Preparing Your Small Business for the New Overtime Rules

Two months ago, the U.S. Department of Labor (DOL) announced its final adjustments to the overtime exemptions included under the Fair Labor Standards Act. The new overtime rules almost double the salary threshold needed to qualify for overtime exemption to $913 per week or $47,476 per year, up from $455 per week or $23,660 per year.

What this means is that any salaried workers who are earning less than $47,476 a year will be entitled to over-time pay if they work more than 40 hours in a given week. Since the new rule goes into effect December 1, 2016, a mere 5 months from now, small businesses are encouraged to act quickly in order to figure out which employees will be affected and then decide how they will handle the change.

NFIB estimates the new overtime rule will impact 44% of small businesses, while the DOL has announced it could affect over 10 million employees.

How Does the New Overtime Rule Affect Small Businesses?

Aside from the short deadline and significant increase in the threshold, two additional features of the rule will make compliance difficult for many of the nation’s smallest businesses. For one, unlike a raise in the minimum wage, which has a phase-in period, the new overtime rule takes full effect come December 1st. This means that small businesses will be left scrambling to the adjust to the changes in an extremely short amount of time. Another challenge is that the new threshold is expected to be the same across the country, with no adjustments for local conditions. This can put added pressure on businesses operating in regions with a lower median income, such as the state of South Dakota, since a larger portion of their salaried employees will likely be below the threshold.

In order for small businesses to avoid the costly overtime pay or significantly increasing employee salaries above the threshold, the rule could force many owners to move some of their salaried employees into hourly positions. This move, however, has several negative ramifications. First off, some salaried managers and supervisors are expected to work when needed in exchange for flexible hours and other benefits, such as bonuses and health care. It would also effectively take away many promotion opportunities, giving lower level workers less hope for upward movement in the company. Finally, employees moved from their salaried positions to hourly jobs will now also need to keep close track of their time and be prohibited from working overtime. This can make things difficult for businesses that depend on their salaried workers to help when help is needed, and a it could be a big blow in general to worker morale.

The Obama administration estimates that the new rule may cost employers about $255 million per year, however, the National Retail Federation estimates that the cost will actually be as much as $874 million.

What You Can Do in Your Business to Prepare for the New Overtime Rule

Learn all the details of the new overtime rule. The first thing you need to do is head over to the DOL website and read everything that there is regarding the change in overtime. Only when you are clear about the changes can you then start figuring out how best to respond.

Determine which of your employees will be affected by the new rule. Pay particular attention to those who earn just above the threshold, yet they regularly work more than 40 hours a week.

Determine the financial impact. Consider what your business’ expenses would be under the new rule if you didn’t make any changes. Getting an idea of how the new rule impacts your business financially, and most importantly where those expenses are coming from, will help you to choose the best course of action going forward.

Play out a few scenarios. Consider the pattern of overtime payments you have made over the past 2 to 3 years and determine if and by how much your labor costs will increase. For positions that often result in overtime pay, you may have a few different options. You could move salaried positions to hourly ones and then be more strict with the hours worked. Alternatively, you could hire more hourly full-time, part-time, or seasonal employees to fill in the work gap, or you could restructure some of the jobs in you business to help spread the workload around.

What ever strategy you end up choosing, the new overtime rule is around the corner, and you cannot afford to ignore it.

Is Brick and Mortar Retail Making a Rebound?

If you have been paying any attention to the headlines coming out of the retail industry over the last few months, you may think that off-line retail is going the way of the dinosaur. In the first half of 2016 alone, the industry has been flooded with unfavorable news, such as that poor sales are to blame for the closing of numerous Kmart, Macy’s, Target, Walmart and Sears stores throughout the country. Then there was Nordstrom’s embarrassing stock downgrade. Later, reports came out that Sports Authority and Aéropostale are filing for bankruptcy

Few would argue that the dismal performance of both big box and small, mom-and-pop retailers is not being affected by the growing prevalence and preference for ecommerce. Platforms such as Amazon, eBay, and Paypal, as well as the emergence of mobile technology has forever changed the way we make purchases. But that change need not be a death knell for brick and mortar retailers. In fact, over the past year or so, behind all the doom and gloom, the retail industry has actually been showing some signs of healthy growth and expansion.

