Obama’s Overtime Plan Could Cost Small Employers
Restaurants, Retail Shops Brace for Potential Changes to Law
By
SARAH E. NEEDLEMAN
March 12, 2014 7:48 p.m. ET
President Barack Obama's overtime-pay proposal could be especially costly to small employers, many of
which are also grappling with recent changes to minimum-wage and sick-pay laws, human-resources
experts and business owners said.
"Right now the economy is shaky, and many use overtime so they don't have to hire new people," said
John J. Sullivan, professor of management at San Francisco State University.
Restaurants, retail shops and other small businesses often rely heavily on salaried workers such as
managers and shift supervisors, because they tend to employ low-skilled workers in need of oversight, he
said. Under the president's proposed rule, employers would be required to pay overtime to a larger
number of salaried workers who earn income above a certain threshold.
At small firms, managers tend to fill in when rank and file workers don't show up for their jobs, said Jay
Perron, vice president of government affairs and public policy for the International Franchise Association
in Washington, D.C. "If someone calls in sick at a big company like Google, the work can be finished at a
later time," he said. "But if someone calls in sick at a restaurant, that shift needs to be covered right away.
Customers are still going to show up."
While it may seem like a tall task for the government to enforce the proposed rule change among the
estimated 30 million small businesses nationwide, workers are now more likely to be aware of what they
may be owed in overtime pay thanks to modern technology, said David Lewis, president and CEO of
OperationsInc LLC, a human-resources-outsourcing firm in Connecticut.
"When the president speaks in this day and age, that information gets disseminated to the entire
workforce," he said.
Payroll is typically the biggest expense for small firms, many of which have recently faced increases in
labor costs because of changes in state and city laws. In January, states such as Washington,
Connecticut and California raised the hourly minimum wage that they require most employers to pay.
www.OperationsInc.com
Some cities also have enacted measures in recent years requiring businesses with at least five
employees to provide a minimum number of paid sick days.
Chad Brooks, owner of eight Qdoba Mexican Grill franchise restaurants in the Pittsburgh area, said he
would trim his 17 managers' hours to avoid the possibility of having to pay more in overtime wages under
the proposed rule.
"What we'll probably end up doing is putting all of those managers on hourly rates and then not allowing
them to work over 40 hours [a week], which means they're going to take home less money," he said,
adding that managers now work 45 to 50 hours a week and earn between $30,000 and $45,000 a year. "If
something goes wrong and your highest-paid employee makes time and a half, that could be devastating."
The 45-year-old, who opened his first location in 2002, has 120 employees. He said his restaurants'
combined profits last year dropped 75% from a year earlier thanks to lower sales and higher food costs. A
reduction in his managerial staff's hours and pay might affect morale, he said. "It's going to make it harder
to develop and retain good people because they're going to see less of an upside to sticking around," he
said.
www.OperationsInc.com