Punching Out on Overtime Laws

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Many small business owners in the United States aren’t sure when to pay employees overtime. They’re risking major penalties as a result — penalties that could put their businesses into bankruptcy. And it’s all because of outdated laws from over 50 years ago.

In 1938 Congress gave rank-and-file workers the right to be paid overtime for working more than 40 hours per week. The overtime law was passed to protect workers from being forced to work endless hours. Managers, professional and administrative personnel (“office workers”) were exempt from the overtime requirement.

Over the past half century the American workplace has changed. Fewer employees work in factories and other settings where they get paid by the hour. Many more employees work in managerial, professional and administrative roles. The face of the American worker increasingly looks like this:

With all these changes, the current overtime rules are outdated and hard to apply properly in today’s workplace.

Making the wrong determination about overtime could be disastrous for a small business. An employer making the wrong decision could end up having to pay an employee up to 3 years’ back overtime pay. Even worse, the employer may be forced to reclassify entire categories of employees and pay them back pay, also.

Thomas M. Sullivan, Chief Counsel of the SBA’s Office of Advocacy, hails the current efforts of the U.S. Department of Labor to update the overtime rules. At first blush the new rules might seem to be a bad thing for small business. That’s because the revised rules will immediately result in 1.3 million jobs being eligible for overtime, at a cost to small business of over $500 Million (USD).

But the rules will also be clarified. Small businesses will not be in such peril of making the wrong decision about who is and is not exempt from overtime laws.

Clarity in the overtime laws will be a definite improvement with small business. At least then small businesses will be able to forecast their employee costs in advance, knowing who will be paid overtime and who not. Instead of being blindsided with penalties years later, penalties so onerous they could be driven out of business.

Anita Campbell Anita Campbell is the Founder, CEO and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses.