Retailers Follow Wal-Mart's Lead on Overtime Rule Compliance

Daily Labor Report® is the objective resource the nation’s foremost labor and employment professionals read and rely on, providing reliable, analytical coverage of top labor and employment...

By Ben Penn

Oct. 27 — Large retailers are complying with the Labor Department’s new overtime requirements more than a month before enforcement begins, even as their lobbyists try to block the rule in Congress.

The regulation, expected to make some 4 million new workers eligible for overtime pay starting Dec. 1, is a signature piece of the president’s middle-class agenda. The rule is aimed particularly at the retail sector, where managers and assistant managers are known to work long hours in the $30,000-$50,000 salary range, without the time-and-a-half overtime premium afforded their hourly co-workers.

The largest retail corporation of all, Wal-Mart Stores Inc., garnered headlines this month by announcing it had already raised manager salaries to avoid distractions during the holiday shopping rush. This allows the company to maintain the exempt status of employees who otherwise would begin qualifying for overtime in December.

Other big-box stores and retail chains aren’t disclosing their plans, but Wal-Mart is not the only business to go live early.

“There’s a lot of conversation about how the Dec. 1 deadline is actually sort of artificial, and a lot of our retailers and a lot of employers across the country have been already complying with this or preparing to comply with this well before that deadline,” Evan Armstrong, vice president of government affairs at Retail Industry Leaders Association, told Bloomberg BNA. RILA lobbies for the nation’s largest retailers, including premier members Wal-Mart, Walgreens, Target, Home Depot and Best Buy.

“It’s the busy season, and you need to have these procedures and these new classifications” to comply with the rule, Armstrong said.

But in the meantime, RILA and fellow trade group the National Retail Federation are part of a business coalition that’s been lobbying to block Dec. 1 enforcement of the regulation through several long-shot bills pending in Congress. The companies already complying with the rule are doing so with the understanding that it would be very tough to reverse salary hikes if legislation succeeds in halting it.

Avoiding Holiday Distractions

The regulation doubles the salary threshold below which employees qualify for time-and-a-half pay when exceeding 40 hours in a workweek. The new minimum for overtime exemption—$47,476 per year—will rise every three years with inflation.

One company’s reaction to the rule could have ripple effects throughout the retail trade sector and its 16 million employees. Those employees represent 13 percent of the private-sector workforce, according to the DOL’s Bureau of Labor Statistics.

Retailers are going to be “scrambling around figuring out what” competitors are doing to comply, Cindy Westervelt, former vice president for human resources at Staples North America, told Bloomberg BNA. “You either become a really attractive employer or not an attractive employer at all.”

Forecasters are calling for a surge in holiday shopping this year. Retailers are motivated to deal with any personnel distractions in advance, so they can squarely focus on profits when more customers arrive.

“You don’t want to have your managers or your store staff focused on what’s going to be my new role during a time when people really need to be focused on consumers,” said Westervelt, now a senior counsel at Seyfarth Shaw LLP in Boston. She represents primarily large retailers on wage-and-hour issues.

Wal-Mart’s decision to increase the starting managerial salary at all stores by 7.8 percent—to $48,500 from $45,000—was a strategic move to avoid the hassle of tracking hours and paying overtime to newly eligible employees. It also sends reverberations throughout the industry.

“If other companies aren’t prepared to give those raises then that’s a competitive issue,” Sandy Rappaport, a partner at management law firm Hanson Bridgett LLP in San Francisco, told Bloomberg BNA. “How do we get the best employees if your best managers go see that they can get a higher salary elsewhere rather than get paid hourly?”

Neutralizing Costs Could Boost Hiring

President Barack Obama declared in May that the regulation “is the single biggest step I can take through executive action to raise wages for the American people.”

But retailers are focused on complying with the rule without incurring any added costs.

“I suspect that retailers in general aren’t inclined to increase their payrolls as they have lean labor budgets and many stores are struggling to maintain market share,” Sucharita Mulpuru, chief retail strategist at Shoptalk, told Bloomberg BNA. “So they will likely keep hours at 40 and then look to hire other positions, really only pushing for overtime if someone doesn’t show up or there’s an emergency.”

This development would be encouraging to the unions and worker advocates who support the rule, not just because of the mid-level workers gaining new overtime access but for the creation of more hourly job opportunities.

For instance, the United Food and Commercial Workers, which is trying to organize hourly workers at retailers across the U.S., feels the regulation “is a significant victory for salaried employees” even though the “vast majority of UFCW members are paid hourly” and unaffected by the rule, Casey Hoag, a union spokesman, told Bloomberg BNA via e-mail.

“If anything, this rule may encourage more hiring of hourly employees whose workload otherwise went to an overworked manager,” Hoag said.

Popular Compliance Plans Emerge

Even before the DOL announced the final rule in May, management attorneys predicted most stores would choose one of two straightforward compliance plans: either converting all employees earning between $23,660 and $47,476 to nonexempt hourly or raising everyone’s salary above the new threshold to avoid overtime liability. Based on what they’re hearing from retail clients in the weeks leading up to Dec. 1, those expectations have proven accurate, several attorneys said.

But a small class of retailers, especially those employing more managers per store, is poised to launch a more creative approach that would neutralize any added overtime costs, Westervelt said. The multi-store companies tend to have more advanced methods of tracking labor budgets. This allows them to vary their response based on store volume or create new job classifications such as an hourly “supervisory lower-level manager” who performs some non-supervisory tasks.

Retailers are also considering an option of exempting from overtime store managers who earn the bulk of their income from commissions. This comes from a long-standing Fair Labor Standards Act provision that shields some employers in the retail and service sectors from overtime obligations to workers who make at least half of their money from commissions each week.

Employers opting to take that route must undergo a much more complicated set of calculations to ensure managers meet the exemption requirements, Rappaport said.

Lobbying to Thwart Rule Persists

RILA and business group allies are still chatting up Capitol Hill staffers about a possible vote on one of the overtime-killing bills during the lame-duck session. But any bill passed by Congress would be subject to an Obama veto.

Retail companies are also monitoring a preliminary injunction motion in federal court in Texas that is part of a lawsuit filed by the U.S. Chamber of Commerce. But even that is considered far-fetched by many observers, who expect the $47,476 threshold to become enforced as planned on Dec. 1.

Armstrong’s involvement with the overtime rule is not new. He now lobbies against the regulation on behalf of large retailers, a few months removed from a stint as legislative counsel to Rep. Tim Walberg (R-Mich.). Walberg, who is chair of the subcommittee with jurisdiction over the FLSA, is a chief opponent of the DOL rule and the sponsor of several bills designed to curb it.

RILA members “certainly are enthusiastic about all the opportunities there are to provide relief, whether it’s legislative action or via the litigation,” Armstrong said. “But our members are pragmatic and they understand what they need to do by Dec. 1, and they’ll be doing it.”

Interviews for this article were conducted Oct. 12-25.

To contact the reporter on this story: Ben Penn in Washington at bpenn@bna.com

To contact the editors responsible for this story: Peggy Aulino at maulino@bna.com; Terence Hyland at thyland@bna.com

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.