National Retail Federation Report Suggests Huge Positive Impact for Labor Department Overtime Rules

The National Retail Federation (NRF), a lobbying organization for department store corporations, sporting goods and  grocery chains,  and other large retailers, is opposed to the Department of Labor’s update of the rules governing the right of salaried workers to overtime pay. The reasons the NRF gives are somewhat contradictory and are sometimes surprising. But they boil down to this: the retail lobby doesn’t think businesses should have to pay for the overtime hours most of their employees work.

In March 2014, President Obama directed the Secretary of Labor to update the rules intended to exclude high-level employees like executives and professionals from overtime protections. The rules are currently so out of date that they define even workers earning below-poverty salaries as exempt, even though the pay of true executives and professionals like lawyers and CPAs has been soaring for decades. To fix this problem, the Labor Department is reportedly considering raising the threshold for exemption from $23,660 a year to $42,000 or more. Some advocates are calling for a threshold as high as $70,000 a year, which would protect the same share of the salaried workforce as was covered in 1975.

If the threshold is raised to $42,000, the NRF predicts significant changes in retail employment: while some employers will raise salaries for employees near the threshold to guarantee that they continue to be excluded from overtime protection, many salaried employees (some of whom work 60-70 hours a week for no extra pay) will have their hours reduced and as a result, 76,000 new jobs will be created averaging 30 hours per week. Altogether, half of the retail workforce that is currently excluded from coverage will be guaranteed coverage by the law’s overtime protections. That all sounds pretty good to me.

The NRF’s projections are intended to be critical of the Labor Department’s rules update, but I have a hard time seeing why it would be a bad thing to create 76,000 new retail jobs, given that 8.6 million Americans are currently unemployed. Moreover, if I were a poorly paid bookkeeper or clerk in a department store, working 60 hours a week and getting paid no more than if I worked 40 hours, I’d be happy to see my hours cut and the extra work shifted to hourly employees.

The NRF report provides interesting tables in an appendix that details which occupations they expect the new rules will affect. If the rule raises the exemption threshold to $51,000, NRF predicts that 146,000 currently exempt bookkeeping, accounting, and auditing clerks will be given overtime rights they don’t have today. This raises a serious question about the retail industry’s compliance with current law: since passage of the Fair Labor Standards Act in 1938, bookkeepers and clerks have always been considered non-exempt and entitled to overtime pay, yet NRF believes that more than three-quarters of them are currently exempt.

Another group of employees NRF identifies as currently exempt is 55,000 secretaries and administrative assistants. It is highly unlikely that secretaries paid less than $51,000 are performing work requiring the kind of important decision-making and independence that are prerequisites for exemption.

These admissions by the nation’s top retailers have made me rethink the impact of the Labor Department’s rules update. EPI had previously calculated the number of employees who will gain overtime rights based on the probability that most of the employees in certain occupations like bookkeepers and secretaries are not exempt. (We used exemption probability tables created by the Department of Labor in 1999.) But if those employees are being treated as exempt today and denied their right to overtime pay, the new rules will help them too, vastly increasing the likely impact of the rule.

For example, we estimate that 18.8 million FLSA-covered, salaried employees earn less than $52,000 a year, and only 3.4 million earn less than $23,660. Previously, we had estimated that about 6 million employees would gain overtime rights at the higher threshold because we assumed that most employees earning less than $52,000 are already entitled to overtime pay because they don’t meet the duties tests for exemption (i.e, their work is not executive, professional, or administrative in nature).

But if, like the Retail Federation, most employers are treating the great majority of their modestly paid salaried workers as exempt, the Department of Labor’s rule change will have a much bigger effect than we previously estimated. As many as 12 million workers might be newly guaranteed overtime pay if the salary threshold is raised from $455 to $1,000 per week.