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Hiring and Retention

Businesses Must Comply With Overtime-Pay Rules
September 2, 2004
URL: http://www.entrepreneur.com/article/72372

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The deadline looms for new overtime-wage regulations established by the Department of Labor earlier this year. If you're lagging in compliance efforts, costly lawsuits could await.

Small-business owners have until Monday to meet new overtime-wage rules established by the Department of Labor earlier this year.

The new rules are expected to result in overtime wages for an additional 1.3 million low-income white-collar workers. They are also expected to result in 107,000 higher-paid employees losing overtime protection.

Companies that don't update their workers' pay scales could face costly wage lawsuits. And many small businesses appear to be lagging behind in compliance efforts, according to employee-benefits consultants.

"I think it's safe to say that some small employers are not even aware of the changes," said Tom Farmer, a senior consultant for Hewitt Associates, a Lincolnshire, Ill., employee-benefits consulting firm.

Such was the case for New York insurance and estate-planning firm David Kleinhandler & Associates, which employs about eight people. "I'm a little shocked," said York Kleinhandler, managing partner. "Being a small business, we're very much involved with the day-to-day operations of running our business ventures. If the information is not put out in a public domain for us, many times we are not aware."

Rich Schiele, general manager of Hampton Roads Golf Inc., of Newport News, Va., also expressed dismay at not knowing about the new wage rules. The company, which employs about 10 people, wasn't aware that new wage rules had been put into place or that the deadline for meeting them was so close, said Mr. Schiele.

The good news is that small-business owners who have yet to deal with this issue shouldn't find it too difficult a task. The rules are clear enough so that small businesses that have been dealing with wage laws internally should be able to handle the new rules in-house as well, said Irv Hurwitz, a labor lawyer with McElroy, Deutsch, Mulvaney & Carpenter in Morristown, N.J.

The first step is to decide if the new overtime rules even apply to your business. Some companies may be exempt, including enterprises that generate revenue of less than $500,000 a year and that don't participate in interstate commerce. Also free from these rules would be a company with a work force that is limited to members of the business owner's immediate family.

Generally speaking, the updated rules aren't that different from the current regulations. Overtime pay will still largely be determined by job description. People who are classified as so-called white-collar workers will more likely be exempt from overtime requirements. People considered blue-collar workers can generally expect to receive time-and-a-half for every hour worked over a 40-hour week.

But there are some changes that could dramatically affect your payroll. The most noticeable alteration involves new salary caps that will transcend job classifications as a determinant for overtime pay.

Starting Aug. 23, anyone earning less than $23,660 a year, or $455 a week, will automatically qualify for overtime pay regardless of the job duties they perform. That is up from a previous weekly salary limit of just $155. The new salary limit is expected to most greatly affect industries with large numbers of low-wage supervisory workers, including the retail, manufacturing, hospitality and travel industries. It could also hit "any company with large call centers," said Mr. Farmer.

On the other side of the coin, anyone earning more than $100,000 a year who also performs limited executive, administrative or professional employee duties, as defined by the Labor Department, will be exempt from the overtime rules. The $100,000 pay limit is expected to mostly affect salespeople and technology workers.

Under the new rules, it will be easier to categorize who qualifies for overtime based on how much an employee earns. This has another side-effect: Reliance on job descriptions to determine overtime pay will mainly affect workers who earn between $23,660 and $100,000 a year.

To determine who gets overtime based on job descriptions, companies still need to turn to the sometimes obscure Labor Department tests that spell out what job duties qualify for overtime and what is exempt. This is always the hardest part, said Ron Miller, an employment-law expert with CCH Inc. in Riverwoods, Ill. The biggest trigger of wage disputes comes from a failure by companies to accurately match job duties to legal wages, he said.

Be aware, for example, that you can't claim someone is exempt from overtime simply because they carry a title that indicates they have supervisory or managerial duties. They have to actually perform the duties that fit the test of being exempt. If, for example, you employ a store manager who spends the majority of his time selling clothes rather than managing employees, you will want to seriously consider whether you should redefine that person's job description or pay him overtime.

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