Everything retailers need to know about minimum wage

2/3/2015

Wage and hour issues are ever present in the retail industry. Retailers are under constant pressure to control expenses, the largest component of which is labor.In 2015, local, state and federal officials are poised to take actions that will likely increase the cost of labor for retailers. Retailers must remain alert for these coming changes and begin planning for their impact long before their effective dates.


Efforts to change the minimum wage took place at the federal, state and local levels in 2014. President Obama and the Democrats in the Senate and House advocated for increasing the minimum wage under the federal Fair Labor Standards Act (FLSA) from $7.25 to $10.10, in increments over time. Although these efforts failed, President Obama exercised his executive authority to increase the minimum wage for federal contractors. In the absence of federal action, state legislators acted. Roughly 20 percent of state-level jurisdictions passed minimum wage laws in 2014. Significantly, each minimum wage bill enacted in 2014 called for multiple increases.


Additional states put the question of whether to increase the state minimum wage before voters in the November 2014 general election, and in four states the voters approved increases. As a result of these changes, as well as state minimum wage legislation approved prior to 2014, 2015 will see 23 states increase their minimum wage to rates ranging from $7.50 per hour to $9.47 per hour. In addition to state and federal minimum wage requirements, retailers must comply with two types of local minimum wage legislation.


The first type of legislation, “living wage” ordinances, generally applies only to employers that contract with a local government entity. The second type of legislation, “minimum wage” ordinances, applies generally to all employees who work within the local jurisdiction. Living wage ordinances exist in over 100 cities and counties in the United States. Local minimum wage laws have been instituted by somewhat fewer local government entities, with mandated minimums that exceed both the state and federal minimum. For example, San Francisco, California’s local minimum wage takes effect on May 1, 2015 and is $12.25 per hour.What should retailers do to manage upcoming minimum wage increases?




  1. Have an effective system of monitoring minimum wage increases at all levels


  2. Update minimum wage posters


  3. Inform employees about the new rates


  4. Train HR, payroll, and managerial employees on increases, posting, and notice requirements, and how to respond to employee inquiries concerning wage rate changes


And if a third party payroll processor is used, confirm it is aware of changes and has updates its system accordingly. Another proposed change that could have a profound impact on the labor cost of all retailers is the upcoming revision of the FLSA “white collar” overtime exemption regulations. Throughout the United States, retailers classify many of their store managers, assistant managers and supervisors as exempt managers who are not entitled to overtime pay when they work in excess of 40 hours in any work week. In March 2014, President Obama directed the U.S. Department of Labor (USDOL) to modernize and streamline the existing overtime regulations by narrowing the scope of the “white collar” exemptions for executive, administrative and professional employees. The USDOL has announced that these proposed revisions will be published in early 2015. Although not yet published, the content of a bill proposed by Senator Tom Harkin of Iowa in June 2014—S2486, Restoring Overtime Pay for Working Americans Act—may offer some insight into what the proposed changes to the executive exemption may look like. The bill would more than double the current salary-level requirement for exempt employees from $455 per week (or $23,660 per year) to $1090 per week (or $56,680 per year), in increments over three years. The threshold would be indexed to inflation after that. The bill also redefines the “primary duty” requirement for exempt employees.


The USDOL may remove or significantly revise the “concurrent duties” section under the executive exemption test, which provides an exemption to managers even if they are simultaneously performing the same duties as their direct reports. As put forth in the Harkin bill, the proposed changes to the executive exemption may include replacing the “primary duty” test—which does not require that an individual spend a specific percentage of time performing exempt work—with a quantitative test similar to California law, which requires a manager to spend more than 50% of his/her time supervising employees to be classified as exempt.


The administrative process for proposed new regulations—from initial publication until final implementation—may take approximately 12 to 18 months. Retailers can use this time to prepare for the new regulations and to preserve the application of the executive exemption to their exempt managers.


Retailers are encouraged to take the following steps to audit their current workforce, gauge their potential risk exposure and assess their need to make changes should the proposed regulations become law.




  1. Inventory current classifications: Who is classified as an exempt manager? Why have particular employees been classified as exempt managers?


  2. Gather and review all documents relevant to the employees currently classified as exempt executives (e.g., job descriptions, performance evaluations, job postings and recruiting materials, employee self-assessments, training materials, onboarding materials and orientation materials, as well as work product of the employee to whom the exemption has been applied).


  3. Assess the potential risk of misclassification by comparing the information gathered with the proposed regulations. Are you in a grey zone? Do the relevant documents gathered fail to clearly demonstrate that management is the task where the employee spends over 50% of his/her time? Finally, if they have been misclassified or if the organization’s ability to defend a challenge to the exemption classification will be difficult because the supporting documents are weak, what will it cost if you?


  4. Develop a decision-making process for the future. Consider identifying stakeholders, knowledgeable supervisors and incumbents in the exempt positions and request they consider and propose a protocol for making exemption decisions, how the decision will be made and how to document the process.


Through the audit process, retailers can identify job descriptions that do not accurately reflect the true management duties of the position or have simply become out of date. The audit can also help to identify those performance evaluation tools that fail to emphasize management tasks or skills as the primary factors on which the evaluation is based. Further, the audit can identify evaluation tools for exempt positions that omit employees’ self-evaluation of their management role as a critical piece of the e

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