The Customer Service Downside to the New Federal Overtime Rules

I and others have written a number of times about the many downsides to new Federal rules that will force most junior salaried managers to start punching a timeclock.

I run a service business and these rules affect us substantially.  Like many retail operations, we have hourly employees who work for a local manager who is salaried and generally earns less than the new $47,476 annual cutoff.   We are not entirely sure how we are going to comply, but in the near-term compliance will likely involve a combination of hard hour limits for managers, some devolution of manager tasks to minimum wage workers, and price increases to customers.  In the long-term, we may have to consolidate manager positions.

But there is one additional change that is almost certainly going to occur -- a reduction in customer service.  To understand why that is, you need to understand the retail and services world.

In the service world, sh*t happens.  The ice machine suddenly breaks.  An important worker just does not show up.  A customer complains that no one is cleaning the bathroom.  Because of razor thin margins, service work loads are carefully scheduled.  There simply is not a lot of slack.  So when something unusual happens, it is usually the local manager who takes up the slack.  They fix the problem, somehow, even if it means they have to clean the bathroom themselves.  Not one of my managers has bathroom cleaning as part of their duties, but every single one of them likely cleans bathrooms every month, because they are covering the performance gaps left by other employees.

When managers are subject to overtime, this changes.  We only get 40 hours a week of that person's time (at least at a reasonable rate) and so every hour must count.  Every hour must suddenly be carefully husbanded and spent only on value-added tasks, like balancing the register and merchandising the shelves.  We can't waste them on the manager covering for employee shortcomings.

So who will clean the bathroom when the employee assigned to do so fails?  Who will cover the second register when an employee just does not show up for work?  Who will expedite the ice machine replacement so customers don't have to go long without ice?  I don't know.  Maybe nobody.  Or at least nobody as long as prices charged to customers aren't raised substantially.

Postscript:  If you are not in retail or a service business, you may read this and say, "well, if you hired better workers, they would be more reliable and you wouldn't have to cover for them."  I have two responses.  First, only someone who never worked retail could say that.  People are individuals and have their own needs and lives, and those sometimes conflict with getting the job done, no matter how well we screen.

Second, let me tell a story from this last weekend when I was at the graduation ceremony for Amherst College.  Amherst could reasonably be considered among the 10 most selective schools in the nation.   It is consistently ranked as the #1 or #2 small liberal arts college in the nation.  This weekend they selected an outstanding student from this outstanding bunch to make a presentation at graduation.  In it, she told a story of never, ever being able to get to a certain class, that is held at 12:30 in the afternoon, on time.  She said she was late every single time.   This is supposedly one of the elite young people in the country who would never even consider accepting a "menial" service job with my company, but never-the-less can't get to a class on time.


  1. Jim Collins:

    Overtime exempt employees are usually considered management and are not required to be union members. By removing their exemption some will now be REQUIRED to become union members. Everything the Obama Administration has done in regards to labor has favored the unions.

  2. LoneSnark:

    Service businesses where I live keep minimum wage employees on call without pay in case a fellow minimum wage employee doesn't work out, or just to cover demand spikes. It is a hardship on the employee to keep their afternoon free just in case they're needed, but all jobs have their indignities.

  3. ToddF:

    $20 says Amherst Grad majored in something worthless to the productive half of America and ends up in Government, making rules for people like yourself.

  4. Craig Loehle:

    Any job involving travel can lead to more than a 40 hr week or 8 hr day, which most companies compensate for with comp time or other perks. Travel is key to a young employee who wants to move up. So they go to a tech conference, but can't attend the evening banquet because they will go over their hours? Can't meet with clients over dinner because they will go over? It defies common sense. It hurts the employee.
    In poorer parts of the country even the store manager will now become hourly.

  5. BernieFlatters:

    I have never liked the idea of uncompensated on-call status with hourly workers.

  6. BernieFlatters:

    When I think about a conversation between management and a service worker yearning for $15, I imagine management saying, "why do you think we will keep you for $15 when we could get more for our money with someone else?" I wonder if that happens. If Seattle mandates $15, but Lynnwood doesn't, doesn't that mean that Mr. Manager would hire only the best, getting rid of the rest? Or maybe he would hire one adult for $15, and fire the two teenagers at $8.

  7. Matthew Slyfield:

    Don't bet that they won't keep pushing the envelope until even CXOs have to become clock punchers.

  8. mharris717:

    I'll speculatively defend the Amherst grad. Imagine you have to take a pointless or super easy class in order to graduate. It's boring, and the professor doesn't punish people for being late. You'll probably be late a lot. It's not a value judgement, just a question of incentives. Arriving on time was of no value to her. Assuming a late arrival wasn't disruptive, I'm cool with it.

  9. Not Sure:

    If it was a trivial issue, why would anyone even bother to bring it up?

  10. Tom Murin:

    Downside? There is no downside. There are no negative consequences to Obama's rules and regulations. Rainbows and ponies! They love to make fun of the term "a rising tide lifts all boats," but they think that they can just increase wages and magically lift people out of poverty, or to make a "living wage" (whatever that might be). The government tide can do what the regular economy can't.

  11. Bruce Zeuli:

    Let's see, 94% of congressmen pay their interns $0 per hour. So time and a half on $0 hourly rate is $0 per hour for overtime. Seems pretty clear why these kinds of policies are big win in Washington.

  12. sdfjiojgo:

    Technically, I suspect the businesses that win this in the end are the ones that'll be good at handling slack through adding employees or hours that are used to troubleshoot for multiple locations and contracting businesses that'll find a way to monetize taking up slack for multiple businesses.

    I believe it'll be net-net worse for a business like campgrounds, as both solutions won't quite work in a scenario where the location is isolated.

  13. Not Sure:

    Re: Rising tides...

  14. LoneSnark:

    All in hopes of triggering a perpetual Democratic domination over politics through the ground-swell of union money flooding into politics. Good thing money alone doesn't win elections.