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Is it time for retailers to pay their managers OT?
A university study concludes businesses, including many retailers, are increasingly giving workers promotions with “fabricated” managerial titles but no wage upgrade to avoid paying them overtime wages.
Researchers from Harvard University and the University of Texas-Dallas believe firms are exploiting a loophole in the Fair Labor Standards Act first established in 1938 after the depression.
The act established a national minimum wage, a standard 40-hour work week and time-and-a-half pay for weekly work past 40 hours.
In its current form, however, businesses don’t have to pay overtime wages to employees who are salaried managers, making more than $455 per week (or $23,660 per year).
Analyzing online job postings and compensation data from 2010 through 2019, researchers found a 485 percent surge in the use of managerial titles for salaried positions with earnings only slightly above the $455-a-week threshold. The overtime-exempt employees were found to share the same job tasks as equivalent non-managerial employees.
Some examples of “suspect” salaried job-listing postings offered included:
- A front desk clerk position advertised as “Guest Experience Leader”;
- A barber position listed as “Grooming Manager”;
- A restaurant host/hostess position advertised as “Guest Experience Leader.”
The study estimated the use of deceptive job titles saved companies 13.5 percent in overtime expenses for each so-called manager. The study stated the “incredibly high ROI on this activity of avoiding overtime wages might explain why we see firms across every industry — from Staples to JP Morgan, to Facebook, to Walmart, to Verizon, to Avis, to Lowe’s — engaging in this activity even up through the present day, with full knowledge of potential litigation.”
Speaking to Time magazine, Lauren Cohen, a Harvard professor and study co-author, said she believes the 85-year-old law should be updated so all employees, including managers, are eligible for overtime pay.
Retailers may be reluctant to pay managers or supervisors overtime pay since it’s more challenging to tabulate their weekly hours and the risks that some may pad their hours. Some staffers may also feel compelled to log well above 40 hours a week to prove their value.
- Too Many Managers: The Strategic Use Of Titles To Avoid Overtime Payments – National Bureau of Economic Research (NBER)
- Business Management More And More Employers Are Using An Overtime Loophole To Pay People Less – Time Magazine
- Companies save billions of dollars by giving employees fake “manager” titles, study shows – CBS News
- Your Fancy New Manager Title Might Be Your Boss’s Way to Avoid Paying You Overtime – Bloomberg
- Title Inflation Eats Into Workers’ Overtime, Research Shows – Law360
- Proposed Overtime Rule Expected Soon – SHRM
- Are the new overtime rules a ‘career killer’ for retail workers? – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: Is there some truth that businesses, including retailers, fabricate manager titles to avoid overtime pay? Should retailers pay overtime for salaried managers or do you see a strong rationale against it?
Poll
Loading …BrainTrust
Georganne Bender
Principal, KIZER & BENDER Speaking
Rachelle King
Retail Industry Thought Leader
For senior management on good salaries with perks, some unpaid overtime is reasonable. However this should be clearly communicated in contracts. For regular workers on lower wages, unpaid overtime should not be part of the role. Relying on unpaid labor to make the business model work suggests the business model isn’t very good in the first place and will inevitably create problems further down the line.
First of all, there should be no “tricks” with managers. A manager must part of the corporate structure and also compensated for performance — such performance mandated by headquarters, with manager input. The manager must live with these performance criteria to meet overall corporate and store goals. Responsibility and performance must be the standard.
I’m sure there is some truth to the statement, but typically these managers are eligible for bonuses which can more than make up for the discrepancy. Becoming a manager is the first step to senior management, and retailers need to show a clear growth path to store management. The best operators I have worked with have come up through the ranks from stores to the home office, so I believe bonus compensates overtime with the opportunity to move up the ranks. By the way, with workforce management tools in common use there should be little risk of padded hours.
Closing the store again because you’re short-staffed? Missing holidays because you are expected at work? Being the one who goes to the store at 3 a.m. because the alarm goes off? Been there. At some point in your career title is important, but after being constantly called upon to work overtime that title isn’t as attractive as being compensated for long hours. And besides, everyone deserves a cool title. With appropriate pay.
Whether it’s overtime or a salary that matches what’s actually required to do the job, it’s about time that managers are compensated for their hard work.
Retailers are white-knuckling the now-outdated store profit model for as long as they can, or until some technology can come along to allow higher pay for workers.
I think the issue is bigger than “should a manager be paid overtime?” The issue is really “How do we attract, train, nurture and retain the in-store workforce?” If we’re honest, we know the vast majority of retailers prefer a transient, part-time workforce because it keeps expenses down. Unfortunately it’s inefficient and also does not make customers particularly happy.
I don’t have a lot of heady answers to possible new store models that work better for consumers and retailers, but I do know the answers don’t lie in transferring work from store employees to customers (i.e. self checkout or Just Walk Out). The answer lies in providing the best tools for employees to make them more efficient, and automating as many non-customer facing activities as possible.
We’ve been talking about this for quite some time. So far, Walmart has heard the siren call that companies like Container Store and Costco have heard for many years. Happy employees make for happy customers. Happy employees are paid a living wage, given a career path if they want one, and treated with respect.
It’s not rocket science. Keeping the store profitable (given that e-commerce will never be nearly as profitable) is a critical task facing retailers this year.
Completely agree with your framing of the issue as attracting, training, nurturing, and retaining store employees.