According to Douglas Hope, of GlobalShop, in his session at the Microsoft Envision 2016 conference, some corners of the retail industry appear to be going strong. In 2015, retailers spent some $62 billion on in-store “shoppers’ experiences,” and it seems that at least some of this investment is making an impact. Even as several big box retailers began pairing down their operations, retail revenues hit $5 trillion last year- that represents a 72% increase in sales since the year 2000. Plus, there are currently 3.8 million storefronts in the U.S.- which represents an increase of 190,000 within two years. Perhaps the biggest eye-opener of all: about 90% of those storefronts are small, independent shops.

So, what could be driving this resurgence of off-line commerce? The retailers that are expanding in this age of digital commerce tend to have a couple of things in common:

1. They are very focused on providing a good customer experience. For example, consider the case of hunting and sporting goods chain Cabela’s. Stores feature in-door rock climbing, and an in-store cafe, animal and cave exhibits and a wide selection of products. The chain is now building two new 70,000-square-foot retail locations, one in Georgia and one in Missouri.

2. They don’t ignore their digital footprint. Successful retailers today work to seamlessly blend their online presence with their off-line one. In fact, many bring the two together. Some great examples of this in action include: Geo-Targeting and Proximity Marketing as well as in-store virtual dressing rooms.

While it may seem like the sky is falling when it comes to “real world” retail, the industry is going through an evolution and it is one that will likely include physical storefronts for a long time to come. Those who adapt now will be the ones in the best position to survive.

The Minimum Wage Increase Hurts Small Businesses and the Economy

This month the future cost of labor just went through the roof. Both California and New York have passed legislation that would gradually increase the minimum wage to $15 an hour by 2022. After the 2022 deadline, wages would then rise with inflation, yet the governor of each state would have the option to delay these increases during periods of economic difficulty.

California and New York are not alone in their push to increase the minimum wage. Several other state and local governments have or are in the process of initiating their own legislation. As of 2013, more than a dozen states and local governments have increased their minimum wages. This includes Connecticut, Maryland, Hawaii, Massachusetts and Vermont, as well as Seattle that has committed to raising its minimum wage to $15 an hour by 2018.

While in California and New York small businesses with fewer than 25 employees would have an extra year to figure out how they are going to deal with the increase in wage costs, it is going to be a big challenge. As an example, according to the Employment Policies Institute, a small business who has 20 employees making minimum wage will see a $10,000 annual increase in wage costs for every 25 cents the minimum pay is raised.

That’s a hefty cost to bear for a small business working with a tight profit margin. In fact, many experts, activists, academics, and politicians across the political spectrum have pointed out that sudden and significant increases to the minimum wage puts a strain on American employers, leading to widespread layoffs, budget cuts and business closures.

Moreover, an increase in minimum wage will also lead to an unpopular increase in consumer prices, since businesses will need some way to cover the significant increase in operating expenses. Trying to cut costs in other ways may render the business ineffective and uncompetitive. Yet, there may not be so many alternative options available to them.

Finally, for some smaller businesses there is also the issue of being competitive in a global market place. There are two main ways that an increase in wage costs will put American small businesses in a disadvantage. First, if the cost of American products or services are more expensive than the equivalent products and services found in other, less expensive countries, then there will be less demand for them abraod. At the same time, if Americans can get cheaper imported products, then there will be less demand for things that are Made in America.

While an increase in the minimum wage may sound admirable in theory, in practice it may be doing much more harm than good, and it may only end up hurting the very ones it is trying to help.

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Small Businesses Only Somewhat Optimistic in 2016

Recent research indicates that the road ahead may still be a bit bumpy for America’s smallest businesses.

Most economic indicators suggest that the economy continues to slog on with a recovery that has been both slow and uneven. This comes at a time when the stock market has been under-performing, the presidential campaign has been both colorful and unpredictable, there is a new, imposing legal reality surrounding Obamacare, and we are facing a tight labor market in some vital sectors, as well as declining GDP and consumer confidence.

Not a pretty picture…

Caught in the middle are the nation’s small businesses- many of which have been struggling to stay afloat ever since the Recession hit seven years ago. According to the new State of Small Business Report by software solutions provider, Wasp Barcode, the top three challenges facing small businesses in 2016 are: hiring new employees (50%), increasing profit (45%), and providing health care to employees (43%). Small business sentiment is also down, according to the monthly NFIB Small Business Economic Trends report. The NFIB reports that expectations for future business conditions are low as are expected sales volumes. More business owners also responded that they are cutting average prices as opposed to raising them.

