Retailers push back against proposed OT rules
Nearly five million salaried workers in the U.S. will be receiving time-and-half pay for every hour they work past 40 during the workweek if new overtime rules proposed by the Department of Labor go through unaltered. The goal, according to the government, is to protect workers. The unintended consequences, say retail groups, is that workers and consumers are likely to be hurt.
Today, salaried workers that make below $23,660 annually are required to be paid overtime wages for every hour over 40. The Department of Labor proposal would raise the threshold number to $50,440. The new number was arrived at in a 2014 report by the Economy Policy Institute, which indexed it, accounting for inflation, to the government’s base in 1975.
The proposed change does not require Congressional approval and will go into effect next year after the Labor Department holds a comment period. Retail industry groups were quick to offer their comments after the Labor Department’s announcement.
"Retailers will have two options if this rule is implemented: raise prices in order to absorb a dramatic increase in labor costs, or take away the benefits, such as flexibility and leadership opportunities, that come when an associate works their way into management," said Kelly Kolb, vice president of government relations at the Retail Industry Leaders Association (RILA), in an e-mail to reporters. "Neither of these are outcomes that will raise standards of living for our employees or our customers."
Photo: Walmart
Peter J. Larkin, president and CEO of the National Grocers Association (NGA), said members of his group are "proud to be an employer of choice in their communities, offering stable, reliable jobs and opportunities for career advancement. Unfortunately, the proposed rule that was announced today creates new barriers, potentially forcing employers to reclassify thousands of salaried workers back to hourly non-management positions, likely also impacting employee benefits and flexibility."
The National Retail Federation (NRF) published an analysis conducted by Oxford Economics that looked at raising the threshold for overtime pay to $610, $808 and $965 per week. The conclusion was some workers would do better as a result of the change while others would suffer.
Businesses, according to NRF, would definitely be hurt as costs would increase by "$874 million if the threshold were raised to $984 per week, $648 million under the $808 scenario, and about $297 million under the $610 scenario."
- Notice of Proposed Rulemaking – U.S. Department of Labor
- Rewarding Hard Work – U.S. Department of Labor
- Overtime – Economic Policy Institute
- New rule could affect up to 5 million workers – USA Today
- If you make less than $50,440, proposal could increase overtime pay – Chicago Tribune
- Overtime – National Retail Federation
- Rethinking Overtime – National Retail Federation
- Retailers React to DOL Overtime Proposal – Retail Industry Leaders Association
- NGA Expresses Disappointment on DOL Overtime Rule – National Grocers Association
Discussion Questions
Do you support or oppose increasing the salary threshold for retail workers to receive overtime pay? Do you think there is anything retailers could have/should have done to avoid being put in their current position? What do you think is the best course for the industry to take during the Labor Department’s comment period?
Poll
BrainTrust
Max Goldberg
President, Max Goldberg & Associates
It’s time for businesses to start paying living wages, whether that means higher wages per hour or more money for overtime. If that results in some higher prices, so be it. Employees who make living wages need less assistance from government programs. And most of the increase in salaries will be spent in local communities. Of course retail trade organizations will say that the sky is falling. Let those organizations be heard and then let’s move forward.
Naming a low-wage worker a “manager” has become a way to reduce their compensation. If we take that threshold of $23,660 and turn it into weekly and hourly pay, it is strikingly low. $455 per week. $11.375 per hour.
Every time we ask that “manager” to work an extra 10 hours instead of bringing in additional labor that rate goes down to $9.10 per hour for the “manager’s” time. It costs the company nothing more.
If you are running the company, you should do exactly what companies have done, take advantage of the law. But now it is time to be quiet and accept the change. Pay real managers what they are worth and stop trying to disguise cost saving devices with words.
I don’t think retailers are opposed to raising the overtime pay threshold as much as they are opposed to the huge increase being proposed.
Retailers will not just automatically raise all management personnel to the proposed hurdle rate. Instead many managers will find themselves transitioned back to being hourly employees.