Most salaried positions do tend to come with expectations of higher pay but also higher hours. And as long as the expectations are clearly communicated (and documented), I think this typically represents a fair exchange. I would not suggest changing that model for the vast majority of cases, but would hope we could find ways to clamp down on falsely inflated titles without inflated compensation.
When you think about it, a manager without solid corporate responsibilities is like a boat with no rudder.
Of course some companies use “title promotions” to get around paying overtime. And of course, retailers should pay salaried managers for mandatory excessive overtime. The trick is agreeing on the definition of “excessive.” Salaried workers often work extra and uncompensated hours — on the job and at home. It comes with the territory. If a manager is earning, say, mid-six figures, nobody would seriously entertain the idea of paying overtime. But for managers earning well under six figures, if they are routinely working 20 hours a week off the books they should receive overtime pay or get a raise.
Moving to a salaried role is the first step on the ladder to higher management. I expect most people who were promoted to being a manager remember the experience of receiving that first paycheck. As others have noted they knew the change meant no overtime and longer hours and were happy about it. Than being said, a company’s managers should be managers and not hourly workers in disguise.
There is more than “some” truth that retailers create manager roles expressly to avoid paying overtime. This is just one contributing factor to retail’s terrible reputation as a place to work, and I suspect is also a contributing factor to the ongoing labor shortage for front-line workers.
It’s time for retailers to reevaluate the workload, metrics and total compensation for managers and other key employees in order to ensure they are fairly paid for their efforts and accomplishments.
The “trick” companies often use today is to redefine jobs as “exempt.” Indeed, the store manager most often meets the legal requirements. The real question for the company is if the store manager is being asked for more hours than the typical exempt employee and not being compensated.
The manager’s salary has typically been high enough above hourly workers to make working overtime with no extra pay a value to both manager and retailer. The scenario described above will come back to bite the retailer who is trying to just barely get past the $455/week. How do you expect managers to go “all out” for the company that is taking advantage of them? Higher turnover, which means excessive hiring and training costs, will be much expensive than a salary that could keep a manager motivated.
It’s not about paying salaried managers overtime. That is an option. However it’s more about paying a salary where the manager doesn’t mind working overtime when needed.
Creating jobs or promoting people into “manager” jobs, without a pay increase, with the express intent of avoiding overtime payments? That’s heinous. If offered such a job, can a worker say “no thanks” without repercussions? It all sounds like something out of the Industrial Revolution that should be very much in our distant past rather than a tactic still being employed in this day and age.
Nothing depresses morale in an organization like fake title inflation. Organizations which run well pay individuals according to the responsibility they carry and recognize them with pay and other rewards when their work is exceptional. This isn’t about the law — it’s an issue of companies doing what builds a strong workforce. Unfortunately, it seems too many retailers pay their HQ staff more honestly than they pay people in the field.
The Fair Labor Standards Act needs to have its threshold for what constitutes a manager updated. I’d start it closer to $100,000. That would alleviate some of the biggest abuses.
As far as the retailers go in talking to people in California where chains have been sued a lot for this and have converted, in some cases, salaried assistant managers to hourly at say 45 hours (automatic five hours overtime built into schedule) people seem happier. But I’m not sure it has reduced turnover.
And it is not just in retail. In medical and in the professional realm especially legal and finance there is a similar law where due to being considered a “professional” people starting out making salary $65,000 a year in large metros and $50,000 a year in smaller markets are exempt from overtime and very much overworked, often working 50 to 60 hour weeks.
The statement is largely true, but there are many retail brands have designed and rolled out employee bonus programs including sales performance, shrink target, NPS targets, BOPIS/ecommerce fulfillment and store audit score. The store manager or assistant manager’s role does come with industry benchmarked salary with expectation to business goal achievement. Adherence to well defined SOPs, store operational manual and well-trained store associates should prevent managers from burning extra hours.
I agree with Neil. For management with good salaries, some level of overtime is commonplace. However, to overwork lower salaried worked in order to improve profitability is immoral. One of the key challenges in retail is to retain top employees — this approach flies in the face of such need. If you pay people fairly, they will pitch in when needed, as long as it is not an everyday occurrence. If such workload is commonplace, then the requirements or skillset are the issues. Fix those and the problem will solve itself.
I’m sure there is some truth to the statement but typically these managers are eligible for bonus which can more than make up for the discrepancy. Becoming a manager is the first step to senior management and retailers need to show a clear growth path for store management. The best operators I have worked with have come up through the ranks from stores to the home office so I believe bonus compensates overtime with the opportunity to move up the ranks.
I don’t doubt for a minute the claim is true, but I will point out the requirements are broader than Tom alluded to (there has to be control over the work environment, not just a job title); in short, to the extent that this is a problem, it is an enforcement issue.
As Paula commented, the issue is “how do we attract, train, nurture, and retain the in-store workforce?” Unfortunately, retailers count on having a supply of available unemployed or those newly entering the workforce to replace those existing employees unhappy with pay or promotions. Shift supervisors and department managers also fall in the “I’m fed up” category. Yet, these store leaders are the backbone of an effective store operations team.
Retailers manage the labor budget inside an accounting silo with little regard for customer service, replenished shelves, or overall store performance.
The magic bullet that retailers seek remains elusive. Their desire to replace labor with technology while convincing the consumers of a new and superior value proposition is premature. Identifying a desired future is alluring, but it should not obscure the hard work that remains during business model shifts, which can take years.
Sounds like some retailers are afraid of managers taking advantage of them, so the retailers are taking advantage of the managers first. Smart. This can only end badly. For everyone. Fair wages for a fair days work is not a suggestion.