The DOL’s new overtime law hurts small business

The U.S. Department Labor (DOL) has changed the overtime rules for much of the American workplace, likely hurting millions of small businesses and their workers. Briefly stated, the new rules require overtime pay for employees working over 40 hours per week, including a substantial number of salaried workers.

The White House claims the new overtime scheme “is grounded by two ‘policy objectives’: One, ‘spread employment… by incentivizing employers to hire more employees rather than requiring existing employees to work longer hours.’ Two, ‘reduce overwork and its detrimental effect on the health and well-being of workers.’”

The department claims that 4.2 million workers could potentially benefit from the change, ignoring the considerable downside effects. For example, small businesses are strapped financially and have very thin margins. DOL’s new rules will force small businesses to raise prices, which will result in a loss of customers and sales.

According the the new rules, managers who haven’t punched a clock in years will have to go back to filling out a time sheet. They will even have to take into account “work” from home such as checking email or fielding a phone call. Essentially, they, along with many salaried employees, will be demoted from their management positions to hourly jobs.

In short, the new overtime rule is another government mandate that makes it costlier and more difficult to run a business and create jobs. Once again, smaller employers in particular will be hit with still more government-required paperwork as well. Complying with DOL’s latest rules will waste more of this sector’s already thin profits — profits they might have reinvested in new jobs, updated equipment or improved customer service.

The new rules, to be revised every three years, aim to increase pay for 4.2 million workers, including many who currently work 45, 50 or more hours in a week without extra pay. The practice of comp time — giving employees who work extra time a discretionary day or two off down the road — will no longer be an option for private sector employees making less than $47,476 a year, a threshold that is being raised from the previous $23,660 level.

Businesses have been on notice about higher OT costs since last summer, when the government issued proposed regulations. Companies are on the hook not just for time and a half, but also for higher Social Security and Medicare taxes they must pay on all of a staffer’s compensation. The rules don’t cover many employees who are office workers, computer programmers or professionals.

With the Republican Congress standing firm against a minimum wage increase and related proposals from Democrats, the president has once again exerted the power of the executive branch in an attempt to burnish his legacy.

But Republicans and small are also opposed to Obama’s latest action, citing the likely downside of the new DOL rules. These include cutting base salaries to compensate for forced overtime pay, cutting back on benefits and levels of healthcare coverage and—as in the minimum wage issue—simply hiring less employees to minimize the problem altogether.