The Department of Labor has made changes that could impact your Small Business payroll. Listen to Erron Stark, an ADP Executive, share insights on what the latest Labor Department rule changes mean for your Small Business in this episode of “The Heartbeat of Main Street.”
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Gregg Stebben: I'm here with Erron Stark. He's the Division Vice President SBS Channel Sales for ADP. Erron, welcome.
Erron Stark: Thank you for having me. Excited to be here.
Gregg Stebben: I'm really excited to talk to you as well because there's a lot going on within the Department of Labor, as far as them proposing some big changes when it comes to minimum salary requirements, particularly, if I understand it correctly, when it comes to those who qualify as having administrative professional and executive exemptions. Can we talk about…obviously I want to talk about the bigger topic, which is those minimum salary requirements, but first let's talk about who qualifies in that category as having administrative, professional and executive exemptions. Can you explain to us who that is?
Erron Stark: Sure. So the Fair Labor Standards Act, which is actually what is being reviewed right now and has been reviewed for the better part of five or six years now as it pertains to overtime exemptions, and if those individuals, as you were just referring to, that have classifications as administrative roles, professional roles, executive roles within an organization, there are very specific definitions and elements of their job functions that would then classify each one of those particular job types.
Erron Stark: And over the years, the minimum salaries for those particular individuals has fluctuated to allow an organization to pay an individual within those classifications a certain salary on a weekly or biweekly basis that would exempt them from being eligible for overtime. So whether or not I worked 40 hours or 50 hours in that particular week, if I met that minimum salary for that specific pay period, I would not be eligible for overtime. And what is currently on the docket to be reviewed and potentially implemented is a significant increase to those thresholds, which will impact business owners on how they structure and classify certain individuals. But because of that, a lot of business owners need to be a little bit more in tune with what those classifications are and what those threshold implications could be.
Gregg Stebben: So if I'm a business owner and these proposed changes are in whatever state they're at and perhaps about to become effective as law or not, but what should I be doing today...? First of all, what's the best way for me to monitor what's happening and then what kinds of changes should I be thinking about in terms of preparing for this, should these changes become law?
Erron Stark: That's a great question and I think for large organizations, many institutions typically have some type of regulatory department within their HR arena or legal arena that helps them classify certain individuals and be in sync with the differentiation between state and federal minimum thresholds and the classifications. But specifically for small business owners, what we recognize is that their passions typically get them into opening up a business around their respective craft and service that they're trying to provide to the market, but these particular areas of concentration and education are not necessarily what they got into business for.
Erron Stark: So I think first and foremost is to begin to familiarize themselves with these classifications. And if the bandwidth is not necessarily there, to start to identify services that they could employ, that could help them better define where they currently stand today as far as being in compliance with the current regulations, but then also starting to understand what the future implications could be. And one of the biggest areas of opportunity for most organizations big or small is ensuring that they have a structured time and attendance process today.
Erron Stark: Because most organizations, if they do define their employees as exempt from overtime, they then don't feel the need to have any type of attendance and/or time tracking mechanism in place. And again, if these new changes go into effect, those are certain protocols or certain systematic changes that if they are proactive today, they will be in a much better place and feel more confident that they are ready for those changes before they go into effect.
Gregg Stebben: So you mentioned a very interesting thing, which is services that can help businesses monitor this, prepare for it. I'm talking with Erron Stark. He's the Division Vice President SBS Channel Sales for ADP. Who provides those services? And I'm guessing a company like ADP does that. But if not, help direct us so we know where to go and look for those services.
Erron Stark: It is convenient that we do, but I would be lying if I said we were the only player in that game. However, the services that, if I were a small business owner that I would be looking for, are services that can use economies of scale, because most small business owners from a cost perspective, it's usually not efficient for them to employ a full-time SHRM-certified HR professional that a large organization may. But there are services that exist where you can tap into teams of those SHRM-certified HR professionals that can help give guidance and evaluate your current infrastructure and then tell you where there are certain gaps.
Erron Stark: And again, it's almost using it on an as need basis as opposed to maybe a more proactive or robust HR offering. But depending on your needs, size of organization, the growth trajectory of your organization, those are services that are flexible. ADP does happen to provide those that are scalable, anything from reactive to proactive HR support and guidance to keep an organization compliant with changes such as this around Department of Labor regulations.
Gregg Stebben: One of my questions for you, Erron, and you may not know the answer, but I'm gonna ask anyway, do you have any sense of how many small businesses—as a percent—these proposed changes might affect?
Erron Stark: It’s a great questionand I can tell you confidently that it's at minimum 50%. It's hard to identify across the entire chasm of small business owners coast–to-coast and certain job descriptions that they have how many of them are currently in compliance, how many that are currently within the current regulations out of compliance. But what I can tell you is that once these changes go into effect, that number will increase substantially from 50% into the high 70s and 80s, where I as an individual, especially as organizations grow in size, they may have individuals that have already exceeded those thresholds to be considered exempt, but it's with a significant level of confidence that there are going to be levels of the organization that have individuals being paid at certain rates that will not meet the proposed changes. So again, big or small, I think there's going to be a significant impact to the business community in general and how they approach these changes.
Gregg Stebben: So really those numbers and those percentages are high enough that almost anybody with a small business needs to have this on their radar starting today if it's not there already.
Erron Stark: Correct.
Gregg Stebben: I want to go back to something else you said. You mentioned regulations on the state level. Because, of course, right now what we're talking about is the federal Department of Labor, but you also mentioned state. What impact can state laws have on this?
