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DOL’s Overtime Rule, Increase in Job Growth, Capital Loan Program, and Businesses Not Offering 401(k) Plans

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Hey everybody, it's Gene Marks. Welcome to this week's episode of the Paychex THRIVE Week in review, podcast and video on YouTube as well. Thank you so much for joining us. Before we get started, just want to remind you that on July 1 of this year, the Department of Labor's new overtime rule is going to be taking effect, which has an impact on many businesses and most likely yours and mine. Actually, Paychex has an on demand webinar with details about how it can impact your business. 


It's available along with other overtime rule resources. Go to go.paychex.com/ot-rule. This link will also be available in the show notes. So again, welcome. So happy that you are here. This is the podcast where every week we take like three things that are going on in the news that impacts your business and mine, and we discuss about why it impacts the business. 


So let's go to the news, shall we? The first item I want to talk about comes from Paychex. It's the monthly Small Business Employment Watch analysis that the company does. This company does. And it came out this month with some interesting information that might have some impact on you. 


So I'll just read out of the small business jobs index rose this month. It was the largest one month increase since January of 2022, the largest one month increase. This is in over two years. Now we are talking about. At the same time, it's great news. 


At the same time, hourly earnings growth actually slowed to 3.13%, which is its lowest level since June of 2021. So employers are hiring more, according to Paychex. But wages, at least hourly wages, are slowing down to just a little bit over 3%. Why that number concerns me a little bit is that inflation itself, depending on the gauge that you're using, is anywhere from 2.5% to 4%. So when you see that hourly earnings growth is only increasing about a little bit over 3%, to me that basically means that workers are barely earning enough money to keep up with the increase in prices, and that is a potential issue. 


John Gibson agrees. John Gibson is the CEO of Paychex, president and CEO. Here is what he says in the company's press release. It appears we are seeing a stabilization in job growth and continued downward pressure on hourly wages. Yet challenges still remain for small business owners given concerns over inflation, access to capital, and a shortage of labor and skills. 


Gibson also says this. He says small business owners in most sectors scheduled workers for work for more hours in May, which is great news, which resulted in increased weekly earnings following a long term trend of decreasing hours working for small business employees. There are early signs of a turning point moving towards stabilization. So the takeaway from this news is that employment hours are going up. That's good. 


Means that small businesses are shrugging off some of the challenges and they're putting people to work. However, hourly wages themselves decreased. Their growth was the lowest that it was since 2021, which to me as a concern for the overall economy if wages are not keeping up with inflation. The next bit of news comes from morningstar.com dot. It is a report about 401(k) plans. 


Now get this, an independent survey commissioned by Share Builder 401(k), which is a 401(k) provider. They found that only 24% of small businesses with one to 50 employees offer 401(k) benefits to their employees. The survey identified key barriers preventing wider adoption, including the belief by 55% of respondents that their businesses are too small to access a plan or that they cannot afford to offer a company match. Additionally, 22% of owners believe that providing a 401(k) is just too expensive. So I got to talk to you guys, 75% of businesses under 50 people that are not offering 401(k) plans, it's a no brainer. 


You need to do it and let me tell you the reason why. For starters, thanks to Secure 2.0, which was legislation that was passed back in 2022, you will get enough tax credit from the government to pay for the establishment and maintenance of those 401(k) plans. So when I hear people saying it's too expensive to start up, that is just not the case. First of all, they're not even that expensive even without government help. But the government is basically going to give you credits to pay for it. 


Getting them set up is, it's kind of a no brainer. It is just a no brainer. Not only that, but because of Secure 2.0, if you're eligible, you can get tax credits for matching contributions to your employees 401(k) plan as well. So that's also another huge benefit. And by the way, when it comes to matching contributions, you're under no requirements to do so. 


This is not some kind of a rule that just because you have a 401(k) plan, you've got to do a company match. No, not at all. In fact, I have a lot of clients that don't match their employees contribution to the 401(k) plan. It would be great if you do. And again, there are tax credits available for some to help do that, but it's certainly not a requirement. 


