On May 18, 2016, the Department of Labor announced a new rule regarding employee overtime pay that is expected to impact as many as 12.5 million workers across the U.S.
If retailers don’t act quickly to become compliant by the December 1 deadline, high compensation costs and layoffs could follow.
To help you prepare, here are the answers to five important questions regarding retail businesses and the new overtime rule.
In a nutshell, what’s changing with this new overtime rule?
More salaried workers must be paid time and a half for any hours worked beyond 40 a week.
Nationwide, there’s a government mandated salary threshold as part of the Fair Labor Standards Act (FLSA). If a salaried employee makes under this amount annually, they must be paid time and a half for any hours worked over 40 a week. If they make over this amount, they’re exempt. That threshold used to be $23,660 a year. With the new rule, it’s $47,476. If you have salaried employees who make between $23,660 and $47,476 a year, they may now be due overtime pay, outside of a few exceptions.
How will the retail sector be impacted by this new rule?
The impact will vary by location, store size, speciality and other factors. For your hourly employees, everything will remain the same, but compensation for your salaried workers and managers will likely need to change.
Smaller, low-margin businesses, such as dollar stores and convenience stores, are expected to be affected the most, as they have less wiggle room in compensation budgets. Moreover, since the salary level threshold is equal nationwide, lower income areas in the South and small towns will be more affected than stores in big cities or on the coasts.
Are there any benefits to this change?
In theory, yes. In reality? No. The intention of the law is to force businesses to either 1) pay more salaried workers for overtime or 2) cut hours and hire more workers. Both options have the potential to positively impact the U.S. economy.
The government isn’t providing any subsidies to small businesses to help make this a reality, though. With so little time to adjust, many retailers may need to either lay off workers or switch salaried workers to hourly—both being dreaded options.
What options do retailers have to comply?
There are eight things that retailers can do. Here at Software Advice, we’ve created a comprehensive guide detailing eight ways small retailers can comply with the new overtime rule. Here are the options you should consider for any of your salaried employees that work overtime and make between $23,660 and $47,476 a year:
- Pay them their due overtime
- Increase their salary so it’s over the $47,476 exemption threshold
- Push worker compensation above the threshold with bonuses and commissions (up to 10 percent of their salary)
- Lower their salary and pay the overtime to keep overall compensation the same
- Convert them to an hourly employee
- Cut hours, hire more workers and enforce a no overtime policy
- Let them go, and give their hours to employees above the threshold
- Reconfigure their role to fit one of the rule exceptions
Where does software come into play? How can it make compliance easier?
It’s vital that retailers check their payroll and employee time tracking systems. Your current payroll system should be able to help you easily identify exempt and nonexempt workers and show you the total effect of compensation changes to your bottom line. If it can’t, it may be time for an upgrade.
Likewise, if you don’t have software in place to allow salaried employees to track their overtime hours, now is the time to invest.
