🔒Looming OT rule changes pose added challenge for retailers this holiday season

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As president of the Connecticut Retail Merchants Association, Tim Phelan understands the challenges that internet sales pose to the state's brick-and-mortar retailers during the fast-approaching holiday shopping season. But this year, there's another looming pressure state and national retailers are facing: new Department of Labor (DOL) overtime rules that could hit retailers particularly hard at their busiest — and most lucrative — time of year.

Under the rule, which is set to take effect on Dec. 1, the Department of Labor is more than doubling the national threshold for overtime exemptions for salaried employees from $23,660 a year to $47,467.

“For small businesses that potentially increases their cost of doing business,” Phelan said, noting many of his organization's small business members expressed frustration with the rule.

While nearly 2.2 million restaurant and retail workers alone nationwide are expected to be effected by this rule, the impact to Connecticut's retail sector may be less acute than in other states. That's because many retailers in the state — particularly small businesses — employ hourly workers to whom this rule doesn't apply. Additionally, being in a higher cost-of-living region like New England, salaries in Connecticut tend to be higher than the national average. In fact, according to compensation survey analysis from salary.com, the median retail store manager salary in the Hartford region is $57,693, more than $10,000 above the new exemption threshold.

Although the Nutmeg State might stack up nicely against a national measuring stick, the rule will still impact an estimated 27.6 percent of salaried workers earning below the new $970 per week threshold. That's a concern for opponents of the new legislation, like Lizzie Simmons, senior director of government relations for the Washington, D.C.-based National Retail Federation, which opposes (and filed a lawsuit against) the new overtime rule and is working to get the DOL to at least delay its implementation.

“It's too much [change], too soon,” Simmons said, noting that unlike past DOL shifts in overtime regulations, which have historically applied a regional cost-of-living to factor in threshold calculations, this new rule applies a one-size-fits-all approach that may prove unrealistic for many small business owners across the U.S. “These small business owners and retailers don't have a magic pot of money [to increase salaried employees pay],” she said.

In fact, less than two months from implementation, many potentially impacted retailers, especially small businesses, remain largely unaware of the rule. “The awareness gap [about this rule] is huge,” Simmons said. In August a survey by payroll vendor Paychex, which serves more than 600,000 clients nationwide, found that nearly half of all small businesses were completely unaware of the new DOL rule, and 31 percent were only somewhat aware.

Among the one in five retailers aware the new rule is coming, only 7 percent polled by Paychex thought it would impact their business. And how they planned to deal with that reality varied, with the more than one-third of businesses reporting they will transition employees from exempt to non-exempt status and 21 percent saying they will reduce employee hours to minimize overtime. Only 7 percent of employers polled planned to increase salaries of impacted employees to the new exemption thresholds.

And the financial hit to impacted employers and workers could be significant, Simmons said. Data from Oxford Economics predicts the new rule will cost U.S. retailers a collective $745 million to comply. Meantime, 11 percent of salaried retail employees could have their hours reduced, costing them an estimated $2.32 billion in wages.

But it's not just employee paychecks, Simmons says, that will be impacted. “For managers who were exempt or for young college graduates starting out, there will be less room for career development,” Simmons said. “If an employee below the threshold goes to a networking event or travels to a conference that puts them over hours for the week, that's compensable OT,” Simmons explained. “So fewer of those opportunities — which are important for career growth — may be made available by employers.”

Phelan worries that more than just local, independent retailers will feel the pinch. In Connecticut, he noted, many national chain retailers such as Target and Walmart need to balance their overall bottom line and could potentially shift resources as a result of the overtime regulation.

Phelan said he hopes the latest DOL rule doesn't hamper the progress that's been made in the retail sector over the past seven years coming out of the Great Recession, which hit retail hard. He noted the sector now employs nearly 470,000 people and generates $34 billion to the state's economy, roughly 14 percent of Connecticut's GDP.

For his part, working in concert with the National Retail Federation, Phelan hopes that the Department of Labor — which received more than 293,000 comments from impacted employers across a variety of sectors during the 60-day comment period when the rule was proposed — will delay the effective date of the rule until after the new year and phase it in slowly.

Many Connecticut brick-and-mortar retailers, he thinks, have enough to worry about already in December trying to combat internet sales.