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Will Washington’s New Overtime Eligibility Regulations Hurt Retailers?

This week, the White House announced a new labor regulation that will extend overtime eligibility to 4.2 million workers. This regulation raises the minimum salary for workers who must receive overtime pay from $23,660, a rate that was last set in 2004, to $47,476.

This is a big deal. The mean annual wage for a retail salesperson in the U.S. is about $23k according to the most recent data from the Bureau of Labor Statistics, so millions of workers will now be eligible for overtime, and retail is expected to be one of the industries most directly affected by this move. The National Retail Federation (NRF), an industry trade organization, is strongly critical, arguing that the regulation will in effect demote millions of workers, because retailers will need to cut hours and reduce hiring in order to meet the new requirements. Indeed, for those retailers that are struggling to stay afloat while at the same time trying to meet the rapidly changing demands of today’s digitally sophisticated and mobile-enabled consumers, this announcement was no doubt particularly jarring.

Based on the reaction of the NRF as well as that many politicians, there will inevitably be legal and political challenges ahead, so the regulation’s future, in its current form at least, is not assured. However, while the politics play out, retail executives need to consider the impact the new regulation will have on their business plans and strategy, particularly the human resources and hiring piece, and how they can best adapt to the new environment.

One particular area they will need to look at is how this regulation will affect plans for how they sell across multiple digital and physical channels. In the U.S., census data indicates that most gains in retail spending are happening due to growth in online spending. In the last year, total retail increases hovered around 1% per quarter, while those for e-commerce alone grew more like 2-4%.

This translates to less foot traffic in physical stores, or at least less traffic that is resulting in a purchase in a physical store. This means less need for people selling and talking to customers on the shop floor, but more need for people to run multiple processes and operations that power online sales. And this all needs to be powered by technology that can help connect those two worlds and scale up and down as needed, in order to meet periods of surging demand such as holidays and seasonal changes.

So where does the new overtime regulation come in? In the short term, post implementation, it could very well cause a dent in retailer profit margins as they make the shift, which will require changes throughout systems that deal with salaries and compliance such as payroll, insurance, and scheduling. To make matters worse, the regulation is scheduled to go into effect December 1 – just in time for the havoc and extra resource needs that come with the holiday shopping season. The timing, in other words, couldn’t be worse for retailers.

However, in the long term, it could provide the jolt some retailers need to look more seriously at the roles of the people in their organization and if they need to modify those roles or create new ones in order to adapt to changing customer behavior and market conditions. For example, the additions of new technologies in the physical store translates into a need for people who know how to work with those new systems and troubleshoot them when they don’t work properly, an issue I blogged about a few months ago. Perhaps a level of skilled sales associate could be created to manage systems and train other more junior employees. Or maybe merchandisers and buyers who work for physical stores can be cross-trained to learn how to transfer their skills to the online store.

There’s also a huge opportunity here for the companies that sell systems and software to retailers. It is in vendors’ interest to create, position, and sell products and services that help retailers adjust to their new reality. Help with managing salaries and scheduling, compliance, training, and integration with digital systems will be needed going forward, especially in the run up to the holiday season when the change hits (for more on integration needs, see Tim Walters’ recent paper on “The Need for Integrated Customer Experience Management”).

It’s understandable that retailers feel like new federal wage regulations are the last thing in the world they need, and at such a bad time of year. But market forces are also at work that they need to navigate in order to survive. Perhaps by addressing the latter, retailers will figure out a way – with the help of savvy suppliers – to also address the former.



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