SBA Criticizes Proposed Overtime Rule

By Allen Smith September 22, 2015

The Small Business Administration (SBA) Office of Advocacy has raised serious concerns about the Department of Labor’s (DOL’s) proposed overtime rule.

“The SBA got an enormous amount of pressure from its constituents when these regulations came out,” James Swartz Jr., an attorney with Polsinelli in Atlanta, told SHRM Online. Larger businesses will have an easier time adjusting to the proposed rule than smaller ones, he predicted.

Significant Costs

The SBA Office of Advocacy’s Sept. 4 letter to the DOL, one of more than 200,000 comments on the proposed overtime rule, stated that the doubling of the salary threshold for exempt positions “will add significant compliance costs and paperwork burdens on small entities, particularly businesses in low-wage regions and in industries that operate with low-profit margins.”

While the proposed rule bases the salary level on a national threshold at 40 percent of earnings for full-time salaried workers, what constitutes the 40th percentile varies widely by state, the letter noted.

The DOL proposal calls for a salary threshold of $50,440 annually or $970 per week, but in Kentucky the 40th percentile is $882 per week and in Louisiana it is $784 per week. Some small businesses have recommended different salary thresholds by state.

“The SBA is spot-on in its criticism of the proposed regulations,” said Robert Boonin, an attorney with Dykema in Detroit and Ann Arbor, Mich. “Lower salaries are paid to many entry-level professional, administrative and even executive employees in small business and nonprofits. Their low salaries do not suggest that their duties are any less exempt than their higher-paid counterparts in other regions or entities.”

The letter continued: “Small businesses have told [the SBA Office of] Advocacy that DOL’s estimates for human and financial resources costs that result from this rule are extremely underestimated.” The DOL has estimated that as a result of the rule a small establishment will incur $100 to $600 in management costs; a one-hour burden for reading and implementing the rule; a one-hour burden for each affected worker in adjustment costs; and a five-minute burden per week for scheduling and monitoring each affected worker.

But these estimates may not reflect small entities’ actual experiences, the letter cautioned. It will take weeks to understand and implement the rule, and many small businesses may have to hire outside advisors to help them comply, which can cost thousands of dollars.

“Small businesses will be very hard-hit here, as will businesses in lower-wage regions, low-profit or nonprofit entities, and businesses in industries with high concentrations of first-line supervisors earning well below $50,440 a year,” said Paul DeCamp, an attorney at Jackson Lewis in Reston, Va., and a former administrator of the DOL’s Wage and Hour Division.

The DOL’s estimate that the average establishment will have $320 to $2,700 in additional payroll costs annually also is too low, the letter said.

In addition, at roundtable discussions held throughout the country, small businesses have told Advocacy that the rule will have a disproportionate impact on entities with low profit margins. Small grocery store owners attending a Kentucky roundtable said their profit margins were under 1 percent and they would not be able to pass the rule’s extra costs on to customers.

Less Bench Strength

Additionally, small businesses have less flexibility in labor models than larger ones, Swartz remarked.

“While larger businesses sometimes have access to large pools of temporary or part-time employees, small businesses frequently do not have this type of bench strength.”

Allen Smith, J.D., is the manager of workplace law content for SHRM. Follow him @SHRMlegaleditor.


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