These retailers will be hit hardest by overtime rule: Analysts

An employee arranges merchandise at a Dollar General store in Arvada, Colorado.
Rick Wilking | Reuters

New rules around overtime pay will be implemented in one fell swoop across the U.S. come December. But the ripple effects are expected to be far less uniform.

Instead, the change is expected to put greater pressure on those retailers with a large number of small stores in low-cost markets, where companies will be required to pay the same salaries as those operating in big cities, according to Goldman Sachs analysts. Namely, Goldman called out dollar stores and convenience stores as most at risk.

Separate research by Deutsche Bank found that dollar stores are likely to feel the most pressure from the new rule, as its analysis of Glassdoor data concluded that store managers at several of the large chains earn average annual salaries between $38,000 and $45,000.

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The Department of Labor's new regulation raised the annual salary threshold dictating which workers qualify for overtime pay (once they pass 40 hours a week) to $47,476 from $23,660, putting them straight in the crosshairs.

Deutsche Bank analyst Paul Trussell said that, to a lesser degree, there could be a modest drag on specialty retailers.

To lessen the impact on their bottom line, Trussell expects retailers to elevate their base pay above the new threshold, or shift certain full-time roles to part-time, he said.

Similarly, Goldman's analysts concluded that the most-exposed retailers may try to offset these costs through measures including limiting employees to 40 hours a week, moving store managers to hourly versus salaried pay, or shifting toward more part-time workers.

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Those potential ripple effects are one reason why the National Retail Federation, the industry's trade group, staunchly disapproved of the change.

"In the retail sector alone, hundreds of thousands of career professionals will lose their status as salaried employees and find themselves reclassified as hourly workers," David French, NRF's senior vice president for government relations, said in a statement.

"The one-size-fits-all approach means businesses trying to make ends meet in small towns across America are now expected to pay the same salaries as those in New York City."

That could have a particularly large impact on small businesses, which are unable to offset their costs through more profitable locations.

Ahead of the final ruling, the Economic Policy Institute said, "The new salary threshold will provide millions of workers with higher wages or more time with their families. It will also give hourly and part-time workers the opportunity to pick up work that might have otherwise been done during overtime by their full-time, salaried colleagues."