Obama's Overtime Proposal Raises Retailer Concerns

WASHINGTON, D.C. — First came increases to minimum wages across the country. Now comes a push for changes to overtime pay.

While the new overtime proposal is good news for employees, the retail industry is warning the change could have unintended consequences.

"We are still evaluating last week's announcement by the Department of Labor and are in the process of gathering information from our membership on what this will mean for them," Jon Taets, director of government relations for NACS, the Association for Convenience & Fuel Retailing told CSNews Online. 

"We are very concerned with the impact that such a dramatic increase in the salary threshold may have, particularly in lower-cost-of-living areas. Undoubtedly, this is yet another regulation that will put more of a squeeze on many small businesses' ability to grow and expand," he added.  

President Obama's administration is proposing a change to rules requiring businesses to pay eligible employees 1.5 times their regular pay for any work beyond 40 hours a week. The change would make 5 million more people eligible for overtime, according to The Associated Press.

According to the AP report, employers can often get around the rules currently by calling any salaried employee who's paid more than $455 a week — or $23,660 a year — a "manager," given limited supervisory duties and made ineligible for overtime.

The new overtime rule from the Labor Department would more than double the threshold at which employers can avoid paying overtime, to $970 a week by next year. That would mean salaried employees earning less than $50,440 a year would be assured overtime if they work more than 40 hours per week.

"Now, this is an issue of basic fairness. If you work longer, you work harder, you should get paid for it. Today, some companies take advantage of an exception in the rule to make their lower-wage employees who really should be paid hourly; they're making them work 50, 60, sometimes 70 hours a week without paying them an extra dime," said President Obama during an appearance in La Crosse, Wis., on July 2.

"In extreme cases, it's possible for workers to actually earn less than the minimum wage. So, they essentially label somebody as management instead of a worker, even if they're making, like, $25,000 — work them a whole bunch of hours. That's a way of getting around the minimum wage. It's not fair," he added.

Last week, Labor Secretary Tom Perez said the change would add $1.2 billion to $1.3 billion in wages for many newly overtime-eligible workers. Others, Perez said, will benefit from employers reducing their hours. At the same time, he said, some employers may choose to hire new full-time or part-time workers to conduct the work salaried workers had once performed, the AP reported.

To keep up with future inflation and wage growth, the proposal will put the salary threshold at the 40th percentile of income. The White House said 56 percent of those who would benefit in the first year are women, and 53 percent have a college degree.

The Retail Industry Leaders Association (RILA) pointed out that the overtime proposal would increase operational costs for retailers, while taking away the flexibility and benefits currently provided to full-time employees that have advanced into management. 

"Retailers currently provide tremendous flexibility and growth opportunities for associates. Once promoted, hard-working associates want to be classified as exempt because of the flexibility, incentive compensation, benefits and distinction that comes with such a designation," said Kelly Kolb, RILA's vice president of government relations.

"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. Neither of these are outcomes that will raise standards of living for our employees or our customers," Kolb said.

RILA plans to submit comments highlighting the impact this flawed proposal will have on retailers, their employees and their customers to the Labor Department.

The Labor Department's Notice of Proposed Rulemaking (NPRM) was published July 6 in the Federal Register and interested parties can submit written comments on or before Sept. 4.