WASHINGTON -- The U.S. Department of Labor has finalized the rule updating overtime protections for convenience-store, restaurant and other retail workers. The final rule, which takes effect Dec. 1, doubles the salary threshold under which most salaried workers are guaranteed overtime, from $23,660 to $47,476 per year, or from $455 to $913 a week.
Vice president Joe Biden delivered remarks on the overtime rule and the economy in Columbus, Ohio, on May 18.
In total, the new regulation extends overtime protections to 4.2 million more Americans who are not currently eligible under federal law, the Obama administration said. The administration expects that the new protections will raise Americans’ wages by an estimated $12 billion over the next 10 years, with an average increase of $1.2 billion annually.
“At the same time, employers retain considerable flexibility in how they comply with the new rule, such as increasing salaries to at least the new threshold to keep positions that are primarily executive, administrative or professional exempt from overtime pay; paying overtime for hours worked in excess of 40 in a week; or reducing overtime hours,” according to a White House fact sheet.
The regulation updates the new salary threshold automatically every three years.
It also raises the “highly compensated employee” threshold, from $100,000 to $134,004, above which only a minimal showing is needed to demonstrate an employee is not eligible for overtime.
“This upper threshold was designed to ease the burden on employers in identifying overtime eligible employees since it is more likely that workers earning above this high salary level perform the types of job duties that would exempt them from overtime requirements,” the fact sheet said.
The Labor Department responded to employers’ concerns by making no changes to the “duties test” and allowing bonuses and incentive payments to count toward up to 10% of the new salary level, the White House said. Workers earning more than the salary threshold are still subject to the duties test to determine eligibility for overtime.
In their comments to the proposed rule, employers argued that changing the duties test would be difficult and costly to implement, and the final rule leaves the existing duties test in place.
Retail Reaction
Retail-industry associations oppose the overtime regulations.
“These rules are a career killer. With the stroke of a pen, the Labor Department is demoting millions of workers,” David French, National Retail Federation (NRF) senior vice president of government relations for the National Retail Federation (NRF), said in a press statement.
“In the retail sector alone, hundreds of thousands of career professionals will lose their status as salaried employees and find themselves reclassified as hourly workers, depriving them of the workplace flexibility and other benefits they so highly value. And the one-size-fits-all approach means businesses trying to make ends meet in small towns across America are now expected to pay the same salaries as those in New York City,” he said.
“These regulations are full of false promises. 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,” said French.
He continued, “Overtime regulations need to be sensitive to cost-of-living differences throughout the country, moderate enough that they don’t block the career ambitions of young people and middle managers working to climb the career ladder, and gradual enough that business owners can implement them without penalizing the very people they were intended to help.”
Research conducted for NRF shows that the rules will force employers to limit hours or cut base pay in order to make up for the added payroll costs of overtime expansion, leaving most workers with no increase in take-home pay despite added administrative costs, the group said. A separate survey found that the majority of retail managers and assistant managers whom the new regulations are supposed to help oppose the plan.
Convenience-store and gasoline-retailer groups also voiced their opposition to the new overtime regulations.
"NACS encourages the administration and Congress to withdraw the regulations, re-examine the basis on which they were devised and re-issue them with a new threshold that takes into account the economic realities facing the convenience-store industry," said Lyle Beckwith, senior vice president of government relations for the National Association of Convenience Stores (NACS), on the group’s website.
“The final rule did not change the current job-duties-related tests,” the Society of Independent Gasoline Marketers of America (SIGMA) said in an email. “For salaried workers earning more than the threshold, the duties test determines whether or not they can still be eligible for overtime compensation. SIGMA vigorously opposed changing the duties test in the comments it filed with the department in September 2015.”
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