Overtime Proposal May Force Hard Choices at Small Businesses

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SmallBiz Small Talk
AP
By Joyce M. Rosenberg

NEW YORK (AP) -- A proposal to give millions of U.S. workers a raise is forcing restaurant owner Michelle Shriver to make some hard choices.

The Obama administration's proposed change in overtime regulations could lead Shriver to put salaried managers on shifts, limiting their hours and making it more difficult to run her six Tropical Smoothie Cafes. Shriver says she can't afford the overtime she'd have to pay under the proposal.

"Anything you do that relates to wages or salaries is going to cause us to re-evaluate how we staff or run our business," says Shriver, who has cafes in Nevada and Colorado.The plan issued by the Labor Department last month would raise to $970 a week from $455 the threshold at which salaried workers must be paid overtime. Some small business owners say it would force them to change how they pay staffers, cut their hours or eliminate perks like bonuses because they don't have the money for overtime for employees who routinely work 45 or 50 hours a week. The proposed change would be particularly hard for owners who rely on managers to oversee their day-to-day operations. It could also force some owners to raise prices or cut the services.

Although the proposal aims to increase pay for an estimated 5 million workers, including many at restaurants and retailers, some employees are saying, "no thanks." Bret Crowder, a general manager in one of Shriver's cafes, doesn't want to go back to being an hourly paid worker.

"All of a sudden, the government has just demoted me," he says. "It would basically put me back down to being a teenager."

CEO David McDougall is considering moving some managers of his 22 Back Yard Burger restaurants in the South to hourly status and structuring their pay so they have five to 10 hours of overtime a week but earn the same amount they do now. They'd be working shifts, like the staffers they supervise.

McDougall is concerned about absences. Managers sometimes have to come in on a day off to cover for someone else. McDougall gives them time off, but under the proposal, a manager would likely be paid a day's overtime, something Back Yard Burger can't afford.

"I'm concerned that we don't have a lot of wiggle room," McDougall says.

He's also not sure he'll be able to continue paying bonuses to managers. If they're paid hourly, it could be unfair to give bonuses to them but not other hourly workers.

The proposed regulation probably won't become final until early 2016, after the public has had a chance to comment on it, says Joseph Schmitt, an employment law attorney with Nilan Johnson Lewis in Minneapolis. It's likely to have the biggest impact on small businesses in the middle of the country, where pay scales tend to be lower than in the East and West, he says.

Owners who do pay overtime may end up passing the added expenses on to customers. Small businesses also facing higher costs from the health care law and higher minimum wages in some states and cities may not have a choice but to raise prices, says Rob Wilson, president of Employco, a human resources provider based in Westmont, Illinois.

Salaried employees who earn below $970 a week could be exempt from overtime if they're office workers doing administrative tasks, outside salespeople or executives. Many people working with computers would also be exempt.

Kim Galbraith is thinking about limiting the workday of the managers of her cleaning company, 2 Moms & A Mop, so they don't go over 40 hours a week. But that may mean cutting some services, including visits managers often make to new customers to be sure they're satisfied with the work done.

"Overtime is something that we don't have in our budget," says Galbraith, whose company is based in Milford, Michigan.

At four Mooyah burger restaurants in Texas, the question is whether to put six managers on hourly status or raise their salaries so they're above the proposed threshold, chief operating officer Michael Mabry says. He's concerned that putting managers on shifts, and limiting the time they can spend on the job, would hurt their ability to help make strategic decisions about running the restaurants.

"If we put a cap on how many hours they can work a week, I'm afraid that we'll make a penny-wise and dollar-foolish decision," Mabry says.
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