Op-Ed: New federal overtime rule hits small businesses

Date: May 24, 2016

As published in the Los Angeles Daily News Tuesday, May 24, 2016, and syndicated in the Daily Breeze, Daily Bulletin, Press-Telegram, Pasadena Star-News, The San Bernardino Sun, San Gabriel Valley Tribune, and Whittier Daily News.

New federal overtime rule hits small businesses
by Tom Scott, State Executive Director, NFIB California

The Department of Labor recently decreed a dramatic increase in the minimum annual pay for employees exempt from overtime regulations. The previous threshold was more than doubled, from $23,660 per year to $47,476. This will have a direct effect on the financial health of small businesses and their ability to offer promotions and flexibility to their employees.

While the administration claims that they want to give workers a raise, these regulations may backfire for employees. Ultimately, this new rule would reduce opportunities for promotion, reduce workplace flexibility for many workers, and entangle small business owners in new piles of paperwork. All this and yet it may not mean more take home pay for many workers.

Why would this be? If more workers are eligible for overtime pay, wouldn’t they get paid more? The reality is that the Department of Labor, and really any government agency, can’t increase business revenues. Generating higher business revenue is the only reliable way for a small business to pay its workers more.

Most small business have very slim profit margins, and in some cases the small-business owner themselves isn’t bringing in big salaries. The median salary a small business owner draws from their business is $68,000.

Without a lot of room to pay more, small employers will have to limit workers’ hours and career opportunities. Workers that were previously salaried may have to go back to punching a clock. Working from home or teleworking could have to be strictly limited or done away with altogether.

Workers obviously want more pay, but they also increasingly want flexibility to balance their work and family life. According to a 2015 study by WorkplaceTrends, three out of four workers rank workplace flexibility as their top benefit. But now, the Department of Labor is taking steps that could make the workplace less flexible for millions of employees.

Also, since the new threshold is so high, employers may not promote as many workers to management positions. Slowing down upward mobility could make the difference between the haves and the have-nots even worse.

Additionally, there will be real transition costs for businesses adapting to the new rule. For many, they will have to invest in new services and devices to keep track of working hours. The Oxford Economics firm estimates that the costs could be $745 million just in the retail and restaurant sectors.

Despite a token effort by DOL to address concerns, the rule fails to take into account lower average wages in many states. A manager’s salary in Kansas goes much farther than the same pay in San Francisco or New York. A one-size-fits-all rule makes no sense in a country where the cost of living can vary drastically from place to place.

Wages are not destined to stay low absent government interference. In fact, recent surveys from the National Federation of Independent Business have shown that the labor market is tightening. It is getting harder for small businesses to find qualified workers.

Economists will tell you when this happens wages begin to rise as businesses compete for good workers. That is a natural economic process that business owners can more easily adapt to as opposed to a government order dictating that wages should rise suddenly.

The Obama administration may brag about how they are giving raises to millions of workers, but that is simply not within their power. The only pay raise the government can actually make happen is one for government workers. One paid for by taxpayers.

Small-business owners want to keep good workers. When they can’t offer much more pay, they often provide flexible hours or promotions. Closing those options isn’t good for workers and isn’t good for businesses. Instead it adds more red tape holding back job and wage growth.

Tom Scott is the state executive director for NFIB California, representing over 22,000 dues-paying small-business members across the state.

Related Content: Small Business News | California | Labor

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