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Salaries and wages

Businesses adopt myriad responses to overtime rule

Paul Davidson
USA TODAY
Restaurant and retail managers will be among those eligible for overtime under a new federal rule.

The Obama Administration’s new overtime rule is expected to touch employers across the country, but sectors with many low- to moderately- paid managers such as retail, hotels and health care will be disproportionately affected.

The National Retail Federation and National Restaurant Association argue that companies won’t suddenly have more money to pay overtime and instead will change job titles, descriptions and schedules.

A study last year by Oxford Economics, commissioned by NRF, found that increasing the pay at which an employee is considered exempt would mean a raise for less than 5% of current salaried retail and restaurant workers, with those near the threshold bumped up.

Roughly a third of salaried employees are expected to be converted to hourly employees, with 21% of that group working enough hours to be eligible for overtime, the restaurant group says.

“Whenever that happens to an employee they feel immediately demoted and devalued in the workplace,” says David French, senior vice president for government relations at NRF. “Companies fear morale problems.”

Millions more Americans to be eligible for overtime pay

At Toppers Pizza, with 74 restaurants in 12 states, about 100 managers and other executives will be affected, says company president Scott Gittrich. At its 24 corporate-owned outlets, the base pay of most general managers, who routinely log 50 hours a week, will likely be boosted to the new threshold to avoid big overtime bills, Gittrich says.

To offset that, however, the managers’ incentive compensation will likely be reduced or eliminated, increasing net salaries for some while reducing them for others. The rule does allow employers to apply a portion of bonus and incentive pay toward the new salary threshold.

Still, Gittrich says, reducing such pay will tarnish the company’s freewheeling culture. Managers “were attracted to large incentive packages that gave them a sense of autonomy and an ability to control their own pay,” Gittrich says.

Other company executives, he says, will be converted to hourly employees but their base pay will be cut to account for the additional money they’ll make in overtime. They will likely be told to limit company-related phone calls or email usage after hours. “It’s going to take away their flexibility,” he says

Hotel representative saying the measure will force owners to pare back employees’ hours.

“With roughly half the hotels in the U.S. owned and operated by small or independent property owners, this regulation could force many hoteliers to reduce hours and flexibility or cut jobs altogether in order to stay in business,” says Brian Crawford, vice president of government affairs for the American Hotel & Lodging Association.

Other businesses say they simply plan to bite the bullet and shell out more in overtime costs. About 10 executives at Commonwealth Payroll and HR of Marblehead, Mass., will be affected. Company President Jeffrey Plakans says he plans to increase the salaries of the two workers near the new threshold to avoid the overtime mandate and convert five others to hourly employees eligible for overtime.

“It’s going to cost me more to do the same amount of work,” Plakans says, estimating he’ll shell out an extra $30,000 a year in labor costs.

Some welcome the new requirement. "It’s good policy “in the hypercompetitive retail industry to pay people as much as we can, not as little as we can,” says Craig Boyan, president of H-E-B Grocery in Texas said. Boyan, spoke on the White House conference call with reporters.

And some are taking the rule in stride. Alon Barzilay, CEO of Barzilay Development in Philadelphia, says he’ll keep the 10 affected white-collar employees as salaried but ask them to track their hours so they can be paid overtime. That, he hopes, will motivate them.

“It may cost me more money but I may get more results,” he says.

Contributing: Hadley Malcolm and Nancy Trejos

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