Are the new overtime rules a ‘career killer’ for retail workers?

Discussion
May 23, 2016
Tom Ryan

Under new regulations set last week by the U.S. Department of Labor, employees earning up to $47,476 a year must receive time-and-a-half overtime pay when they work more than 40 hours in a week. That’s more than double the previous cutoff for overtime pay, set in 2004, of $23,660.

The move is expected to make overtime pay available to 4.2 million additional workers.

Companies are expected to make a number of adjustments.

At the higher wage level, employers may raise workers’ base pay to the new threshold to avoid paying overtime. C-stores and dollar stores, where store managers in rural areas earn close to the new threshold, are seen as particularly impacted, according to Goldman Sachs.

Salaries could also be lowered below the threshold. Workers may be limited to 40 hours per week and salaried employees may be shifted to hourly pay. Critics say workers may lose benefits and be demoralized by not being able to work unlimited hours and needing fill out time sheets.

“These rules are a career killer,” said David French, NRF’s SVP for government relations, in a statement. “The one-size-fits-all approach means businesses trying to make ends meet in small towns across America are now expected to pay the same salaries as those in New York City.”

Republican lawmakers have vowed to challenge the rule during a mandated congressional review.

Proponents say the higher salary threshold, originally designed to exempt high-paid executives, is long overdue. Only seven percent of full-time workers qualify for overtime today versus 62 percent in 1975. The new rule, which would take effect Dec. 1, allows 35 percent to qualify.

The Economic Policy Institute said the new salary threshold will provide millions of workers with higher wages or more time with their families. Hourly and part-timers would also pick up work that might have otherwise been done during overtime by full-time, salaried workers.

“It’s really restoring rights that people had for decades and lost,” Ross Eisenbrey of the Economic Policy Institute, told The New York Times.

Photo: Dollar General

DISCUSSION QUESTIONS: Do you expect the new overtime rules for salaried workers to spark a major overhaul of pay structures at retail? How should stores respond if the changes are enacted?

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17 Comments on "Are the new overtime rules a ‘career killer’ for retail workers?"


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Max Goldberg
Guest

All businesses, not just retailers, need to realize that sales have not grown because workers’ salaries have not kept pace with inflation, leaving consumers still smarting from the Great Recession. Paying fair wages will result in more spending. Of course this move to raise compensation led the NRF to declare that the sky is falling. But where was the NRF when senior management salaries were soaring?

Steve Montgomery
BrainTrust
The National Association of Convenience Stores 2014 Compensation Survey reported c-store managers’ salaries below those quoted in the article. Admittedly there is a tremendous range with some very well-known companies paying far in excess of $47,476. However the weighted mean wages and bonuses would still fall slightly below the government’s new overtime hurdle rate. My expectation is that the action that companies will take will depend on where the compensation is today versus the new rate. Those close to it may elect to add a little to the manager’s compensation. Those further away will likely elect to go to an hourly rate for their managers that will end up being about the same as they are paid today, assuming they work the same number of hours. For a manager that typically works 50 hours it may mean no drop in actual compensation but will likely mean a drop in the psychological boost that comes from being salaried versus hourly. A danger will be for those companies that count on the managers getting enough of a… Read more »
Ralph Jacobson
BrainTrust

Without getting too much into a political discussion (because I still need my job!), these regulations have a place in today’s economy … to a degree. Yes, hourly employees should be compensated for longer than normal hours worked. The challenge comes in when a retailer, especially a small organization is already working on razor-thin margins, and their largest controllable expense beyond COGS is labor. This can kill any profitability and, therefore, staffing will have to be cut to survive. This will drive more need for part-time staff.

Peter Charness
BrainTrust

The vast majority of retailers can’t afford to see wage expense growing, particularly as they re-balance their operations to better fit an omnichannel world. That said, fair is fair, and higher wages tend to drive higher spending so over time this ideally becomes a virtuous circle. The probability is that retailers won’t pay that much more in overtime and will look to bring on additional team members. Part timers may get more hours, and more people will get jobs. In some cities finding more people could be a real challenge though. The sky won’t fall, and things will balance out relatively quickly.

David Livingston
Guest
4 years 6 days ago
Maybe I’m out of touch but $47,476 seems like a very, very low wage for any kind of manager anywhere, even a rural dollar store. Even for an assistant. There is going to be a lot of shuffling around. A manager making $45,000 will probably go to $48,000. Or be cut to $35,000 plus overtime. It’s feel good legislation that will probably keep most employees at the same net wage, just make it more complicated to calculate, and it is unneeded regulation. Overall the reaction by retailers will be exactly as Tom Ryan says. That’s how retailers should respond — raise a few wages or lower them. I don’t believe this is a career killer and I also don’t believe it will raise wages. A base pay cut will cause some anxiety and insecurity for a few. Businesses were expecting this and are prepared to find loopholes to keep wages level. Aldi has completely eliminated the assistant manager job out of most of their stores putting more pressure on quasi part-time shift managers who work… Read more »
Karen McNeely
Guest

Either you are out of touch or I am. I think there are a lot of managers that make significantly less than the $47,476 threshold, including some of whom a $35,000 a year salary wouldn’t be a pay cut.

Cathy Hotka
BrainTrust

Does anyone in their right mind think that $23,660 is an appropriate wage for management? It’s beyond obvious that this number should have been indexed to inflation.

