New overtime rule's impact on small businesses

Updated 10/5/2016 10:18 AM
  • Elliot Richardson

    Elliot Richardson

Policy makers must strike a delicate balance when considering mandates that impact the relationship between business owners and their employees. While politicians must look out for the health, safety, and welfare of employees, they must be cautious when considering measures that if enacted, will impact the sustainability of small businesses.

One of the most recent federal mandates to come down the pike from the Department of Labor relates to overtime eligibility. This new mandate will impact small businesses because it will significantly increase the overhead of many smaller companies.

Effective December 1, 2016, the salary threshold at which a full-time salaried worker can be exempt from overtime rules increases from $23,660 to $47,476 annually, or from $455 to $913 weekly. Therefore, most salaried workers who earns less than $47,476 will be eligible for overtime, regardless of whether they are currently classified as executive, administrative, or professional (white-collar) workers. The changes apply to all businesses, even businesses with fewer than 50 employees and non-profit organizations. Significantly, it is estimated that the wages of 4.2 million workers will be increased because of the new rule.

The salary threshold is scheduled to increase automatically every three years. The first change to the minimum salary level will be effective Jan. 1, 2020, and should reach $51,000. The minimum salary will continue to be the 40th percentile for full-time, salaried workers in the lowest-wage Census Region at the time. The DOL will publish the new salary level 150 days before the effective date. Notably, certain employees who make over the new salary threshold will remain exempt because of their duties.

The new overtime rule will almost certainly go into effect in December and for that reason, it is important small business owners and entrepreneurs understand exactly how the rule will impact their business. This mandate is quickly approaching so preparing to absorb this additional overhead is something we encourage businesses to do now.

There has been considerable and justified concern about the way this new mandate was enacted and the impact it will have on the small business community. While an increase in the threshold may have been warranted, doubling the threshold so quickly will significantly impact small businesses. This new mandate also was not enacted through the legislative process. The new overtime rule was established by unelected bureaucrats who cannot be voted out of a job.

Small business owners and entrepreneurs must remind policy-makers that the mandates they pass to benefit employees will not have their desired effect without available jobs. There are real world consequences to increasing the overhead on small businesses. Often the result is less jobs because businesses simply cannot afford to absorb the additional costs. The small business community must come together and speak with a unified voice when agencies enact mandates such as the new overtime rule.

• Elliot Richardson is president of the Small Business Advocacy Council, based in Chicago. Reach him at

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