DO NEW OVERTIME RULES APPLY TO SMALL BUSINESS OWNERS?
QUESTION: I own a couple of copy centers in town. I have a manager who helps me run them, and I pay him a salary of about $30,000 a year; he usually works about 50 hours a week, sometimes more. I heard that under a new law, businesses have to pay their managers something like $47,000 a year. I can’t afford that! What do I do?
ANSWER: The answer to your question depends in part on how you define “small business.” Generally, the Fair Labor Standards Act (FLSA) applies to employees of businesses that have gross receipts/sales of at least $500,000. (The Act also applies to entities like hospitals, medical or nursing care, schools and public agencies, regardless of gross receipts.) So, do your copy shops bring in more than $500,000 in gross sales each year? If no, then the new law does not affect you.
But, if the new law does apply to your business, you first need to determine if your manager is really an “exempt employee” – someone who is paid a salary and does not receive overtime – or whether he should be classified as a “non-exempt” worker, in which case you could pay him an hourly rate, plus overtime.
There are five categories of exemptions from overtime pay, but from what you describe, your manager is likely receiving salary under the executive exemption. To decide if this is correct, answer the following questions: 1) Is his primary duty managing the copy stores? Is he employed there? 2) Does he “customarily and regularly” direct the work of at least two or more other full-time employees or their equivalent (i.e. four part-time employees)? 3) Does he have authority to hire or fire, to make recommendations about hiring, firing, promotion, etc.?
If you were able to answer yes to all three of these questions, then your manager is correctly classified as a salaried employee. If not, then he should not be on salary in the first place – pay him hourly. This, doesn’t however, mean that you have to keep him on salary.
If your manager is happy with his compensation, you could change his status to hourly, and pay him overtime, without increasing his overall compensation (as long as you meet Michigan’s minimum wage of $8.50 an hour). Your manager is currently working 50 hours a week, with no overtime pay. As an hourly employee, he would receive time and a half for all hours above 40 (10 (hourly rate) x 1.5). If you assume he will always work at least 50 hours a week, you can base his totally compensation on that amount. At present, he is making roughly $576 per week. As an hourly employee, who receives 10 hours overtime pay, that amount is equal to $10.48 per hour for 40 hours, plus $15.10 an hour (overtime) for the additional 10 hours. You total remains the same. Note, however, that if the manager usually works more than 50 hours, he would be entitled to additional overtime pay. In addition, if he often works less than 40 hours a week, the figures above could end up leaving him earning less than he does now (and, if it is also less than the workers he supervises, you may be looking for a new manager). If your manager also receives significant income from tips, enough that his total salary plus tips reaches the new minimum level of $47,476, you may be able to continue to pay him as a salaried employee.
YOU and your manager will have several months to work this out: The new law does not go into effect until December 2016.
The lawyers at GWINN TAURIAINEN PLLC are experienced attorneys and are happy to answer your questions. Give us a call for a free initial telephone consultation about your legal needs. For consideration of your questions in our web column, please submit your inquiry on the “Contact Us” page of our website at www.gwinntauriainenlaw.com.
ASK THE LAWYER By: Daniel A. Gwinn, Esq. Attorney and Counselor at Law GWINN TAURIAINEN PLLC 901 Wilshire Drive, Suite 550 Troy, MI 48084 (248) 247-3300 (248) 247-3310 facsimile [email protected] www.gwinntauriainenlaw.com
DO NEW OVERTIME RULES APPLY TO SMALL BUSINESS OWNERS?