Jun 07, 2015

What the Overtime Pay Change Really Means for Retailers

Last week, the Obama Administration issued a regulation under the Fair Labor Standards Act that will bring overtime pay regulations up to their equivalent from some 40 years ago.

The much anticipated rule, which has been in the works at the Labor Department for some time, would mean that, at some point next year, salaried employees would see overtime kick in for those earning $970 a week rather than $455.

Under the regulation, time-and-half pay applies to workers making an annual salary of less than $50,440 whenever they work more than 40 hours a week, up from $23,660. (That’s not strictly true for all retail workers, however, because there are also many other ways their salaries can be exempt from overtime pay.) In the U.S., that’s some 5 million workers, most of them retail store and restaurant managers.

While some retailers might bemoan the new regulation, arguing that it will increase costs and limit workers’ upward mobility in the company, the right technology and mindset can help them adapt.

What will it mean for retailers?

The move, which is officially in its public-comment phase, has (no surprise) prompted protest from businesses and some lawmakers. The National Retail Federation said that retailers are concerned about the change because many store managers and assistant store managers would suddenly be affected by overtime rules, “taking away their ability to use their own discretion in deciding whether to put in the extra hours sometimes needed to do their jobs. And putting managers under overtime rules could undermine their status as career professionals rather than hourly workers.”

The NRF also noted that some 75% of retail managers said that overtime expansion would “diminish the effectiveness of training and hinder their ability to lead by example.” Another NRF survey found that the increases in payroll costs that could come with overtime expansion would also limit hourly workers’ opportunities to move into management positions.

But there are many economists, including retail experts and retail executives, who say that a move like this that could restore some spending power to middle-income consumers, which will ultimately benefit retailers as well.

The rationale

This rule is designed on fairly solid ground and will likely survive any protest from businesses or their political allies because the political, economic, and historical arguments are persuasive at a time when income inequality is increasingly of concern to the public.

The Fair Labor Standards Act was passed in 1938 and, of its updates throughout the years, an accounting for inflation has been rare, instituted just once since 1975. Back then, overtime kicked in at a middle-class salary; now it kicks in at a poverty level. Indeed, many salaried retail workers earn less per hour than the hourly employees that work under their supervision.

“What happened is that managers, when I was a kid, used to be middle-class jobs. And they would be paid decently. They would be paid fairly. They would work over 40 hours, but they were compensated for it,” Department of Labor Secretary Thomas Perez said last week on PBS Newshour. “And … in 2004, the Bush administration put in place a regulation that changed the calculation … And it hurt workers by making far more workers who should be eligible for overtime not eligible for overtime.

“And so you have situations where people [are] working 60, 70 hours a week and making $25,000. That’s a poverty wage when you’re talking about all those hours. And so the President said, we need to fix this. We need to make it fairer to everybody.”

What retailers can do

The NRF’s chief lobbyist David French told PBS Newshour that retailers will be forced to take rational steps under the new rule that could affect workers’ pay, benefits, and how many hours they work.

“Our analysis says that instead of providing overtime for millions more workers, employers are going to make rational choices and they’re going to spread the same amount of money across a slightly larger pool of hourly and part-time workers,” French said. “Every employer is going to have to look at their jobs and decide whether or not the job functions that they have match up with the obligation to pay overtime, and they’re probably going to redesign a lot of jobs.”

Getting creative

But that, actually, can be seen as an opportunity to become innovative, says Steven Kramer, president and CEO of employee relationship management solutions firm Workjam.

“We took a look at both sides of the arguments that are being put out on the overtime issue, and we understand why people certainly would approve of the changes after not a lot of change after 40 years,” Kramer told Retail Dive. “I have to agree with the National Retail Federation, though, that there aren’t a lot of extra dollars lying around. But for us, it’s the sweet spot because our solutions are designed to take on these kinds of complexities. These technologies now exist.”

Kramer notes that it’s not just overtime pay, either. Retailers are facing pressure to increase hourly wages, too, sometimes through legislation and sometimes because it’s the only way to attract workers.

The tighter labor market is also making on-time scheduling less acceptable, and some jurisdictions have made that illegal. And disruptive companies like Uber may not be able to rely so much on contract workers unless they relinquish more control.

“With technologies we can get the right people and the right number of people in the store, and that improves productivity,” Kramer said. “Improving communications, the whole point about employee collaboration with management, can be managed better through technology…It’s not news — everybody knows they have this problem. For us it’s educating retailers that these technologies now exist.

“Everybody understands that the old ways of managing retail operations don’t really apply to the complexities in today’s retail environment.”

Daphne Howland / Retail Dive

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