Some small-business advocacy groups, including the National Small Business Association (NSBA),  are not too keen on the idea of a new rule issued on May 18 by the U.S. Department of Labor (DOL) that will automatically extend overtime pay to more than four million workers within the first year it’s implemented.

The new rule raises the minimum salary threshold required to qualify for the Fair Labor Standards Act’s (FLSA)”white-collar” exemption to $47,476 per year.Under the existing rule, which has been in effect since 2004, employees must be paid a minimum annual salary of $23,600 to qualify for the “EAP”–executive, administrative, professional–exemptions from FLSA’s overtime requirements.

Beginning January 1, 2020, the salary level will update automatically every three years to the 40th percentile of full-time salaried workers in the lowest-wage U.S. Census region, said a post on NSBA’s blog yesterday. The DOL estimates that the figure will be $51,168 in 2020.

NSBA, which bills itself as “nonpartisan” and the “nation’s first small-business advocacy organization,” expects the new overtime rule to face legal challenges. One likely legal challenge is whether or not DOL has the “legal authority to imbed an automatic threshold increase based on a cost-of-living measure,” said NSBA, adding that DOL has never included a cost-of-living adjustment in the overtime regulations and some argue Congress did not authorize the department to do so.

Meanwhile, is the issue of the practical effect the new rule, if actually implemented, will have on small businesses. NSBA says that because the final rule makes fairly drastic changes to the FLSA, employers will have to consider numerous legal and practical strategies in implementing the new regulation.

First, employers will have to conduct a self-audit to determine who will be affected by the final rule. Employers will have to consider whether to continue to treat affected employees as exempt and raise their salary to the new mandatory minimum, or to allow the employee to become eligible for overtime pay.The final rule may also necessitate review and revisions to employer overtime policies, NSBA said.

In a letter to Labor Secretary Thomas Perez on September 3, 2015, NSBA President & CEO Todd McCracken said the-then proposed rule would be an administative nightmare for his 65,000 members. He said the cost of compliance for small businesses would be much greater than estimated by DOL. “Many small businesses have no, or very few, non-exempt employees, with most workers being salaried professionals or administrative employees,” he wrote. “They do not have timekeeping and payroll systems in place that can accommodate the addition of many more non-exempt employees. Thus, the burden of these changes will fall much more heavily on small businesses than on their larger competitors.

McCracken added that small businesses are often not equipped to monitor the activities of their employees in order to regulate their time. He said companies with fewer than 20 employees rarely have a dedicated HR department, “so the creation of new hourly reporting and tracking requirements are likely to be a much greater burden on these companies that do not currently face them.The result will be confusion and and excess cost for individual business owners.”

 

 

 

May 16 figures to be a huge day for startup founders.

Thanks to the Jumpstart Our Business Startups (JOBS) Act, which President Obama signed into law on April 5, 2012, more people will be able to invest in entrepreneurs through crowdfunding than heretofore. The goal of the legislation is to make it easier and faster for small businesses to get access to capital. (It took the SEC until December 2015 to promulgate and revise new rules.)

Up until now, if an entrepreneur wanted startup capital, he/she was constrained by either the size of their Rolodex or absence of already-existing relationships with angel investors or venture capitalists.

Now, entrepreneurs will be able to raise money by selling pieces of their companies to anyone with cash or interest. Prior to the rule change, entrepreneurs could only raise funds by equity crowdfunding from “accredited” investors, or individuals who met certain net-worth thresholds, i.e., at least $1 million.

This widening of the pool of individuals who can invest in startups essentially turns on a new spigot of capital for startups.

Those most likely to benefit from equity crowdfunding will be “mostly small businesses and startups that don’t have access to other capital and where a few hundred thousand dollars will have a meaningful impact,” Brandon Jenkins, COO of the real estate equity crowdfunding platform Fundrise told Entrepreneur.

The bottom line, then, is expanding access to crowdfunding will expand the amount of money being invested in startups.Experts say equity crowdfunding from unaccredited investors could potentially bring a couple billion dollars of additional capital into startups each year in the U.S., once the industry begins to mature and adapt to the new regulations.

This is especially good news for those Philly startups that aren’t necessarily getting the love from mainstream startup investors and who will now see opportunity in equity crowdfunding that they otherwise struggled to find. You may have a great idea for an app but if you don’t live in Austin, Boston, New York or Silicon Valley, it’s a lot harder to break into the VC community.