Updated 10 p.m.
Read an update about a Texas judge whose ruling blocks changes to the federal overtime law from being implemented Dec. 1.
Posted 8 a.m.
On Dec. 1 new federal rules go into effect that potentially extend overtime pay to an additional 4.2 million workers nationwide. But the new regulations are drawing concern from owners of some Northwest Austin businesses.
“The laws haven’t changed dramatically since the ’30s when they were put into place, so they are well-needed,” said Laurie Howell, co-founder and managing partner of human resources firm Austin HR in Northwest Austin. “It is going to be impactful for sure on small employers [and] employers with retail and restaurant store managers.”
Vicky Eckel, who owns a yogurt shop and four Austin-area Firehouse Subs locations, including two in Northwest Austin, confirms this.
“It’s not that [employers] don’t want to do the right thing by employees, but there’s a limit,” Eckel said. “There’s only so far you can go [financially], or you’re going to put yourself out of business.”
After hours
On May 18, President Barack Obama
announced changes to federal overtime regulations, increasing the minimum salary threshold for employees who are exempt from receiving mandatory overtime pay under the Fair Labor Standards Act, first established in 1938. The threshold is increasing from $23,660 per year to $47,476 per year.
“The intent is still to take care of that middle-class worker who the wages over time, over decades, have not kept up and stayed in line with the economy,” Howell said.
A representative from the Austin Chamber of Commerce said the organization does not have a position on the new FLSA overtime rules and declined to comment on the new rules. However, other area chambers of commerce, including those in
Cedar Park and Round Rock, joined more than 50 Texas business organizations in filing a lawsuit Sept. 20 in a U.S. District Court against the DOL’s overtime rule.
The lawsuit, led by the U.S. Chamber of Commerce, National Association of Manufacturers and the Texas Association of Business, claims the federal government “went too far in the new overtime regulation.”
Providing updates about new federal regulations is one service Austin HR provides to its clients, which are mostly small and mid-sized companies. Howell said Austin HR’s “sweet spot” is companies with fewer than 200 employees. Other HR services it provides are managing clients’ payroll and benefits.
She said the new FLSA rules are the biggest changes affecting businesses—besides the Affordable Care Act—since the Family and Medical Leave Act was enacted in 1993.
“Where I worry is that these exempt employees are going to get larger workloads,” Howell said. “Employers need to be mindful that their great employees are not overworked and neglected.”
Small-business burden
The challenge for businesses, especially small businesses, will be deciding what to do with those employees, such as retail and restaurant managers, who are currently exempt from receiving mandatory overtime pay but will not meet the new minimum salary threshold Dec. 1, Howell said.
“Employers are having to decide, ‘Are we going to increase their salary so they can remain exempt, or are we going to start paying them on a nonexempt hourly basis?’” she said. “It’s a big decision.”
Businesses and organizations with lean cash flow, such as nonprofits, likely will be more affected by the new overtime rules, Howell said.
“Small employers and the nonprofits that have a lot of training involved, it’s hard to find people and then pay them at this new rate,” she said. “It’s going to be impactful.”
Eckel said she thinks she will end up paying her managers overtime versus increasing their salaries, which are around $38,000-$42,000 per year. Many of her managers work up to 60 hours a week filling in for employees who quit or fail to show up to work, and she said that would not warrant increasing their pay to $47,476 or more per year.
“They’re not managing; they’re doing day-to-day crew work,” Eckel said.
One underlying issue, Eckel said, is a workforce shortage for service industry jobs. She said each of her stores could use between seven and 10 additional employees. The new rules are an additional burden that she said will have to be addressed on top of staffing.
“We pass laws like it’s a one-size-fits-all, and it’s not,” Eckel said. “Every state is different. Every industry is different.”
Managing the burden
Maintaining profitability is a concern for small businesses, said Steven Bercu, president and founder of the Austin Independent Business Alliance.
“Depending on your industry you have a certain percentage of [expenses] you can have be labor and still be profitable,” he said. “That varies by business and sector. Whatever that number is that’s the number you have to achieve to stay profitable. In the independent business world you have to be profitable or quit.”
AIBA tries to help small businesses navigate through these national issues, Bercu said.
“Part of what I listen to is that large business and giant chains have massive administrative abilities to figure all of this stuff out on a national level,” he said. “The small business doesn’t. We as a little group of small businesses try to help each other.”
Bercu is also co-owner of Bookpeople, where he said he had to change some employees’ status to hourly. Certain managers are not going to be allowed to work overtime, so hourly employees will fill in where needed, he said.
“It has a negative morale factor,” he said. “People that are getting returned to hourly don’t like it because there’s a certain freedom of not having to clock in and out, not having to report what minute you’re getting there and what minute you’re returning to lunch and when you take your breaks. All of that gets returned to being followed minutely.”
Elizabeth Christian, president and CEO of Elizabeth Christian Public Relations based in Northwest Austin, said the new rules do not take into account the difficulty of putting in new infrastructure for employees to clock in or billing purposes because her clients are not billed by the hour. She said her company also does not have a large HR department.
“It’s another straw on the camel’s back of tedious, time-consuming paperwork with no process or consideration [for small businesses],” she said. “It’s like going from zero to 60 in 10 seconds.”
Long-term effect
Of her 18 employees, Christian said only one will be affected; however, she said she might have to reconsider who she hires in the future. A starting salary for a PR professional is around $32,000, and Christian said PR professionals are used to working long hours until the job is done.
“Do I overpay for the market, or do I impose a new system for overtime that is very difficult to manage for a small business?” she said.
The long-term effect of the new rules might be most felt by younger employees, Christian said.
“Every single industry has to have a way to bring people in at a beginning salary commensurate with what their skills are,” she said. “People out of college are ready to learn and work hard. I don’t want them watching the clock [and] walking out at 5 o’ clock. The rules treat people as if they are not professionals.”
Other business owners said customers could also be affected by the new laws.
Because many small businesses do not have large revenue margins, Bercu said it is more difficult for them to absorb new costs, such as salaries. He said if an employer takes on any additional costs because of the new rules, increases in the cost of goods likely would be passed on to customers.
“Believe me, you’re going to pay more for everything that doesn’t have a price [label] already on it,” he said.
But Howell said it is not yet known how dramatic those cost increases on customers will be.
“Overall inflation is coming, and this will contribute to it,” she said.
Eckel said she she decided not to increase prices at her stores. A recent increase resulted in pushback from her customers, she said.
She said she would like to see the city of Austin step in and offer small businesses more assistance, similar to how it offers tax breaks for larger companies and subsidizes them through economic incentive agreements to bring in jobs. She said the service industry has plenty of jobs available but no one to fill them.
“We want to be able to have jobs and provide jobs so people will have an income, and we want to provide a service for the community—a place for people to come and eat,” she said.
Additional reporting by Olivia Lueckemeyer
