Both the Department of Labor’s Final Overtime Rule and the Federal Trade Commission’s Ban on most Non-Compete clauses in employee contracts have the potential to impact a significant number of small businesses. These changes are also coming soon, without much time to prepare for their effects. We have taken the time to examine these changes so you can know and prepare for the impact to your organization.
DOL Overtime Rule: What you need to know.
The final rule will make overtime pay for hours worked over 40 hours per week mandatory for individuals who earn less than $43,888 (up from the current $35,568) starting July 1st. That change leaves employers with less than 75 days to react and adjust salaries or policies. Then, on January 1, 2025, the minimum salary surges to $58,656. To reiterate, any salaried employee making less than these amounts will be due overtime pay for all hours worked over 40 hours in a week. The 2025 change is a staggering 65% increase in the minimum from the current level. Remember that the employee would still have to meet one of the existing exemptions – Executive, Administrative, or Professional – to qualify as exempt from overtime. Now, even if these exemptions are met, the pay threshold has been significantly raised as a second hurdle.
What will be some effects of this change?
The DOL estimates that 4 million workers will be impacted by this change, resulting in 1.5 Billion dollars of new pay for these individuals. Employees near these levels will probably receive pay increases to get to these pay thresholds. Many other employees will be reclassified as hourly employees from their current salaried status. As we have seen with minimum wage increases in individual states, there will be a rising tide effect. If the employee that was making $50,000 is increased to $55,000, what happens to the other employees in the organization that were making $55,000? Small businesses will also react by cutting service, raising prices, disallowing overtime, automating more to reduce labor needs, or simply becoming less profitable.
What can you do to prepare?
First, examine whether you have salaried employees that will be affected by these new salaried minimums. If so, create a plan for each affected employee that would include: estimating how often and for how many hours each employee works over 40 hours in an average week; evaluating how a change to hourly from salaried status would affect pay, benefits, and morale; coming up with a communication/education plan for your staff; and making sure you have the tools in place to track hours for these employees that you may not have previously tracked. Most importantly, follow this story in the news as there will be legal challenges that may delay or derail this change.
FTC nationwide Noncompete ban: What you need to know.
The final rule will ban Noncompete clauses in employee contracts and work agreements. This rule will become effective 120 days after publication in the Federal Register. Noncompete clauses have long been used to keep key employees from leaving jobs to work with a competitor or with another firm in the same industry. The FTC estimates the creation of 8500 small businesses per year and at least 17,000 additional patents per year once employees are not subject to noncompete clauses.
What effect will the Noncompete ban have on business?
Fortunately for those living in Virginia and many other states, this change is not as profound as state legislatures have weakened or eliminated noncompete clauses in the past decade. Many companies have adjusted their practices in this regard already, but for those companies still using noncompete clauses in their employee agreements, those clauses will need to be eliminated. Where there is an affected employee, the change must be communicated. Businesses will pivot to non-solicitation agreements and confidentiality agreements as their primary tools to protect both proprietary information and client lists. As with the DOL overtime rule, there are certain to be legal challenges to this ruling so stay up to date on any changes.
Disclaimer:
This article is meant to provide a general understanding of new rules issued by the DOL and the FTC, and is in no way intended to provide legal advice. There may be changes to the final regulations and this article may not always be updated to account for those changes. Business owners are encouraged to consult with legal and HR professionals for specific guidance on complying with all DOL and FTC regulations
About the author: Arch Wallace is the President and founder of Checkright and has spent almost 20 years employed in the accounting and payroll industry. He can be reached at archw@checkright.net.
