Minimum wage and overtime laws carry significant penalties when business owners fail to compensate their employees for time worked over 40 hours per week. For small business owners, failure to comply with federal and state overtime laws can be financially devastating to the fiscal well-being of their company.
The U.S. Department of Labor sets the laws for overtime pay in accordance with the federal Fair Labor Standards Act (FLSA), specifically determining which employers are mandated to pay overtime, how workers accrue overtime, and which employees will be exempt from overtime pay. It is the business owner’s responsibility to understand the law and comply with its mandates.
The Department of Labor requires employers to pay employees one and one-half times the worker’s normal pay for hours worked in excess of 40 hours in one week. The federal guideline for defining a work week is any seven consecutive days, or 168 continuous hours. The law does not place limits on the amount of overtime hours worked but holds employers responsible for paying them accordingly.
Employers are also responsible for keeping accurate accounting of all hours worked by employees. This can get tricky when considering the number of employees that work remotely. Employers must design an accounting system where employees can log their work hours. Many employers now rely on internet logging systems that confirm hours logged on and logged off for business purposes.
Proposed changes to existing federal laws on overtime pay would increase the number of employees eligible for overtime pay. This could put a significant burden on small business owners. In addition to changes in federal standards, individual states are also coming up with their own changes that would expand the pool of employees eligible for overtime pay.
The current federal threshold for employees exempt from overtime pay is set at $23,660. As minimum wage increases across the country rising to up to $15.00 per hour in some areas, many states are increasing their state overtime threshold amounts. California has raised its threshold to $49,920 and is expected to increase the threshold to $62,400 in the year 2022 when the minimum wage across the state will be $15.00 per hour.
New York City and Washington are following California’s lead by raising their overtime threshold to $58,500 and $49,000 respectively. Washington is expected to raise its minimum threshold again to $80,000 by the year 2026. Massachusetts and Pennsylvania are also expected to raise their minimum thresholds as well.
Small business owners are responding to the new thresholds by reducing the number of employees working 40 hours per week and offering starting salaries above the minimum threshold to avoid having to pay time and a half for overtime. Some smaller business owners are actually lowering the starting salaries for new employees to offset the rising costs of overtime.
As minimum wage and overtime laws continue to increase costs to employers, consumers will eventually start feeling the effects. In California, several businesses are holding customers liable for increased wages by imposing a three percent tax on services to offset the rising costs of minimum wage and overtime. As for now, this practice is legal and binding.
If you are a business owner in need of employment law services, call the employment lawyers at MacMain, Connell & Leinhauser at 484-318-7106, or contact us online to schedule a consultation today. Our West Chester, Pennsylvania offices serve clients throughout Philadelphia and Chester County.