Walmart has given its entry-level managers a $3,500 annual pay raise less than two months before the enforcement of a pay rule change that would have made them eligible for overtime benefits. The increase boosts annual starting salaries for managers from $45,000 to $48,500; under the new rules, white-collar employees who earn yearly salaries of $47,476 or less will be entitled to paid overtime if they work more than 40 hours a week.
The new threshold, which is more than double the current figure of $23,660, will take effect on Dec. 1, 2016. This rule change would extend mandatory overtime pay to 4.2 million U.S. workers, and is likely to have a major impact within all of retail. Approximately 35% of full-time salaried employees will be eligible for time-and-a-half wages when they work more than 40 hours under the new rule, up significantly from the 7% who qualify under the current threshold.
“Initially, the underlying current of rumors was that retailers would have to let many of these workers go,” said Scott Knaul, CEO of consulting firm SMK Workforce Solutions, in an exclusive interview with Retail TouchPoints. “I don’t see that happening. I think organizations are evaluating the situation in three phases: ‘We give these managers or salaried employees a bump up to that level so that they don’t fall into that; we evaluate the work done so we’re not going into an overtime strategy and we compensate fairly, or we do go into the overtime strategy because we’ve determine that based on the cost and benefit structure and who gets paid, it can work.’ I think the rule as a whole is going to benefit everybody.”
Commerce Groups Challenge New Threshold, While Unions Praise It
Business groups such as the U.S. Chamber of Commerce and the National Retail Federation have already shown their displeasure at the rule change, alleging that it will force employers to demote some salaried management workers to hourly positions and create more part-time jobs that do not offer benefits.
Both groups already have taken the U.S. Department of Labor to court over the rule, with the Chamber of Commerce contending that the threshold “contradicts Congress’ intent for executive, administrative, and professional employees to remain exempt from overtime pay.”
David French, Senior VP for Government Relations at NRF, referred to the overtime rule change as a “career killer” for retailers, particularly due to its “one-size-fits-all” approach that doesn’t take wage differences throughout the U.S. into account.
“These regulations are full of false promises,” French asserted. “Most of the people impacted by this change will not see any additional pay. Instead, this sudden and extraordinary increase will mean more red tape and fewer advancement opportunities for salaried professionals. In the real world — as opposed to D.C. conference rooms filled with career bureaucrats and political appointees — employers and employees will suffer the consequences of a policy rooted in pure politics.”
Labor unions and advocacy organizations such as the AFL-CIO and the National Employment Law Project have a favorable opinion of the rule change, especially in representing store associates that work far more than 40 hours per week and have very little scheduling flexibility. The organizations point to Labor Department estimates that say the change will boost workers’ wages by $12 billion over the next 10 years. Since the new rule calls for the income threshold to be updated every three years based on inflation, the department projects the threshold could rise to more than $51,000 by 2020.
With Walmart taking steps to circumvent the overtime rule change, the world’s largest retailer appears to be the first major mover in countering the policy. The ball is in now in other retailers’ court to take action over the next two months, deciding which benefits their employees and their bottom lines the most.
“The organizations that always plan ahead will have this covered,” Knaul said. “This is retail. People get into retail as a career because it’s always variable; there’s things that are always changing and it’s never boring or static. This is just one of those situations that comes along that retailers have to assess and add into the process of evaluation, and you’re always going to have those things. The most successful companies are the ones that plan for it, embrace it and say this is a good thing.”