Retailers Beware: New Overtime Regulations & Minimum Wage Increases May Affect Your Business in 2014 & Beyond

In March, President Obama issued a directive instructing the US Department of Labor (DOL) to make changes to regulations regarding the overtime exemption under the Fair Labor Standard Act (FLSA). The directive is aimed specifically at the “white collar” or executive exemption. That exemption permits employers to exempt from overtime provisions of the FLSA (requiring overtime compensation for hours worked over 40 in a work week) for certain employees who:

• Primarily manage the enterprise, or manage a customarily recognized department or subdivision of the enterprise;
• Customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and
• Have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees must be given particular weight.

The new proposed revision of the regulation has not yet been released. But there has been some speculation that the salary threshold for the executive exemption — currently at $455 per week — could be raised to as much as $1,000 per week. This could have a significant impact on how stores, particularly in areas with lower costs of living, would have to pay a manager before he or she were exempt from overtime.

Even more important for retailers is the possibility that the DOL could drastically change or even eliminate regulations defining and permitting the exercise “concurrent duties” that are non-exempt. Under current rules, store managers can still qualify for the executive exemption if they are doing the same duties as an employee that they oversee — such as cleaning up, working the cash register, or assisting customers — as long as supervision is their “primary duty.” The current regulation states in pertinent part as follows:

Generally, exempt executives make the decision regarding when to perform nonexempt duties and remain responsible for the success or failure of business operations under their management while performing the nonexempt work. In contrast, the nonexempt employee generally is directed by a supervisor to perform the exempt work or performs the exempt work for defined time periods. An employee whose primary duty is ordinary production work or routine, recurrent or repetitive tasks cannot qualify for exemption as an executive.

The DOL could instead opt to adopt the standard set forth in California that requires managers to spend more than half of their time supervising other employees.

The other initiative that could affect retailers is the proposed increase in the minimum wage to $10.10 per hour, previously discussed here. While many states have already raised the minimum wage to or beyond that amount, the proposal of the President and congressional Democrats is to have the federal minimum wage raised, thus requiring all retailers to pay the increased wage.

As of 2012, retail sales employees made on average of $10.29 per hour and $21,410 per year, according to figures compiled by the US Bureau of Labor Statistics. Some retailers have already jumped the gun on the minimum wage hike. For example, Gap Inc. announced in February that it was going ahead with plans to increase its pay floor for US employees to $10 per hour, beginning in 2015.

If implemented, these changes could have a profound economic impact on retailers and other businesses.