any big bucks on customer service. But small employers aren’t them! Problem is, we will be subjected to the same rules.

Want more information about exempt vs. non-exempt employee classification, what it means to your practice right now, and how to make sure your employees are classified correctly? Get additional information and a free audit checklist HERE.

Friendly Disclaimer: This information is general in nature, and is not intended to replace good counsel about a specific issue with either your attorney or your favorite HR expert.

Friendly Disclaimer: This information is general in nature and is not intended to provide legal advice or replace individual guidance about a specific issue with an attorney or HR expert. The information on this page is general human resources guidance that is believed to be current as of the date of publication. Note that CEDR is not a law firm, and as the law is always changing, you should consult with a qualified attorney or HR expert who is familiar with all of the facts of your situation before making a decision about any human resources or employment law matter.

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