The next headache for retail - overtime pay rules may be changed
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The retail sector could be impacted by a new proposal from the Department of Labor to increase the salary limit for overtime eligibility under the Fair Labor Standards Act up to $1,059 per week, or $55,068 per year.
The DOL noted that many low-paid salaried employees work side-by-side with hourly employees, doing the same tasks and often working over 40 hours a week without any extra OT pay. The updated regulations would expand overtime eligibility to about 3.6M workers. The proposed threshold would mark a dramatic increase from the current level of $35,568 per year, which was set by the Trump administration in 2019, and would be higher than the $47,476 threshold that the Obama administration attempted to set before legal challenges flared up. The proposed rule also calls for resetting the exemption threshold every three years to keep up with changes in compensation levels.
The proposed overtime rule could impact retailers far and wide, including Walmart (WMT), Target (TGT), Costco (COST) Dollar Tree (DLTR), Macy's (M), Kroger (KR), American Eagle Outfitters (AEO), and Gap (GPS) depending on their management structures. In the past, some retailers have boosted the salaries of managers to above the minimum threshold to avoid the OT rules kicking in. However, analysts see the biggest potential impact in the restaurant sector. The development could clip margins for operators such as Brinker International (EAT), Restaurant Brands International (QSR), McDonald's (MCD), Starbucks (SBUX), Wendy's Company (WEN), Texas Roadhouse (TXRH), CAVA Group (CAVA), Darden Restaurants (DRI), and Chipotle (CMG). "Adding this kind of cost to the already high price of food and years of increasing labor costs will leave many of these operators in the untenable position of raising prices, cutting costs, or closing their doors," warned the National Restaurant Association. There is also the possibility that small business restaurants would be hurt if the rule does not allow for a carveout. The NRA noted small restaurants typically run on a 3% to 5% pre-tax margin.
The post was edited for clarity

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