Are Labor Costs On the Rise?

Keeping labor costs low is a big part of running a successful business, so with the new proposed overtime pay threshold employers are beginning to wonder how they can pay their employees and still remain profitable. Currently, the wage threshold is set at $455 per week, which amounts to $23,660 annually. According to a study conducted by Oxford University, there are about 3.3 million salaried workers across the retail and restaurant industries who can be exempt from overtime pay because they earn at least $455 per week [1]. If this threshold gets raised it means more workers qualify for overtime pay, costing businesses more money. 

A Look at the Numbers

While at this point we aren’t sure what the new proposed threshold will be, some say the threshold could fall in the range of $42,000 and $52,000. For the sake of understanding let’s say the new overtime threshold is $51,000 per year. This new regulation would allow overtime pay for 2.2 million workers within the retail and restaurant sectors alone [2]. This means workers who do not meet the $51,000 per year mark would be eligible for time and a half. 

What Businesses Can Do

If you’re a business owner you’re probably wondering what you can do to combat this potential rise in labor costs. While there are a few options, some are more favorable than others. 

  • Doing away with bonuses and benefits 
  • Reducing hours worked to fewer than 40
  • Reducing compensation for hourly rate to balance out increase
  • Hiring more part-time workers to bridge the gap in hours

A study done by Oxford shows that many employers would likely hire hourly part-time workers 
with a smaller compensation amount in order to combat this change in labor costs [2]. Another proposed solution is to automate back-office administrative jobs in order to get the job done quicker. Options for this include software that can assist with payroll, timekeeping, and HR processes. 

What Employees Can Expect

An employee’s job title is what will dictate whether or not they are impacted by this potential change. Department managers, assistant managers, supervisors, office clerks, and positions of the like are likely going to be the most affected by this increased threshold. This does not mean these workers will see an increase in pay simply because of a change in regulation, their employer may simply find ways to reduce their labor costs. 

At this point it is hard to say how this proposed change in the overtime threshold will change an employee’s actual take home pay. This could vary from business to business or even position to position. As an employer you need to start thinking through some ways you can keep your labor costs low and what options are best for your business. As an employee, there isn’t much you can do but wait and see what the new proposal brings and how your employer chooses to respond.