What Small Business Owners Need To Know About Fair Labor Standards Act Changes

If there is anything that seems to change when it comes to HR issues in a small business it is employment law. There are new things afoot with the Department of Labor and their Fair Labor Standards Act changes that could significantly impact your bottom line if you are not informed and prepared for what is coming. Issues with overtime, minimum wage and what qualifies as an independent contractor are all things that a small business owner needs to know now or suffer later.   The first thing to tackle is the change in minimum wage requirements. Much ado has been made about minimum wages in general, with many a fast food chain being dragged into the spotlight over pay scales and their inability to support a full-time worker.   If you thought minimum wage laws would only pertained to hamburgers and french fries, think again. Your full-time employees who had to make approximately $23,650 annually in order to be exempt will likely see that bar raised to more than double at just over $50,000. This consideration, announced in the summer of 2015, will likely become a Department of Labor rule some time in 2016. Small business owners that are considering adding to their headcount this year may want to hold off to see how this ruling impacts their payroll budget first.   There are exemptions to this hourly minimum. Those who are considered “white collar workers” have been exempt from such minimums as long as they met the minimum salary per year and they satisfied the right duty performance at a business that would qualify them as a white collar worker. They needed to meet at least one of the following in order to be considered:  

• They serviced the business in some way
• Were in charge of managing employees
• Helped to service customers for the business
• Held a position that required a degree or certification
• Had decision-making capabilities that impacted the business

  The Department of Labor considered these to be duties tests as a boundary to what was considered exempt from minimums and overtime pay. Some of these duties test requirements may also change with the anticipated ruling, leaving businesses with the need to redesign how an employee filling a job role like this would be compensated.   The last time an adjustment like this happened through the Department of Labor, an influx of private law suits against employers for back pay came flooding courts across the country. The law made such provision for an employee to sue for back pay or unfair pay practices going back 3 years. A suit like this could devastate a small business. Entrepreneurs beware: you need to scrutinize your business practices around job roles and pay, lest you be caught at fault.

Fair Labor Standards Act Changes Will Also Impact Highly Compensated Workers And Independent Contractors As Well

  While those who whose job roles were executive, administrative or professional in nature and with compensation of around $100,000 per year were considered a highly compensated employee, that minimum has also been raised to slightly north of $122,000.   One of the biggest things anticipated around employment law besides the inflation calculations of minimum and exempt wages is the redefining of what a business can call an independent contractor. There has been much ambiguity around what an independent contractor was and the IRS has long languished the intentional misuse that contractors and small businesses alike have used to skirt payroll taxes.   This new redefining will likely make it much harder for either entity to claim an independent contractor status. This especially applies if the contractor claims full-time employment with their contracting employer for a certain amount of time or money that deems the independent contractor financially dependent on the organization that they are contracted with. In short, the chickens are coming to roost when it comes to the loose perimeter around independent contracting and payroll tax responsibilities.  

How A PEO Can Help With Fair Labor Standards Act Changes

If these new proposals feel like impending doom, you don’t have to panic. It is in these kinds of situations where a PEO can be most helpful in informing you what you need to know and how you need to handle it.   A PEO understands how to manage these issues and they are also responsible as the co-employer for making sure that these regulations are followed. They take on this burden so you don’t have to; saving you precious time and money on making a mistake in not following through on the new changes.   For your employees that are currently operating as an independent contractor but really should be classified as a full-time employee, they will work with you to get them on a W-2 and file your payroll taxes for you. A PEO offers protection from Department of Labor fines and lawsuits for unfair labor practices. Those two things alone should make any small business owner see how a PEO could save their business. Don’t wait to see what happens. Find out how you can protect your invest and future with a PEO  when it comes to Fair Labor Standards Act changes.