Not everything is doom and gloom, however. On the positive side, small businesses are looking forward to an increase in revenue in the coming months. According to the Wasp Barcode study, 71 percent of small businesses expect some increase in revenue this year. According to the NFIB study, for all the struggles, actual spending and hiring numbers have remained at average levels as compared to the previous years.

But, much also depends on the outcome of the Presidential election as well as the buoyancy of the global markets. While the year ahead may not be smooth sailing, there may at least be some pockets of light to look forward to.

Is Your Business Tapping into Mobile Commerce?

With the end of the holiday season just around the corner, one emerging retail trend has been impossible to miss: the explosive growth of mobile-based commerce (or mCommerce) among consumers.

According to the Adobe Digital Index, online sales for Thanksgiving Day through Cyber Monday (November 26th-30th) totaled $11 billion this year. This represents a significant sales increase from 2014. Adobe’s statistics indicate that sales were 25% higher on Thanksgiving ($1.7 billion), 14.3% higher on Black Friday ($2.7 billion), and 12% higher on Cyber Monday ($2.98 billion) as compared to the previous year.

One of the big drivers of this growth in sales has been the increasing prevalence and reliance on mobile devices in the shopping process. According to the Adobe Digital Index, mobile purchases accounted for approximately one third of all holiday buying, with 37% of online sales coming from mobile on Thanksgiving, 33% on Black Friday, and 28% on Cyber Monday.

This trend doesn’t look like it will be slowing down any time soon. In fact, a recent study by eMarketer, predicts that 25% of all retail eCommerce sales in the U.S. will take place on mobile devices by the end of 2016.

Fueling the trend further, this holiday season also saw the rise of “social commerce.” Over the past few months, some of the major social networks including, Facebook, Pinterest, Instagram, Twitter and YouTube, have introduced “buy” or “shop now” buttons to their platforms. The goal behind this move has been to significantly simplify and streamline the purchasing process from these networks particularly for consumers on mobile devices.

It’s important to note that much of this increase in mCommerce is originating from smartphone users, and it is affecting even offline sales. According to research conducted at Google, over 80% of smartphone users say they consult their phones about the purchases they are considering while in a physical retail location. Moreover, the majority of purchases following a mobile search (73%) are actually taking place in a physical store.

So what does this all mean?

It’s not just about online sales anymore, and it’s not enough to just maintain a mobile friendly website. Consumers are increasingly looking for integrated, interactive buying experiences, and all indications point to the fact that the digital experience often precedes the physical one. So, just as you put in the time, money, and other resources into the physical experience of buying from your business- regardless of whether you offer products or services- you need to be investing in your digital experience as well. In this face-paced, noisy world, it’s the one area where your customers are directing their attention. You’ll have a better chance of being successful if you meet your customers there.

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Who Are Today’s Remote Workers?

When you hear the words “remote worker,” what images come to mind? Perhaps you picture a tech-savvy twenty-something sitting in a cafe and tapping away on his tablet. Maybe you think of a mother in her thirties trying to balance the demands of career and family, by working from her home office. Or, you imagine a team of independent, international contractors.

Whatever the setup, the practice of working remotely, or off-site from a physical business, is very common these days- more common than you may think. Around 33 million people in the US work remotely at least half of the time they work. In fact, the number of remote and stay-at-home workers increased by 79.7 percent from 2005 to 2012.

So, who are these people and their employers? A recent infographic entitled, “The Profile of the Remote Worker” offers a pictorial representation of the average telecommuter as well as some of the amazing benefits to be enjoyed by both the employee and his or her employer.

What’s particularly interesting is that according to data from the U.S Census Bureau, the average remote worker seems to break many of the common stereotypes. Telecommuters are on average 49-years-old, college educated, and tend to be employed by a company that has more than 100 workers. They are not working for peanuts, either. The average annual salary is $58,000 dollars. This means, that many remote workers may actually be holding mid to upper level positions within their companies.

Most remote stay-at-home workers are in the services industry, followed by the management and financial industry and then office and administrative support. Not surprisingly, states with vast rural areas and harsher weather, such as Oregon, Montana, Colorado and Vermont, have the largest remote work force.

