3 Ways Overtime Laws Could Hurt Small Businesses

pexels-photo-87322-largeThe government’s new overtime rule is expected to debut at the end of the year, and will have major consequences for everyone, but mostly businesses. The US Department of Labor’s (DoL) revisions to the Fair Labor Standards Act will more than double the current limit on income eligible for overtime pay, from less than $455 per week to $913 per week.


As a result, business would lose approximately $1.4 trillion trying to accommodate these new standards, especially those with white-collar employees. The biggest concerns obviously come from the small business community, who’ve only recently experienced recovery after the country’s economic crisis. Other labor laws exclude small businesses from such rules, this one makes no distinction. Hence, businesses will likely be affected in the following ways:


  1. Less Profit
    Paying overtime can be costly for business. Experts suggest that to be financially efficient, business payroll should only account for 20 to 30 percent of overall revenue. If these increases lead businesses to increase payroll budgets without a direct correlation in revenue, small businesses lose money. We should be looking to help those entities as much as possible, at this time.
  2. Fewer Jobs
    With less revenue, businesses may be more reluctant or wholly unable to grow in measurable, meaningful ways that would also create more jobs. Small businesses are the vanguards of new job growth in the United States, with this dynamic shift, our rather consistent unemployment rates may change for the worse.

  3. Decreased Wages
    As a preemptive measure, some companies may actually lower employee wages so that overtime is not an unnecessary burden. This practice will be in effect whether or not an employee actually receives overtime, which will be damaging to the economy, decreasing spending power. Such a move would also be damaging to certain businesses’ ability to compete.


I spoke more on this topic in a recent interview with Security Systems News. Read more and let me Tweet me your thoughts or concerns on this matter.