On December 1, 2016, new overtime regulations were supposed to begin, affecting nearly half of America’s 5.5 million small businesses. The regulations, ordered by President Obama in 2014, are designed to “put more money in the pockets of middle-class workers or give them more free time,” according to the United States Department of Labor.
In late November, Judge Amos Mazzant of the U.S. District Court for the Eastern District of Texas halted the implementation of the regulations, saying he wished to keep the status quo so the court could determine if the DOL has the authority to make the rules — as well as the rule’s validity.
The National Federation of Independent Business, the nation’s leading small-business trade group, is a vocal opponent of the new rules.
Caught in the middle are thousands of pool builders and service providers doing their best to prepare for the changes that now may not come.
The New Regulations
Currently, salaried workers earning less than $23,660 ($455 per week) are eligible for overtime pay. The new regulations will double that threshold to $47,476 ($913 per week).
Business owners who pay salaried workers $47,476 or less have three options:
- Limit work to 40 hours per week.
- Pay time-and-a-half for overtime.
- Raise salaries to $47,477 or more.
For the pool industry, which is inherently seasonal, the changes could prove to be especially disruptive.
Salary: The Great Equalizer in Seasonal Businesses
Craig Sears, president of Sears Pool Management in Sandy Springs, Georgia, employs around 300 people during peak season, most of whom are paid by the hour and won’t be affected.
His core, year-round staff of about 15, however, is a different story.
“They work hard and put in extra hours during the summer,” Sears says. “In the winter, they work significantly less — maybe 15 hours a week — but we pay them the same salary. Everybody is happy with the tradeoff.”
The new rules don’t consider that Sears pays his workers an artificially high rate during the lean winter months to offset the “uncompensated” overtime hours they work in the frantic busy season. If he’s forced to pay them time-and-a-half in the summer, he’d have to make up for it by converting them to hourly rates, which would leave them down and out in the winter.
“We had a system that was working for us and our employees,” Sears says. “It’s very fair and our employees prefer it that way, so it’s a little frustrating.”
For Jack Manilla, president of Portofino Pool Services and Outdoor Living, one of Florida’s largest service companies, the frustration is much more palatable.
“To me, this is forced socialism,” Manilla says.
More Harm Than Good?
Although Sears refuses to take employees off salary, he thinks many businesses will have no other choice.
“The way the law is structured, it encourages businesses to move their employees to hourly,” Sears says. “That’s the obvious solution from an employer perspective, but it really does a disservice to the employees. They want a consistent paycheck. They don’t want a big paycheck in the summer and then scrape to get by in the offseason.”
For Manilla, the choices are starker.
“We may need to increase our prices to pass along higher costs of running the business,” he says. “Worst case, we reduce the number of employees to lower our costs.” Manilla has decided to hold off on making any changes until the final ruling.
Implementation in the Real World
The Association of Pool & Spa Professionals launched a campaign to inform their members of the changes, but implementation is up to them.
“They can cut back hours, pay the overtime or they can hire more people,” says Jennifer Hatfield, director of government affairs for the APSP.
Sears is working with labor attorneys and an HR consultant to develop a plan based on a “flexible schedule” clause outlined by the DOL.
“We’ll have to pay overtime, but at half time instead of the one-and-a-half time rate, which would be really cost prohibitive,” Sears says. “A lot of smaller operations will have to go hourly, and that’s unfortunate for their employees.”
Sears is going to implement the new changes as planned, despite the new rules being in limbo. He believes eventually they will come, but it’s anyone’s guess as to when.
Sears says he agrees with the original purpose of the program. “I think wages have been suppressed for too long,” he says, “but I think this was the wrong way to go about it. I feel like this unfairly penalizes small businesses.”
