A federal judge's order on Tuesday blocking the Obama administration's overtime time rule from taking effect next week was the second big surprise most companies hadn't been counting on — the first being the election of Donald Trump.
Some companies, including Wal-Mart (WMT), have already given managers a raise to comply with the law. Others, like Carrols Restaurant Group (TAST), the biggest franchisee of the Restaurant Brands International (QSR) Burger King chain, had said they were shifting managers into hourly workers to avoid any increase in pay.
Even on Tuesday, about an hour before the injunction was announced, Dollar Tree (DLTR) told analysts it would see extra labor costs of 3-4 cents per share in the fourth quarter due to the overtime rule taking effect on Dec. 1.
The Obama administration rule was set to lift the minimum salary exempting employers from paying time and a half for overtime to $47,476 from $23,660.
"We have been preparing for and testing changes to our compensation structure in regard to the new (Fair Labor Standards Act) regulations," Bob Sasser, CEO of Dollar Tree, told analysts, according to a SeekingAlpha transcript. "We have communicated these changes to our teams to ensure our company's compliance when the new rule will become effective on December 1."
The good news for employees is that pay hikes that already have been granted and accounted for are more likely than not going to stick to avoid a hit to morale. Managers who were effectively demoted to clock puncher, though, may remain on salary.
Because Trump's election put the eventual fate of the overtime rule in doubt, companies that were struggling with the change likely delayed taking actions that were either negative for the bottom line or employee retention. Some companies may have planned to give managers a raise but not yet told them.
While it's unclear whether the injunction could survive an appeal, the cloud over the controversial overtime rule will make it that much easier for the incoming Trump administration to walk away from the rule, or to dilute it.
IBD'S TAKE: The likely weakening or retraction of the Obama administration's overtime rule is just one of the reasons why Donald Trump's victory was absolutely huge for McDonald's.
Wal-Mart boosted minimum salaries for assistant store managers to $48,500 from $45,000, effective in September, to avoid being liable for overtime pay.
President Obama initially touted the rule change as a way to keep employers from mistreating salaried workers by giving them what amounts to a paltry wage, sometimes equivalent to the minimum or less when all the extra hours worked were factored in. Yet the likeliest beneficiaries of the change are those who were already making above $40,000, so boosting their pay wouldn't hit bottom lines too hard.
Here's what some other companies have said:
Panera Bread (PNRA), on its Oct. 26 earnings call, said it was holding off giving earnings per share guidance for 2017, in part because of the "final timing of FLSA" changes, implying that election outcomes or an effort to delay the change in Congress could alter the Dec. 1 date.
Planet Fitness (PLNT): "With some of the law changes on the FLSA that kick in ... our manager salaries will go up a bit starting in Q4."
Dollar General (DG): "We anticipate the incremental expense will be about $0.03 to $0.04 per diluted share in the fourth quarter of this year."
