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Implementing the New Overtime Rules


Walmart recently announced that it provided pay increases for its managers who are currently making approximately $45,000 per year. By raising their salaries to $48,500 and keeping their duties intact, Walmart will not need to worry about the new federal overtime rules that go into effect on Dec. 1. As we all know, Walmart sets the pace for change (e.g., selling unboxed deodorant and antiperspirant, selling groceries and general merchandise in the same store, etc.) but will retailers follow suit here by simply increasing wages? Likely not.

A brief summary of what is to come on Dec. 1 is that millions of employees who were not eligible for overtime pay will be eligible. In order to be exempt from overtime pay, an employee must meet a duties and salary test. The duties test remains unchanged and, as such, will not be discussed here. The salary threshold, however, is drastically changing. Currently, the minimum salary threshold is $23,600 (or $455 per week), but beginning on Dec. 1, it will more than double to $47,476 (or $913 per week). For the highly compensated employee (overtime exempt professionals), the salary threshold increases by more than 30% from $100,000 to $134,004. Equally significant is that salary threshold is going to increase every three years, so that in 2020, it will increase from $47,476 to $51,000. While Walmart can afford to simply increase wages, many other retailers may not have the financial wherewithal to do so without proportionately increasing costs to their consumers.

Retailers will have to make some very difficult decisions and undertake a critical analysis of cost and benefit. It will not be enough, however, to merely assess out of pocket costs; retailers must also examine the effect of any changes made on their middle managers with respect to morale, compensation, and job performance.

Some critical things to consider are:

Several companies only offer bonus pay to salaried employees and limit the number of hours worked by hourly employees. Several retailers are considering re-classifying middle managers as hourly employees. How much will those individuals net at the end? It is likely that they will earn less as hourly employees. How will this affect job performance? After all, this “demotion” was not as a result of job performance.

Retailers may unwittingly stunt job growth and training. Managers wishing to improve their skills, learn more about the business, and the like, may be prohibited from working extra hours due to financial realities. Moreover, retailers may no longer be able to send middle managers to industry events and peer groups because those employees will be on the clock.

Inversely, several retail managers stock shelves, help customers and do other “hourly” tasks while managing. If middle managers spend too much time on non-managerial responsibilities, they may fail the duties test and obligated to become hourly employees, regardless of their current compensation.

Small retailers will be feeling the most administrative burdens and, if they haven’t already taken action, need to do so now. If you can hire an attorney to help you, you should do that immediately. While it may be something that you did not budget for, it is surely less costly than noncompliance.

If you decide to go it alone, consider the following:

1. Determine which employees are affected by the new rules and identify the positions they hold and the duties they perform.

2. Identify the weekly average number of hours worked by each of them and determine their new compensation if converted to hourly.

3. Decide whether to reclassify former exempt employees as hourly and pay them overtime.

4. Determine whether you can limit hours worked by creating several shifts and curtailing overtime.

5. Decide whether it is feasible to increase their pay to at least $47,476 (as long as they otherwise meet the duties test).

6. What new rules will you implement for flexible work arrangements?

7. Analyze how you can continue to encourage your employees and support their growth and training, while complying with the new overtime rules.

Rania V. Sedhom is the managing partner and founder of Sedhom Law Group.

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