Archive for the 'Regulations' Category

New DOL overtime rules: One good outcome and seven bad ones

Do you have employees who are on salary? Do those employees ever work more than 40 hours in a week, for whatever reason? If the answer is yes to these questions, your world is about to get more complicated and probably more expensive.

Please stay with me. I need to get into the weeds, but just for a minute.

The current Department of Labor (DOL) overtime exemption threshold for “white collar” employees is anyone with a salary of at least $23,666 annually, or $455 per week. Exempt means the employer is not required to pay overtime if and when this class of employee works over 40 hours per week. This threshold applies to all businesses, regardless of size or number of employees.

Here’s the news: The DOL has announced that as of December 1, 2016, that overtime exemption threshold will essentially double, to $47,476 annually, or $913 per week. So anyone currently receiving a salary of less than this new amount will soon convert to non-exempt status, and must be paid overtime when they work more than 40 hours a week.

The reason I’m concerned about this change is because of the size of the increase. I feared this new threshold is going to catch and hurt a lot of unaware small businesses in its net. So I took this concern to my small business audience in our online poll recently and asked if they knew about the new overtime exemption changes. Alas, with less than three months before taking effect, my concerns were justified: Almost three-fourths of our respondents said they either didn’t know about the change or how it would impact them, or they knew about it and it was going to be detrimental to them. The rest, just over a fourth, said they either had determined the change would not affect them or they were prepared.

Here’s the good outcome: You might be surprised to hear me say that I think a new threshold is not unfair. In 2016, a weekly salary of $455 is too low to be expected to work overtime without additional compensation, unless it comes with a leveraged compensation factor that allows them to earn more if they work more.

But while an increase in the overtime exemption threshold is not unreasonable, doubling the threshold all at once is. And like so many government creations, the devil’s in the details. And this devil will create more problems for both employees and employers than it will solve. For example:

1. Increased recordkeeping burden: Because the doubling of the overtime exemption threshold will significantly increase the number of salaried non-exempt employees in Main Street jobs, small businesses will be burdened disproportionately with additional time and attendance record-keeping.

2. Increased payroll expense: For small businesses in a lower cost-of-living area, an immediate doubling of the exemption threshold will create an employee re-classification burden that by definition will result in increased payroll expense, perhaps prohibitively.

3. Flexibility becomes expensive: If an employer requests of a non-exempt salaried employee to work over one week and take off those hours the next, or that employee makes the same request of the employer, under the new rules, that goodwill gesture will cost the employer overtime for the week with the extra hours. A good deed should not be punished.

4. Employee hours cut: Businesses in certain industries will respond by splitting a previous 50 hour/week job into two 25 hour/week jobs in order to prevent their payroll from increasing, hurting the original employee.

5. Bad news for managers: I’m already aware of companies that will react to the new threshold by laying off some managers while increasing the responsibility of a smaller number of exempt managers, without increasing their compensation.

6. A morale downer: Being put “on salary” has been considered a professional accomplishment by generations of employees. But HR professionals tell me they’re recommending converting any employees with salaries remaining below the new threshold to hourly status. There are millions of Main Street employees whose weekly income falls between $455 and $913.

7. More lawsuits: Because of the steps some businesses will have to take to prevent these new government-imposed costs from getting out of hand, experts I’ve talked with are predicting an increase in Fair Labor Standards Act lawsuits.

When the federal government does things like doubling the overtime exemption threshold in one fell swoop, it hurts Main Street businesses disproportionately. In this case, it will create a new administrative burden, increase payroll expense without adding a penny of new productivity, and possibly hurt morale.

For four years, polls show small businesses reporting that the mandates of Obamacare disproportionately hurt them. Within a year, small businesses will regard the new DOL overtime exemption threshold increase as the little brother of Obamacare. Another example of the ham-fisted regulatory overreach of the federal government that hurts the job creators and suppresses the economy.

Write this on a rock … Buckle up, small businesses. If you like your current payroll structure, you won’t be able to keep it.

Washington’s New Hashtag: #WithoutAnySenseOfShame

Let me tell you a story.

A boss gives an employee a project on January 1st that could easily be completed right away. This project had significant financial implications for the company. Month after month the boss checks in with the employee but finds the project still isn’t completed. The employee hasn’t done his job.

Finally, in the middle of December, almost a year later, the employee delivers the finished project as if there’s been a great accomplishment, but with two pieces of bad news: There are only two weeks left for the project to contribute to this year’s business, plus the project just delivered will be useless on January 1 without being completely reworked.

No doubt right now you’re yelling, “Who keeps an employee like this?” Or perhaps you’re saying, “This is a joke, right? No organization operates like that.” Sadly, this scenario is not only true, it’s been happening in a real organization, like in the movie Groundhog Day, for several years.

The employee in my story is Congress and the employer is America’s small business owners. The projects are 52 tax extenders which Congress has chosen to reapprove annually rather than make them permanent.

Many of these extenders are key factors in growth strategies, plus cash and tax planning for millions of businesses. Perhaps the most prominent is section 179 of the tax code. Part of this section allows and sets a limit for direct expensing of capital items in the year of acquisition, rather than depreciating those items over years.

For several years the Section 179 expensing limit, and the amount awaiting re-approval, was $500,000. But if this provision isn’t renewed it drops to $25,000. And just like in my story, instead of finishing the project permanently, Congress keeps renewing this extender each year, which wouldn’t be so bad if they did their work in January. But in 2014, without any sense of shame, Congress passed another one-year extension for the $500,000 level on December 16.

