New rules on overtime pay raise concerns for retailers

New rules on overtime pay raise concerns for retailers
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For most of this year, Washington State’s Department of Labor & Industries has been working to update rules that govern which employees can qualify for overtime pay.

While a noble cause, what matters to retailers is the actual duties being performed by employees.  Additionally, retailers want to avoid confusion and costly complications in both hiring and advancing employees in their business.  The state’s progress so far leaves many retailers worried that the results will cost employees as much as their employers.

Put simply, the state is moving to increase the maximum annual salary threshold to determine qualifications for overtime pay. That potentially means that more employees at any given company could qualify to earn more by working overtime but at the cost of losing privileges associated with being an “exempt” employee.

The prospect may sound appealing to the average employee. But as with many political issues, the unspoken details would matter a lot to employers and employees alike.

Here are some key details and considerations to know regarding this issue:

  • A current L&I draft proposal would require any employee making less than $56,160 per year (possibly as high as $70,200 per year) to receive overtime pay regardless of the actual duties they are performing in the workplace. The proposed salary threshold is a multiple of what the minimum wage would be when revised overtime rules would go into effect in 2020.
  • State labor officials so far have been acting independently from a similar review of overtime rules by the Federal Department of Labor. The feds have initiated the process to update their rules in early 2019. If the feds and the state separately change their rules on overtime, retailers would be left to sort out the likely differences rather than being able to apply a uniform rule. This would result not only in payroll cost increases but others for the added administrative expenses of possibly two overtime payment standards
  • Changes by either the federal or state government would likely cost companies more in payroll expenses.
  • Nearly 99 percent of retail establishments in the country are small businesses with less than 50 employees. These companies are least likely to be able to absorb higher payroll costs without making adjustments because their incomes are lower than larger chain stores.
  • The state is seeking feedback on whether the new salary thresholds should vary depending upon a company’s size and prevailing wages in urban versus rural locations. This would add a layer of complexity that would make it harder for companies with multiple locations to comply and would treat employees differently based on arbitrary factors.
  • This would limit an employer’s opportunity to offer on-the-job training for management positions.

In other words, 2019 holds the prospect of being a more expensive and confusing year for retailers and their employees.

It doesn’t have to be.

Retailers are urging the state to wait for a rules update from the federal government regarding overtime pay.  L&I has responded favorably by aligning the proposed rules to most of the federal  standards.  Now let’s be sure that the rule aligns with new federal salary standards, which are expected in early 2019.  It is not long in coming and could well be an outcome the state should copy rather than differ with. This would allow retailers to adjust to one standard rather than two.

Regardless, any outcome is likely to raise expenses for retailers. Typically, retailers must adjust by reducing hours for employees or training and promotion opportunities. This is especially true of most retailers who are small businesses operating with thinner, or no profits, compared to national chain stores. Beyond that, higher expenses tend to discourage hiring and can hold back economic growth as a result.

Final considerations should include Washington State’s competitive position with other states for recruiting new companies. Some might choose to locate in neighboring states with simpler and less expensive work rules than Washington’s. Retailers also urge the state not to introduce arbitrary filters to determine salary thresholds for overtime pay. All retail employees should be treated equally for the same work.

Because changing rules have financial consequences, should Washington State continue on its independent course from the federal government, we urge Labor & Industries to involve the public in a required, thorough small business economic impact analysis of those consequences. In the end, the benefits of any new rule need to exceed probable costs or the entire exercise would be a waste of time and money.

Tammie Hetrick is the Chief Operating Officer for the Olympia-based Washington Retail Association. Bruce Beckett is a contract lobbyist for the association.

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