Benefits All Around

What is convincing so many companies to embrace a remote workforce? The data reveals that remote workers tend to have greater productivity, job satisfaction, and better work-life balance, plus even though they are working away from the office, they actually feel more connected to their coworkers. You can’t go wrong with that, and most likely businesses are also saving on the indirect costs of having a totally on-site workforce as well, such as utilities and office supplies.

The bottom line is that telecommuting has quietly become the standard way of doing business; and it’s not just a fallout of advances in telecommunications and mobile computing. It’s because it just make sense- for both the business and its employees.

Reimbursing Employees for Healthcare? You Could Be Fined!

Recently, a rather obscure and not so well known IRS rule went into effect out that could have devastating consequences for many small business owners. The new legislation is directed at employers who are helping their employees offset the cost of health insurance with so called health insurance reimbursement accounts or HRAs.

For many employers, reimbursing employees for healthcare-related expenses is an easy way to help their employees without establishing an official group policy. The truth is that these HRAs have traditionally been a valuable tool used by business owners to provide health insurance to their staff without taking on the administrative cost and burden of establishing their own policy. It’s a tried and true practice that has worked for some 50 years.

But all of that is about to change.

The primary purpose of the Affordable Care Act has been the complete reform of the country’s health insurance market, with the goal being to make affordable health care coverage doable for every American. In order for this lofty goal to come about, however, drastic changes need to be made to the way employers compensate their employees and provide heath care benefits to them.

The new HRA penalty directly targets employers who are found to be assisting employees with the cost of health care through supplemental income, and those fines are pretty hefty. These businesses can be fined $100 a day per employee totaling up to $36,500 over the course of the year, or up to $500,000 per year for multiple employees. Ouch! Though this legislation actually went into effect starting January 1, 2014, the Treasury Department had delayed enforcement of penalties of this new rule- that is, until July of this year. That delay expired last week, meaning that businesses can now be charged for failure to comply.

Since drastic changes need to be made to the way small businesses compensate their employees, and since HRAs are pretty widespread among the nation’s smallest businesses, the penalty for offering an HRA is actually more expensive then avoiding healthcare coverage altogether. Under the Affordable Care Act, employers are required to offer coverage, but if they fail to comply with the employer mandate they can only be fined up to $2,000 per year.

While there has been some efforts among law makers to repeal the new legislation, as of yet the penalty is in full effect (retroactive to January 1, 2014). Small business owners really need to keep paying attention to this under-reported IRS rule or consult with a qualified professional to make sure that they are in compliance.

Why Millenial Entrepreneurs Will Be the Real Drivers of Alternative Finance

Long after the word “recession” stopped populating media headlines, the various forms of alternative, non-bank financing have continued to generate a more mainstream appeal , and this trend is only going to get stronger as the millenial generation continues to mature. This is good news for the alternative business finance industry, since this trend will likely lead to an increase in the number of young entrepreneurs and business owners in need of start up financing or a business loan.

Millennials represent one of the biggest demographic sectors in the U.S. Yet, according to a recent Bankrate survey, this group seems to be less active in traditional credit and financial markets. Among 18 to 29 year olds, 63 percent don’t have a credit card, and 33 percent are considered “under–banked.” This is compared to the 35 percent of adults 30 and over who don’t have credit cards.

Why is this happening? Many industry experts point out that after the recession, most banks severely tightened their lending standards and have yet to go in reverse. On top of this, millennials tend to have inconsistent income as a result of temporary employment, self-employment, career changes, or because they have started their own business. They come off looking financially unstable- to the banks at least. These trends, in addition to new financial regulations, such as the Credit Card Act of 2009, have made it much harder for millenials to obtain a credit card and thus begin to build their credit profile.

So, it’s not that millenials aren’t looking for credit. Many are; they just can’t get approved for it.

This opens the door wide for alternative lenders, particularly those that operate online. Many of these alternative online lenders, which include micro lenders, p2p platforms, and for business owners, and assortment of asset and revenue-based financing arrangements, rely proprietary algorithms to help them quickly determine who is fundable and how much of a financing risk a given borrower presents. Instead of looking primarily at a prospective borrower’s FICO score, these lenders consider other factors, such as financial account activity and in some cases even a borrower’s social media circles.

