As we await the issuance of new federal overtime regulations, employers in the retail and hospitality industries may be interested in the recent National Retail Federation (NRF) report, “Rethinking Overtime.” The NRF report includes the results of a study conducted by Oxford Economics (a leading global economic consultancy firm founded with Oxford University), which looked at the projected impact of the anticipated overtime rules on the retail and hospitality industries. Among the key findings in the study is that the overtime proposal under consideration could cost the retail and hospitality sectors billions of dollars in added costs and would disproportionally impact businesses operating in rural states, where there is a larger percentage of currently exempt employees who will be subject to the overtime rules as a result of the coming changes.

Currently, to qualify for exemption from the overtime requirements, in addition to meeting certain tests regarding their job duties, employees must be paid on a salary basis at not less than $455 per week. The NRF study analyzed the impact of raising this weekly salary threshold to either $610, $808, or $984 per week. In each case, it found that the new salary threshold levels and rules would result in billions of dollars of added employer costs. The study opines that businesses in the retail and hospitality sectors would not pass along those increased labor costs to customers but rather will make significant adjustments to the structure of their workplaces in order to recoup the billions of dollars in added costs that likely will be imposed through the new regulations. Based on its analysis of relevant academic research and interviews with retail and restaurant industry experts, the study predicts that employers may use the following strategies to absorb the additional labor costs:

• lowering hourly rates of pay;
• cutting bonuses and benefits;
• reducing employee hours;
• hiring more low wage and part-time employees;
• reducing the number of salaried executive positions; and
• automating back-of-the-house functions.

The study predicts that as a result of the impending changes, workplaces will become more hierarchical, that lower-level employees will find it harder to rise into the executive ranks, and that retail and hospitality companies will encounter difficulties developing talent and promoting internally because of a narrower pipeline of talent.

According to NRF’s Senior Vice President for Government Relations David French, “[o]ur report belies the administration’s rosy predictions that the proposed overtime regulations would benefit workers.” “As the report shows, utterly predictable reactions to the new rules would likely curtail career advancement for millions of working Americans by eliminating middle-management positions, which would be replaced by hourly and part-time employees,” French said.