Walmart Wants To Avoid Paying Overtime. That's Actually A Good Thing.

If you want to know how the White House's new overtime rule will play out, take a look at what's going on at the world's largest retailer.
Walmart was paying a minimum of $45,000 to its entry-level managers. But thanks to the Obama administration's new overtime rules, it's decided to pay more.
Walmart was paying a minimum of $45,000 to its entry-level managers. But thanks to the Obama administration's new overtime rules, it's decided to pay more.
Mike Blake/Reuters

A lot of managers at Walmart stores are getting a pay raise these days. But they don’t need to thank their bosses for it ― they should probably thank the White House.

As Reuters reported Tuesday, the world’s largest retailer is going to be raising the pay floor for its entry-level managers from $45,000 to $48,500 per year. That’s a nearly 8 percent raise. Not bad.

So how does the White House figure in this?

According to Reuters, Walmart is implementing those raises in response to a new federal regulation. Through executive action, President Barack Obama has doubled the so-called “salary threshold” from a lowly $23,660 to $47,476. Under overtime law, if a worker’s salary falls below that threshold, he or she must receive time-and-a-half pay for any hours worked above 40 in a week.

Walmart’s new salary minimum will put its low-level managers about a thousand dollars above the new threshold ― which allows the company to avoid paying them a premium when they work overtime. As a Walmart spokesman told Reuters, boosting the managers’ pay “would make a lot of business sense for our company.”

The United Food and Commercial Workers Union, which has battled Walmart for years, released a statement calling the company’s move selfish. “Make no mistake, Walmart’s cynical decision to ‘raise’ the annual salaries of certain employees is for the benefit of Walmart and only Walmart,” a spokeswoman said.

But actually, the decision benefits Walmart and its employees. Under the old rules, Walmart could work those managers as long as it wanted to, paying them nothing more than their flat salary of $45,000. Now, Walmart is going to have to pay them a higher salary to exempt them from the new overtime rule. Those managers still won’t be getting time-and-a-half pay when they work long hours, but they will be getting bigger paychecks nonetheless. (Hourly workers, who make up the bulk of Walmart store employees, are already entitled to overtime pay under the law.)

For the liberal economists who championed the reforms, the whole idea was to give companies like Walmart some tough choices. If you want to keep salaries low, then be ready to pay time-and-a-half when someone works overtime. But if you don’t want to pay overtime at all, then you better keep your employees’ hours in check ― or simply raise their salaries above $47,476.

Walmart, evidently, is taking the latter route.

You can bet that multiple retailers are grappling with the same dilemma, since the new rule is set to go into effect in December. For years, the industry has gotten away with working employees for exceptionally long hours at modest pay. All retailers had to do was classify those workers as “managers” and make sure their salary was above the low threshold. The dollar-store industry, in particular, has taken advantage of the old overtime rules, forcing many managers to work up to 70 hours a week for a salary in the low $30,000 range and no additional pay. They won’t be able to do that anymore.

That’s why labor unions advocated hard for raising the salary threshold. As one of them put it last year, “It is the most significant step the Obama Administration can take on its own to address our country’s low-wage, part-time economy, and will improve the standard of living for millions of Americans.”

That union, by the way, was the United Food and Commercial Workers.

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