But listen, when you have a 401(k) plan that not only benefits your employees, but it benefits you in two different ways. Number one is it's something else that you're a benefit that you're providing to help attract and retain employees. I mean, you're looking for good people out there. The big three of benefits, it's healthcare, 401(k) or retirement, and flexibility. Right? 


Well, I mean, come on. I mean, you've got to be able to provide some semblance of these benefits to be competitive. Offering a those three options is among the cheapest. So having a 401(k) plan will help you attract employees and also retain employees. That's the first thing. 


The second thing is when you have a 401(k) plan. And the more that your employees put away into the 401(k) plan, the more that you can put away for your retirement as well. So having a 401(k) plan and educating your employees on what it's all about and how to use it, encouraging them to contribute, maybe even managing a contribution, well, the more that gets put away for those employees, then you can turn away and put your money into the 401(k) plan without fear of failing the discrimination test that you have to do at the end of the year. So this survey really opened my eyes. I mean, come on. 


76% of businesses under 50 employees don't provide a 401(k) plan. That's something that has just got to change. There are too many incentives not to offer a 401(k) plan. Finally, news out of Washington last week was from the Small Business Administration. They're offering a pilot program for working capital, a new financing for you and for me as business owners. 


It's a working capital loan program. It's designed to be flexible. It's going through the network of SBA banks and it is a quick to approval as well to provide working capital to businesses. Now, traditional loans from the SBA, the seven a loan and the 504 loans generally used for business expansion, usually for equipment, property, things like that that are collateralized. These loans, these are working capital loans or lines that can be provided against your receivables and against your inventory and other current assets. 


Now, if you do this roots with the SBA and you do it through an SBA banker and you get a working capital loan, you're going to pay interest of anywhere from three to 6.5% above prime prime is about 8.5%, which means that you could be paying interest of twelve to 15% annually. But before you freak out about that news, let me just make sure that we understand the SBA is going after credit cards. Many small businesses around the country use credit cards to finance their businesses and those interest rates. With those credit cards can top up somewhere to 25 to even 30%, let alone the fees and financing charges that need to be paid. So even though credit card credit is available and easier to access, you really pay for the no's when you get credit card financing. 


So the SBA is saying, well, listen, we're going to make our own working capital loans as easy as possible to access with a quick turnaround through a bank. And you're going to be paying 12 to 15% in annual interest, as opposed to 2025 30% if you did it through a credit card. So it's something that you should be considering. And one final thing, when you hear about the interest rates, whether it's credit card or from the SBA of 12%, 15%, 30%. I know that sounds like. 


Oh, my God, that sounds like a lot. Most of my clients use this type of financing for short term borrowings. It's working capital. You've got some inventory you want to purchase, so you need the money now, but you're going to sell that inventory in 60 days. You're going to pay down that line. 


Or say that you want to put down a deposit on a property, or say that you've got just the need for just a short term funds that you know you're going to pay off very quickly after getting it, because it's just a working capital thing. Say you do you make a big sale to the government, and the government's going to take 90 days to pay your invoice. Well, you can get a working capital line from the SBA, for example, and have that money, and you'll be paying three months of interest until your government customer pays you back. So my point is that when you hear twelve to 15% interest or 20% to 30%, that's on an annual basis. Usually, working capital lines like this, you don't keep outstanding annually for an entire year. 


You use them as you need them because you're going to make money off of them, and then you make sure that you pay them down. Okay. All right. Well, that is the news for this week's Paychex THRIVE Week in Review. Again, I would like to remind you, on July 1, new overtime rules go into effect. 


Paychex is offering on demand webinars and other resources at go.paychex.com/ot-rule. You can get lots of help and information to prepare yourself for these new overtime rules. And also, if you haven't already, sign up for our Paychex Thrive newsletter at paychex.com/thrive. thrive. You'll get advice and tips and help to run your business. 


And some links to back episodes of this podcast. Podcast again, you've been watching or listening to the week in review. My name is Gene marks. Thank you so much for your time. We will see you again next week. 


Take care. 

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