Changes to overtime rules are coming – Here’s what retailers should be concerned about

NRF and a coalition of businesses and nonprofits across the country are working every legal and legislative option to secure much-needed relief from the Department of Labor’s changes to overtime rules. Tammy McCutchen, a former administrator of the wage and hour division at the U.S. Department of Labor and now an attorney in private practice at the law firm of Littler Mendelson, has a pulse on how retailers, other businesses and nonprofits should be preparing for this drastic overhaul.

McCutchen joined NRF for a recent webinar with member companies to explain how retailers should be preparing ahead of the December 1, 2016 deadline.

Key numbers to know

2.2 million – The approximate number of employees in the retail and restaurant industries alone who will be subject to overtime rules if nothing is done to change the new rules, according to a 2015 study conducted for NRF by Oxford Economics. McCutchen says the best place to start is by identifying employees who are impacted by the changes and determine how each employee will be classified and compensated under the new rules.  

$47,476 – The minimum annual salary level ($913 per week) in order for workers to be exempt from overtime rules, up from the current level of $23,660, or $455 a week. Workers who earn more than the threshold must still perform certain professional, administrative or executive job duties in order to be classified as exempt. NRF believes this 100-percent increase in the salary threshold is simply too much, too fast and ignores significant regional differences in costs of living across the country.

13 weeks – At the end of each quarter, nondiscretionary bonuses, incentive payments and commissions that are paid at least quarterly can satisfy up to 10 percent of the minimum salary requirement.

$51,168 – The amount DOL expects the minimum salary level to increase to by 2020, when the first automatic increase takes effect. The salary threshold will continue to increase automatically every three years in perpetuity without stakeholder input and without any consideration for changing economic conditions and industry impacts. 

What to watch for

Laws by state: Some states require advance notice to employees of changes in pay, so it’s important to be aware of the different requirements across the country, McCutchen says.

Busy time for retailers: The December 1 deadline falls just one week after Thanksgiving, and six days after Black Friday.

Discrepancies in time-keeping protocols: The biggest priority after reclassifying employees, McCutchen says, is a strong understanding of correct time-keeping methods by those who do not have experience in this area. This includes ensuring that newly reclassified employees understand what constitutes “work” — previously exempt employees may now find their travel and training opportunities restricted and will be subject to punching a clock. Research shows that adding these administrative processes would be a step back and limit career opportunities by turning employees such as managers, accountants and buyers into hourly workers.

Impacts on morale: When reclassifying employees, retailers need to determine what adjustments need to be made to compensation, bonus and benefit structures for impacted employees. Retail managers have uniformly expressed concerns about the impact these reclassifications will have on employee morale.

Maintaining the exemption: Each workweek, employers using DOL’s new 10 percent bonus and commission provision must pay the exempt employee a salary of at least 90 percent of the minimum salary level — $821.70, or $42,728.40 annually. At the end of the quarter, if that salary plus all nondiscretionary bonuses and commissions paid during the quarter do not equal $11,869 — $47,476 divided in four quarters — employers must pay the difference by the first pay period of the next quarter in order to maintain the exemption.

Drastic automatic increases: NRF predicts that DOL’s methodology will lead to a much larger increase than the $51,168 figure. One study cited by McCutchen estimates the first automatic increase will set the level at $70,966 in 2020 and that exemptions will eventually be effectively eliminated.  

Updates and taking action

NRF continues to advocate on Capitol Hill for a more measured approach to updating overtime rules. In September, the House passed the Regulatory Relief for Small Businesses, Schools and Nonprofits Act sponsored by Representative Tim Walberg, R-Mich., which would delay implementation of the rules by six months to June 1, 2017. In the Senate, a companion bill sponsored by Senator James Lankford, R-Okla., is pending that would do the same. Another bill, the Overtime Reform and Review Act sponsored by Senate Health, Education, Labor and Pensions Committee Chairman Lamar Alexander, R-Tenn., would phase in implementation over five years and eliminate automatic increases. More than 400 businesses, public sector employers, universities and nonprofits nationwide sent a letter to the Senate urging action. Similar bipartisan legislation was introduced in the House by Representative Kurt Schrader, D-Ore., in July. Last month, NRF and other business associations filed a lawsuit challenging the new regulations, while a total of 21 states have filed a separate lawsuit.