Erron Stark: Yeah. It's interesting because, in most cases, state law, when it pertains to Department of Labor regulations, will supersede that of federal. However, what we've learned is that in certain instances, a state may have a lower threshold and using minimum wage potentially as an example, if a state has a lower minimum wage than that of the federal minimum wage, whichever one is higher will win for the employee. So rest assured that these changes on the FLSA front will more than likely follow a similar type of model where what these threshold are, if the state is higher than federal, then an organization will have to follow the state guideline based on them residing within that state. And if the federal happens to be higher than the state, then they will then have to follow the federal in favor of the employee themselves.
Gregg Stebben: And you're again I think in a subtle way making a case for why a small business needs to go get some expert help from a service that specializes in this. Because if you own or you're running a small business, it's probably going to be very difficult for you to sort this all out. And Tthere's probably a good chance you're going to miss something that's very important. You should focus on running your business successfully and not trying to become expert at something that there are already experts for you to hire to assist you.
Erron Stark: Yeah and to take it one step further, what we've seen in feedback from businesses that employ such services from ADP is that their prior course of action was to go on the web and search for what they would perceive be the right approach to handle these matters. And when it comes to regulations within the Department of Labor and just federal and state regulations in general, the amount of interpretation that can take place and how one person reads it versus another, it's intriguing to say the least.
Erron Stark: And again, one just doesn't want to get caught in a situation where I as a business owner interpreted what I read on the internet versus how it actually should have been read, which is where a HR professional can truly help them decipher what is going to be compliant for their organization.
Gregg Stebben: So it seems to me an analogy here is for the same reason that I have an accountant who helps me interpret tax law and apply it to my circumstances, this is complicated stuff that I'm needing another professional to help me interpret. And that actually gives me both the ability to sleep better at night, but it also gives me some cover should there be a problem down the road. I did all the right things to do our best at interpreting the laws even if we might have missed something.
Erron Stark: It's a phenomenal analogy just because for decades, if not centuries, with the accountant profession being one of the most tenured professions out there that business owners have always entrusted to help give them guidance on how to run their business. When it comes to the HR arena that is growing substantially, the reason behind that is due to the increased legislation that has continued to impact business owners both big and small.
Erron Stark: And with those increased legislation that have continued to be passed typically in favor of the employees, when you combine that with the extensive media coverage that an employee has access to and just the sensitivity of how employers engage with their employees, which is their greatest asset, it has become even more prevalent for an organization to go beyond just the four walls of their accountant guidance to seek out HR professionals that can also help ensure and insulate their organization so they can focus on growing their business as opposed to having to stay up at night worrying about whether or not they are prepared for these types of changes or whether or not they're in compliance in general.
Gregg Stebben: That's really well said. I'm talking with Erron Stark. He's Division Vice President SBS Channel Sales for ADP. And Erron, I want to ask one last question and that is what is the status of these proposed new rules? Do we know if or when they will take effect?
Erron Stark: So the latest that we have been privy to is that the target date is January of 2020. So we're not necessarily looking too far out on the horizon. I would preface that by saying this has been a change that has been on the docket for quite some time now. And it has gone through a myriad of modifications. And I think that also could potentially give a business owner a little bit of a false sense of security today because it's been something that has been in the proposal stage for so long that they could make a assumption that it will continue to stay in that stage.
Erron Stark: But my precaution to those individuals is to say if you are not prepared for the change, once it eventually goes into effect, it will have a significant implication to business owners and not in a negative way. It's just going to require a tremendous amount of visibility into current classifications, potential restructuring of whether or not an employee is salary versus hourly. And those types of exercises, if it's rushed for a business owner because they waited too long or they just didn't believe that it truly was going to pass, is where you could potentially get yourself into hot water because then once it's rushed, you typically don't do it well or implement the right strategies to ensure that it does not impact your organization in an adverse way.
Gregg Stebben: And if you're caught by surprise and you're having to do this in sort of emergency mode, you're taking resources away from other important parts of your business. So I think we all understand that planning ahead and working ahead and being smart about what you're doing always make sense. I think that's great advice and Erron, it sounds like what you're saying is: the time is now.
Erron Stark: For sure. I would complement this conversation by saying this is just one of many changes that have already taken place, and there are even more legislative changes that again are in favor of employees to help strengthen their position in the workforce today. In the tight labor market that we have with an almost 50 year low in unemployment, the employees are super important to every organization today. The retention of those employees are important. So employing some type of HR strategy, employing some type of insulation to ensure that your organization is compliant should mean a more comprehensive outlook outside of just FLSA and these changes that could potentially go into effect in January.
Erron Stark: And that way if you are proactive in ensuring that you are holistically compliant, if and when these changes go into effect, which it seems stronger today than it ever has, that January is a realistic timeframe, you will be even more prepared and, to your point, not have to worry about being distracted at that time so you can continue to grow and focus on what you got into business for initially.
Gregg Stebben: That's really very well said, Erron. Thank you. He's Erron Stark, Division Vice President SBS Channel Sales for ADP. Erron, thanks for joining us here on “The Heartbeat of Main Street” with ForbesBooks and Bank of America. This interview and lots of other great small business tips will be available if you check out Bank of America's online Small Business Community. That's at bankofamerica.com/sbc. Erron, thank you for joining.
Erron Stark: Oh, it was my pleasure, and thank you for having us. Look forward to doing more of these soon.
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