Whine away, NRF. Without a boost to employee wages, retail sales will continue to lag. It’s about time we gave America a raise.

David Slavick
Guest

This just puts more pressure on the business owner and especially those managing employee hours. It will be a boon to software management solutions that support scheduling logistics. Business owners are smart enough to manage through this directive and avoid salary inflation. The push/pull associated with this one-size-fits-all legislation will create tension at the workplace. Managers putting in the time and taking pride in performance will now be concerned that their extra effort, especially during key seasonal peaks, will be scrutinized versus celebrated. Of course a manager deserves “more.” Will this create a spike in the Consumer Price Index? Doubtful.

Al McClain
Staff

Anybody here living on a $47,000 income? I agree with DJL that the effect of this legislation will be minimal, but it amazes me sometimes how there is so much focus on making sure low-end workers don’t get much of a raise, if any, while CEO’s rake in the dough, often to the tune of 100x their company’s average wage.

HY Louis
Guest
4 years 6 days ago
I recall getting a job offer from a major U.S.-based retailer for an assistant management position about 30 years ago. The salary was not as hoped but still competitive. Then I realized what was required. It was a 48 hour work week. The wage per hour for 40 hours was competitive. But factoring in time and a half for overtime, a 52 hour week for the same salary was demoralizing. I would think most retailers have already factored in the overtime hours and low-paid managers are currently earning a low hourly wage. There should be minimal adjustments. The end result is, no one is getting a raise. Then I got a job where I wanted to grow, be competitive, advance, improve, so I would work 60 hours a week because I wanted to be really good and outwork everyone. That was my choice and the 20 hours a week of unpaid overtime actually paid off. Workers in the U.S. are misguided and greedy. All about short-term wages and not about the long-term career. That could… Read more »
Robert DiPietro
Guest

I don’t think this will help the average worker but rather limit overtime and shift extra hours to part time workers. Labor is the number one controllable factor in retail and every retailer will decide how this new rule will impact them and adjust themselves accordingly. With some retailers having a tough go of it as of lately, this will only be another hurdle.

Ed Rosenbaum
BrainTrust

It is about time that wages and overtime numbers were adjusted. Sure, retailers will be moaning because this cuts into profits, so prices could be increased. But on the other side of the coin, increased wages means increased sales because buying power has been raised. Everyone should try to see this as a win for all.

Kai Clarke
BrainTrust

This update to our antiquated overtime rules is long overdue. Our overtime workers are usually our better workers and deserve this. Frankly, anyone who is committing an extended amount of time working for your company should be paid overtime, regardless of whether they are making $48,000 or more.

Craig Sundstrom
Guest

As always, it depends on how one defines terms like “major.” There will be some tinkering with people who are on the borderline, but no one who makes $23,661/yr is suddenly going to see their pay double so they don’t have to be paid overtime, and people who work 60 hours a week will likely continue to do so because it’s necessary for their companies’ functioning … that won’t differ.

Stores should respond as they do with any other change — large or small — operate in the way that maximizes their long-term profit.

Karen McNeely
Guest

There are some areas in retail where this is very key, where low level managers put in 50-60 hour weeks for very low pay. How those retailers make the adjustments will be interesting since whether they hire more managers, pay the overtime or shift some of the work to part time staff, there will still be significant additional expense. Some of these managers may see some benefit in either some additional pay or a more reasonable work week.

In my circumstances, my managers make significantly less than the new threshold. They may or may not go slightly over the 40 hour work week. They will now be converted from a salary to hourly pay and need to play the game of reporting their hours and not going over 40. In my mind it is a bit demeaning to them, but will not have a significant impact on them.

Lance Thornswood
Guest
This may be unpopular with some of my industry colleagues and peers, but I hope it may be the kick in the butt we need to start shifting our industry away from the mentality of “low prices at any cost.” In the U.S. we’re trained to buy only the lowest-priced option, to shop at only the lowest-priced stores, and to ruthlessly cut costs so we can achieve the lowest possible prices. This mentality comes at a significant cost to workers whose pay is cut to the bone and who are constantly asked to do more with less. It also drives compromises in quality of the goods we’re buying and leads to some very questionable practices, IMHO. I’m reassured that Millennials seed more willing for quality goods, seeing quality as a key factor in the value of a product — and not just focusing on the lowest possible price as the single measure of good value. I firmly believe “you get what you pay for” and that you also value those things for which you pay… Read more »
James Tenser
BrainTrust

I’m in the camp that wants to see more economic justice for working people and I’m enough of an idealist to believe that better wages should ultimately help businesses too. Retailers should be first in line to benefit from a boost in consumer spending.

That said, any time we set a threshold for overtime rules (or minimum wages, or income tax brackets) we invite — or perhaps force — businesses to arrange their affairs to minimize their costs. I implore policy-makers to consider very carefully the unintended, micro-economic consequences that may ensue.

Yes, working Americans are absolutely overdue for a raise. Not to mention better infrastructure, better health care and better public education too. Higher wages should help smart businesses prosper. They should generate added tax revenues that will help meet the costs of those essential services.

We should all consider that a stronger economy means a stronger and more secure nation. Fair pay is a foundation of our way of life.

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Braintrust
"It’s about time we gave America a raise."
"But on the other side of the coin, increased wages means increased sales because buying power has been raised."
"Will this create a spike in the Consumer Price Index? Doubtful."

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