Sales and marketing, MSP, Small business, VAR

Small Businesses Must Prepare for New Overtime Rules, Thresholds


New US Department of Labor Laws, effective December 1, could impact IT service provider payrolls, profit margins and cash flow. But proper financial planning could help to minimize or eliminate the challenges, channel partner experts say.

Updated 2:00 p.m. ET, Sept. 23: NFIB Backs Six-Month Delay of New Overtime Rule

The Memphis Daily News captures the crux of the issue:

"Under the revised rules, salaried employees earning less than $47,476 annually ($913 per week) will be entitled to time-and-a-half pay for work that exceeds 40 hours per week. Currently the salary cutoff for overtime pay is $23,660 ($455 per week). The revisions are expected to disqualify up to 10 million U.S. employees from their current exempt status."

Multiple organizations -- including HTG Peer Groups and TruMethods -- are preparing VARs and MSPs for the financial changes.

Preparing VARs, MSPs for the Shift

HTG Peer Groups, an organization that mentors hundreds of MSPs, has been tracking the new regulations since earlier this year.

Scott Scrogin
Scott Scrogin
ConnectWise VP Arlin Sorensen

"HTG members have been working on the changes for six months or more, some aggressively; some less so," said Scott Scrogin, president of HTG. "One member was finished with all consultant/legal engagements, reclassifications, job descriptions and internal communications by July." HTG also conducted webinars on the topic to drive home the issue's importance.

Still, there's plenty of additional work to be done. "This has been a big topic at HTG for the past few quarters," said HTG CEO Arlin Sorensen "It will be a significant impact to a number of our members. Bottom line is that there are lots of discussion and still lots of questions."

The general consensus, Sorensen added, is that many MSPs will need to reclassify some folks and become more focused on tracking time and managing schedules. "Ultimately it will probably hurt employees that it impacts, as employers cut hours to make sure they are in compliance," he said. "Whenever government sticks its nose into how business works, unintended consequences are always a bigger issue than what they are trying to correct."

Sorensen compares it to the $15-an-hour minimum wage push, which can backfire by reducing the number of jobs and internships available.

Big Concern: MSPs in Reaction Mode

Although organizations are working hard to educate MSPs, most IT service providers may be overlooking the potential challenges ahead, according to TruMethods CEO Gary Pica.

Gary Pica, CEO, TruMethods

"My first concern is that not enough business owners are talking about it," said Pica. "Most MSP business owners will be impacted by this pending change. Unfortunately they may not deal with it until an employee brings it to light."

At that point, the business could be subject to back penalties in addition to back wages, Pica added. As December approaches, TruMethods plans to get the message out to all members. "Every business owner should talk to their accountant to be sure they are compliant," he concluded.

Consider yourself warned.

Joe Panettieri

Joe Panettieri is co-founder & editorial director of MSSP Alert and ChannelE2E, the two leading news & analysis sites for managed service providers in the cybersecurity market.