Retailers React to Federal Changes in Overtime

WASHINGTON, D.C. — The retail industry is still digesting the new federal overtime rule released today. However, initial reaction questions whether the changes will provide any real benefits.

According to SIGMA: America's Leading Fuel Marketers, it is concerned about the business impact of the Department of Labor's (DOL) new overtime regulations, which set the minimum salary threshold required to qualify for the Fair Labor Standards Act's "white-collar exemption" to $47,476 per year ($913 per week), which is higher than the yearly salary of $23,660 ($455 per week) contained in the current regulations.

The change in the salary threshold, which goes into effect Dec. 1, is the most notable change, as CSNews Online previously reported.

As SIGMA explained, previously to qualify for the white-collar exemption, employees had to meet job-related duties tests and be paid at least $455 per week — or $23,660 per year. DOL's new final rule increases that salary threshold, which was last updated in 2004, bringing it to $47,476 per year ($913 per week), the 40th percentile of full-time salaried workers in the lowest income Census region (currently, the American South).

This number, according to SIGMA, is slightly lower than the number initially proposed by the department ($50,440 per year, $970 per week), which was the 40th percentile of weekly earnings for full-time, salaried workers nationwide, but significantly higher than the current threshold.

According to the DOL, the final rule will allow up to 10 percent of the salary threshold to be met with non-discretionary bonuses, incentive payments or commissions that are paid quarterly or more frequently.

In addition, SIGMA said it is concerned with the business ramifications of the rule's "automatic update" provision for the salary threshold, under which — beginning in 2020 — the salary level will be increased every three years.

"SIGMA is pleased DOL's final overtime rule does not change the job-related duties tests," SIGMA CEO Ryan McNutt said. "SIGMA vigorously opposed changing the duties test in comments it filed with the Department of Labor on the proposed overtime rule in September. Yet, despite this positive outcome, SIGMA remains concerned with the final rule and is in the process of thoroughly reviewing the rule to understand its ramifications on our industry."

NACS, the Association for Convenience & Fuel Retailing, takes its concerns a step further and predicts the changes "will be devastating to convenience store owners, their workers and customers."

"The regulations, set to be implemented Dec. 1, will double the previous salary threshold for designating managerial employees as exempt from overtime from $455 to $913 a week, an unreasonably high level that fails to follow past precedent of tailoring dollar tests to reflect the financial characteristics of retailing, and thereby ensuring that resulting salary increases not impose a disproportionate hardship to the sector," said Lyle Beckwith, NACS' senior vice president of government relations.

"DOL also relied on measurements of non-salary income and salaries in high-wage regions in formulating the threshold. As a result, thousands of store managers and assistant managers, who are paid annual average salaries of $39,528 and $25,771, respectively, will change virtually overnight from exempt status to nonexempt status," he added.

The association agrees with the need to update the overtime pay regulations, which are more than a decade old, to reflect current economic conditions. However, the workable increase in the threshold for exempt employees will defeat the stated purpose of the regulations by driving down overall wages and employment in the convenience store industry, according to Beckwith.

"NACS encourages the administration and Congress to withdraw the regulations, re-examine the basis on which they were devised and re-issue them with a new threshold that takes into account the economic realities facing the retail industry and thereby reflects the best interests of these job-creating businesses," he said.

The Retail Industry Leaders Association (RILA) said while a review of the current overtime threshold is justifiable, the changes by the U.S. Department of Labor are not.

"The rule will certainly hurt those that it purports to help," said Jennifer Safavian, executive vice president for government affairs, RILA. "Specifically, the rule will cause retail employees who are forced to be reclassified from salaried to hourly to lose much of the flexibility and upward mobility they value."

In addition, the department's "failure to adequately consider regional differences will ensure the most acute effects will be experienced by employees in rural areas, and the automatic adjustment will create a perpetual state of disruption as businesses will be forced to reclassify employees each and every three years," Safavian said.

RILA will turn its focus to educating Congress on the impact the rule will have on workers and press for action to stop the rule from taking effect, Safavian added.

The National Restaurant Association also raised concerns with the change to the salary threshold.

"We are appreciative that it appears the Department of Labor listened to restaurants' concerns and did not include the burdensome 'long' duties test, which would have led to increased contentious disputes and litigation — something the department itself stated it wanted to avoid with these current regulations," said Angelo Amador, senior vice president of labor and workforce policy and regulatory counsel.

"However, the threshold for exempt employees in the final regulations is still too high," he said. "Restaurants operate on thin margins with low profits per employee and little room to absorb added costs. More than doubling the current minimum salary threshold for exempt employees, while automatically increasing salary levels, will harm restaurants and the employer community at large."

According to the association, more than 80 percent of restaurant owners and 97 percent of restaurant managers start their careers in non-managerial positions and move up with performance-based incentives.

"These regulations may mean that salaried employees, who have worked hard to get where they are, could be subject to becoming hourly employees once again," Amador said.