As the millenial generation of entrepreneurs and small business owners gets ever more comfortable accessing financing online instead of heading to their local bank, and as the banks continue to keep the funding pipeline closed, we should see even more players entering the field. There is little doubt that the alternative financing landscape will look vastly different ten years down the line- so different, that alternative finance may well be the new traditional.

Are You Prepared for the Credit Card Fraud Liability Shift?

On October 1st of this year, Visa, MasterCard, Discover and American Express are changing the way they will respond to certain types of payment fraud. From that point on, if merchants are not accepting EMV chip cards (i.e. they don’t have a terminal capable of processing these payments), then they will be held liable for any card-based fraudulent activity made with EMV chip cards used at their business.

The use of EMV chip cards has been rapidly expanding worldwide. Outside of the U.S., currently 44% of all cards have an EMV chip, and 74% of all credit card terminals are capable of processing EMV chip cards. The goal of October’s credit card fraud liability shift, is to encourage merchants to update their point of sale payment processing systems so that customers can make credit card payments with added security.

In contrast, to the standard magnetic strip cards that do not encrypt payment information, EMV chip cards store payment data on an encrypted computer chip embedded in the card. Instead of swiping a chip card, customers insert the card into a slot and leave it there until the transaction is complete. The encryption makes it much harder for credit card information to be stolen during a transaction and reused by thieves in the future. If a merchant is not yet equipped to accept chip transactions, customers can still use their chip embedded cards by swiping it. But in this case, the customer won’t get any of the new security benefits.

Why Small Business Owners Need to Respond

Many business owners may be tempted to simply ignore the rule change because they think that fraud would never occur at their business. Yet the truth is that many businesses are currently processing fraudulent transactions; they just don’t know it. The majority of the time the fraudulent charges are actually being handled by the banks without the involvement of the merchants themselves. By ignoring the push to upgrade their point of sale payment processing, smaller merchants will be exposing themselves to a potential financial loss. This loss can quickly outweigh any money the merchant was trying to save by not upgrading.

The bottom line is that these changes will come whether or not small business owners are willing to adapt to them right now. But, it definitely pays to respond to them as quickly as possible.

 

Want to Retain Key Employees in 2015? Promote Collaboration & Career Development

One of the biggest challenges that small businesses are facing today is in hiring employees that can truly help their business grow… and getting these people to stick around long enough to see that growth happen. Not only are today’s workers more likely to job hop then those of the previous generations, but small businesses must often compete with larger companies that can afford to offer an alluring package of benefits and career opportunities.

Retain Key Employees in 2015 with Collaboration & Career DevelopmentSo what can small business owners do to attract talented employees and get them to stay? Often the solution is to find creative ways to tap into the talents you are looking for, and that process starts with understanding what your employees really want out of their work and life in the first place.

In a recent study from Addison Group, it was found that Millennials (those aged 20 to 34), which represents the biggest, growing section of the workforce, prefer work environments that foster development and collaboration. When asked what qualities they want most in their managers:

  • 63% said the ability to give honest feedback
  • 58% said experience in the field
  • 56% said trustworthiness
  • 37% said the ability to makes time for employees
  • 36% said collaborative

Millennials also tend to place more value on collaboration and relationship building among co-workers and even managers than their Gen X and Baby Boomer peers. In LinkedIn’s latest Relationships @Work study, Millennials rely on workplace friendships to boost their mood and output:

  • 57% said friendships make them feel happy
  • 50% said friendships were motivating
  • 39% said friendships made them more productive

On the other hand, almost half the workers surveyed between the ages of 55-65 reported that friendships at work had nothing to do with their performance on the job.

Moreover, Millennial workers are looking for companies that can provide them with a defined path for career development as well as interesting and useful training opportunities.

How does this all translate to your small business? With fewer employees and a less formal structure, small businesses tend to be more intimate and collaborative by nature. Plus, the smaller number of employees often means that workers get to cross train in various different aspects of the business. They also have more opportunities for meaningful input and ownership over the results. But at the same time, many small businesses trip themselves up by not promoting these opportunities to potential new hires.

In short, success will be dependent not just on your budget, but on your ability to give your employees a sense of ownership, camaraderie, purpose, and personal development- qualities that they can’t always easily achieve in a bigger company. In the end they will be more likely to want to build and grow with you because they will get a sense of who they could become as a result.