If this proposal gets enacted, I expect that many of those who are salaried will not automatically find that their compensation will be their current salary divided by 40 hours. If they were expected to work 45-50 hours before, their hourly wage will be based on the same amount but determined by 40 hours base pay and five to 10 hours of overtime. The net impact is $0.
Nothing in the information I have read indicates that this approach is a violation of the proposed rules. However what is likely to happened is that managers will lose a great deal of their incentive pay. Why? Because under the hourly system any bonuses could be subject to inclusion in their base pay and therefore possibly increase the OT rate required.
Note: nothing in the proposal says the retailer cannot assign managerial duties to an hourly employee. An unintended consequences of this proposal may be that more retailers will take this course of action.
I oppose any government mandates that disturb the relationship between employer and employee. I know the feeling of working long hours for a set salary. It was a valuable working and learning experience. The current system can’t be that bad or employees would not agree to it. As an employee, no one wants to go back to punching a clock. That can be somewhat degrading after you were previously a manager. However the only way to respond would be to cut the pay of “managers” and put them on the clock. This can really hurt if you miss a day or two work and see your paycheck plummet. The best course for the industry to take is like all the other anti-retailer legislation — get your state associations to lobby the legislators.
The decades-long “management” threshold is absurdly low. New college graduates who are entering the workforce routinely command salaries in the $50,000 range.
Pundits who decry the new number will also complain that retail sales are depressed and will wonder when consumers will open their wallets more freely. You can’t have it both ways.
If the government was worried about increasing an individuals income they should start with the group of individuals known as taxpayers. Cutting the cost of a government that no one can afford anymore should be their only priority as it would benefit everyone, as in the citizens of the United States. A simple massive cut in foreign aid would do nicely for the people, all of the people. This or any government-forced pay raise serves to increase tax revenue only. The government is out of control and no individual or group wanting more control from within the government will ever tell us that. It is a shame that both rich or poor we refuse to get together on this our biggest financial burden in life.
I recall my first job out of college with FW Woolworth. The annual salary was fair but there was a catch, I’d be working about 48 hours a week, nights, weekends and holidays. Then during Christmas count on working 75 hours and no overtime. In the end, factoring in overtime, the pay was about a dollar over minimum wage over the year. The only way this proposed new law would have helped is during Christmas. Overall the industry probably will not have to make much of a change. These “managers” have a low hourly wage to start so few will see any wage increase. What hurts is if you need to take some time off and can’t make it up. Your paycheck can go south quickly. There might be a few instances where employees are exploited. However most will be able to comply without missing a beat. The key is to keep the managers’ hourly pay low, but be a good sport and override the time card now and then when a manager needs a day off.
I’m pretty tired of complaints that workers and consumers will be hurt because of regulations like these. Actually, the way it worked out, businesses got a huge benefit over the last 40 years because no one was paying attention to the minimum for that long, so they had 40 years of taking advantage of employees by classifying them as “management” and working them ridiculous hours without overtime pay. And now that someone is finally paying attention, it’s just time to pay up.
It seems like a backlash may be coming against low prices that come from exploiting workers (whether at home or abroad), against unsustainable (from the employee’s perspective) employment practices and wages, against corporate and political excesses and waste. Is it Millennial driven? Demographers have been promising for years that Millennials will be far more activist than any generation still alive before them. It does make me wonder.
When I read something like this it makes me feel like our government is becoming the union negotiator. My next thought is, what will “they” try to control next?
OK, don’t start throwing stuff at me just yet because I do see the real issue here. Retail is notoriously cheap! (Have you ever sat in on a supplier meeting with a retailer? In their cheapness, they have been guilty of playing the rules to their best advantage and as long as employees have been willing to play along with them, nothing lost.
So, do we need to do a better job? Yep, that cap is way too low for today’s standards, however, the proposed cap is a tad on the high side. Meaning too big of a leap for retail to absorb in one swoop. If this goes through, there will be demotions, etc., until enough time passes to absorb the losses.