The expensing provision might not change whether you make the investment, nor the price of the purchase, but it does impact cash flow and tax planning for the year of acquisition, which is a big deal for most small businesses. If you were trying to make a 2014 equipment purchase decision, you had less than two weeks – over the holidays – to get that equipment in service in order to take advantage of the expensing option.

When you’ve read my past criticism of the anti-business practices of the political class in Washington, this is but one example. Like it or not, the tax code is very much a part of business investment decisions for companies large and small. And when investment decisions impeded at the micro level of a single purchase are aggregated across millions of businesses, it has a negative impact on economic growth. It’s not difficult to see how Congress’s failure to do their job has contributed to the moribund 2% annual GDP growth we’ve been suffering since 2009.

So here we are again feeling like it’s Groundhog Day because, like last year, Congress still hasn’t renewed the tax extenders for 2015. Next time someone asks why non-politicians are polling so high in the presidential campaigns, tell them this story.

Write this on a rock … Washington’s new Twitter hashtag should be: #WITHOUTANYSENSEOFSHAME.

Jim Blasingame is author of the award-winning book, The Age of the Customer: Prepare for the Moment of Relevance.

Why you should care about the net neutrality debate

As policy battle lines are being drawn in Washington, there’s one important issue being debated that might not stay on your radar like Obamacare and immigration.

It’s called “net neutrality,” and I’m concerned it might not get the attention it deserves, even though it could have significant long-term implications. My goal here is to simplify net neutrality so you understand how it can impact your business and how to join the debate.

The term is pretty intuitive. Net neutrality means all Internet traffic gets treated the same, which is what we’ve had for over 20 years; there’s essentially no government regulation of the Internet and no Internet taxes. Also, there’s no preference for, or discrimination against any sender or receiver of email, web pages, music or movies, regardless of bandwidth used via fixed or mobile networks.

Photo credit to SavetheInternet.com

Photo credit to SavetheInternet.com

Three groups have a stake in net neutrality: carriers, content producers and a regulator.

Carriers fill two roles: 1) Local Internet service providers (ISP) connect you to the Internet; 2) national networks, like AT&T and Sprint, own the “backbone,” the physical infrastructure - fiber - that hauls digital traffic between ISPs. Carriers want to charge different rates based on content quantity and speed, which is contrary to net neutrality. Without targeted revenue for their finite bandwidth inventory, they argue, innovation and investment will stall.

Content producers include Google, NetFlix, Facebook and virtually every small business. If you have a website, sell a product online, conduct email marketing or have an instructional video on YouTube, you’re a content producer. Content producers love net neutrality because turning the Internet into a toll road increases business costs and could make small businesses less competitive.

The regulator is the Federal Communication Commission (FCC), led by Chairman Tom Wheeler. Some content producers have asked the FCC to defend net neutrality. But here’s what that request looks like to a politician: President Obama wants the FCC to reclassify and regulate broadband Internet connection as a utility, which is not the definition of net neutrality.

Net neutrality is complicated because it’s easy to appreciate both business arguments. Plus, some even have a stake in both sides of the issue, like a cable company that owns TV stations and movie studios. But inviting the government to referee this marketplace debate is a Faustian bargain because what government regulates it also taxes, and once started, won’t stop.

Write this on a rock … A regulated and taxed Internet is not net neutrality.

RESULTS: How do you feel about the taxes you pay?

The Question:
With the tax filling extension date coming this week, how do you feel about the taxes you pay?

69% - We pay too much in taxes, especially for what we get.
6% - We pay a lot of taxes, but it’s probably about right.
8% - Since we’re not profitable, we don’t play a lot of taxes.
17% - I would love to have enough profit to worry about taxes.

Jim’s Comments:
As you can see, almost 70% of our sample think we’re not getting an acceptable ROI on our tax dollars. Which is understandable, since the taxes small businesses pay represents precious capital that can’t be invested in the business. I’m going to have more to say about this in next week’s Feature Article.

Stay tuned and thanks for participating.  And be sure to take our new poll.

SBA Poll Results: Minimum Wage Increase

The Question:
If the federal minimum wage is increased, how will it affect your business?

70% - It won’t impact my business at all.

11% - The increased payroll expense could put my business in jeopardy.

5% - It will prevent me from expanding.

14% - I will start replacing employees with technology.

My Question:
The response to last week’s poll reflects a sea-change in the workplace on Main Street. Not that long ago, more small businesses would have been significantly impacted by an increase in the minimum wage. Indeed, in the 1970s, a minimum wage increase was inflationary. But today things are different: responses to our poll indicates that only 16% think a minimum wage increase will affect them negatively. Two major reasons are:

• Fewer small businesses pay their employees minimum wage.

• More small businesses accomplish growth by buying technology rather than hiring workers.

But just because the impact isn’t as negative as it once was doesn’t mean raising minimum wage is a good thing. Past experience shows that only a tiny percentage of American workers will actually benefit from this increase, but many more will be harmed because businesses now have other options. Raising minimum wage has never been about income equality. Since the 1930s, when it first went into effect, the national minimum wage has been nothing but a political device used to appeal to low wage earners to get their votes, and to unions members, whose contract wages are calculated as a percentage of the federal minimum wage.

Raising minimum wage is no longer a big negative for most small businesses, but it is for economic growth and the ability of businesses to manage their expenses based on marketplace factors, instead of by government fiat.

Any politician who proposes an increase in any minimum wage-federal, state or local-is misguided at best, and disingenuous at worst.

Video- Will we have a lost decade on Main Street?

In this week’s video I talk about the details of why small businesses are showing low profits.

Check out more of Jim’s great content HERE!

Take this week’s poll HERE!

Watch Jim’s videos HERE!




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