Bottom line is, if retail would stay on top of these things themselves, they could control it more to their advantage and the government would not have to be the mean old union negotiator.
Now that’s my two cents.
I support increasing the salary threshold, but it should be tied to the number of overtime hours a salaried person is required to work!
If you ask an $11 per hour salaried person to work two hours of overtime per week, not to worry. If you ask an $11 per hour salaried person to work 10 hours of overtime per week, big problem. A little harder to monitor but, in our watchdog society, manageable.
Only a couple of Labor Department bureaucrats, who have never had a real job, and have securely raised their own benefits, could have devised this plan. It will, of course, raise the income of a number of associates. However it will have a negative impact on employment opportunities overall, and it will complicate business practices.
Having the government mandate what the marketplace compensation should be is a grave error. It will disrupt communications and profits within too many businesses, and it will harm the labor markets, thus driving another stake into a seeming plan to reduce work ethic in the U.S.
Work ethic has been a historically vital competitive edge for the U.S. economy.
Retailers should just be honest and say, “our profits will be lower.” That’s the 900 lb gorilla, isn’t it? In any case, I disagree that it’s going to hurt consumers because in the long run, aren’t we talking about lifting the middle?? The more people get paid the more expendable income expands. And subsequently, the more they’ll spend. ……at your stores!!
Classic short term thinking (stock price) vs long term thinking (expendable income to the mass). I ‘get’ both, but push for the latter.
This is a smart decision whose implementation time has come and should be here without question. Overtime is overtime, whether over 8 hours per day or 40 hours per week.
This decision does not move people back from management into a lower rank. People are in management because they have demonstrated the reliability, strength and fortitude to make good decisions regarding their workplace, employees and themselves. The industry should be supporting this decision and all of the workers it impacts.
I agree with Steve that these periodic adjustments would be better if they came in smaller — and presumably more frequent — increments, but since it’s always a no-holds-barred battle every time something is proposed, this is what we’re left with: changes that are too big and too infrequent.
As for Mr. Kolb’s assertion that retailers will be “forced” into either cutting benefits or raising prices, why is it that people working for peanuts is seen as “voluntary” but setting of prices is described as “forced”? See Lee’s very succinct response amount profits being what is reduced.
Retailers forever have experienced massive turnover, a workforce with indifferent attitudes towards work, and theft by associates who don’t care. This has resulted in huge costs to address turnover, handle recruitment, prevent shrink, accomplish training, and manage low-paid, unmotivated employees who don’t want to be there.
Perhaps this move towards fairer remuneration for overtime, along with campaigns to raise the minimum wage, should perhaps be taken as an opportunity to make a first small step towards building a store workforce that knows what it’s doing and is willing to do it. Associates, retail management and shoppers would all ultimately benefit.
I am older and it has been a long time since I have worked retail but I suspect that little has changed since then and that there are a lot of low paid “managers” that work 60 hours a week and don’t even get single time for those extra 20 hours. If they balk, then they will be replaced by another slave. So yes, I think it is time to free the retail slaves.
I support increasing the salary threshold for workers to receive overtime pay. This new level resets the threshold to a level equal to that of the last change — based on inflation and increased cost of living. Increasing the buying power of consumers will help drive our economy and help improve the ongoing disparity between high and low income Americans.
Retailers should have been raising wages to a “livable” level — see Costco wage strategy.
They should be taking action to raise wages now — see announced Walmart strategy.
To me, it’s simple. If they claim that doing this will make people less dependent on government, then that means there is less funding needed for government. So then government should offset business taxes in proportion to this impact on businesses.
We all know that that has been retail’s dirty little secret. Classifying employees “management” without the benefits or the pay that comes with it. Like “bonus plans” that you can’t achieve, the management pay structure is designed to cheat hard-working individuals.
I totally support the proposed changes because no one should be forced to work without pay just because of their classification.