This article is based on information published by the United States Department of Labor (DOL). Rewards Network does not provide legal advice. You are advised to consult the rules published by the DOL or an attorney if you have questions.
Thursday, December 1, 2016.
That’s the date set by the U.S. government for businesses, small and large, to comply with new Federal rules on payment of overtime compensation.
Unlike regional debates on adjustments to the minimum wage, this change in the Federal laws governing the payment of overtime affects everyone in every region. It’s critical that, as a business owner, you understand your restaurant’s obligations to its employees, as well as its standing with the Department of Labor.
In essence, the law has increased the maximum annual salary level for employees eligible to receive overtime pay from $23,660 to $47,476 (i.e. $455/week pre-tax to $913/week). Nondiscretionary bonuses and incentive payments (which includes commissions) may be included to satisfy up to 10 percent of the standard salary level. To qualify, these types of payments must made on at least a quarterly basis.
For many employers, this doubling of the maximum salary cut-off could mean a substantial increase in the number of staff who are now eligible to receive time-and-a-half overtime compensation for working more than 40 hours per week.
Given the demands of the average managerial role in the restaurant industry, this could be a significant hurdle for many establishments in the short term.
How many of your salaried employees earning more than $455 a week, but less than $913, work more than 40 hours a week?
How many of your employees who have historically been treated as “exempt” from being paid overtime will now fall into the non-exempt category of employment?
And just what makes an employee exempt anyway?
Exempt or non-exempt?
To be considered exempt post-December 1, 2016, an employee has to be:
- salaried (paid a predetermined amount of money per week);
- at or above a threshold of $47,476; and
- satisfy the “Duties Test.”
Set by the Fair Labor Standards Act (FLSA), a Federal regulation that governs how exempt status can be conferred, the duties test is a condition in part based upon three categories of duties: executive, professional, or administrative.
The new overtime rules did not alter the Duties Test. It remains unchanged from its original form, and is still as much a factor in determining exempt or non-exempt status as salary or pay threshold.
Executive duties involve the management of two or more employees, with genuine input into personnel matters, such as:
- interviewing, selecting, and training employees;
- setting rates of pay and employee work schedules;
- overseeing and reviewing employee productivity, handling employee grievances or complaints, or disciplining employees;
- delegating and assigning work among employees;
- determining the types of equipment to be used in performing work;
- planning budgets;
- monitoring employees’ work for legal or regulatory compliance;
- providing for and overseeing workplace safety and security.
Professional duties are those which are predominantly intellectual, require specialized education, and involve the exercise of discretion and judgement. Typically positions that are considered professional require schooling past high school, and most often past college-level, in areas of studies considered academic or creative, not skilled trade.
Administrative duties can become exempt when they involve:
- non-manual or office work, that is
- directly related to the management or operation of the business or its customers, and
- primarily involves the exercise of independent decision-making and discretion about
- matters considered important to the operation of the business.
Not every administrative employee will qualify as exempt, as certain clerical employees who have no decision-making authority will more likely be considered non-exempt.
In any event, most front and back of the house staff in restaurant establishments making an annual salary less than $47,476 will fail to satisfy any of these three standards, making it more likely that the new overtime rules will apply to them.
There is, of course, another wrinkle to consider when the new overtime rules go into effect. To the extent existing employees will no longer qualify as “exempt,” you (the employer) will have an obligation to keep accurate and contemporaneous payroll records for those employees. It’s the employer’s burden to prove how overtime is calculated, not the employee’s.
Federal regulations do not require that the records are kept in any particular form, but they do require that the records contain certain information about the employee, the hours worked, and the wages earned.
This could mean utilizing time clock technology, as built into or separate from your point of sale system, or hard paper records. Either way, complying with Federal regulations may require a process change for many establishments with assistant managers (or other previously exempt employees) working without strict timekeeping.
What are my options?
For all businesses with a significant number of employees in the affected salary range, there are a lot of decisions that need to be made in advance of the December 1, 2016 implementation deadline. And not every restaurant will deal with them in exactly the same way.
The Department of Labor suggests various options for how employers can proceed with making sure they are fully compliant:
- Pay time-and-a-half for overtime work to non-exempt employees.
- Raise non-exempt employee salaries above the $47,476 threshold, making them exempt.
- Limit non-exempt employees to 40 hours of work per week.
Or some combination of the above. Your accountant should be able to work out best case scenarios for each employee — or each group of employees — based upon their current salary and duties, and the likelihood of them needing to work overtime hours.
It may mean shuffling job positions, implementing layoffs, or even hiring new staff if limiting overtime leaves holes in your service schedule. Sit down with your management team to get a clear sense of the affected employees’ roles and the risks involved on the ground before making any decisions. Your management team should be able to identify where any changes in hours will affect their shifts the most.
Above all else, clear communication with your entire staff at all points in the process is key. Nothing hurts morale in the workplace like uncertainty, and uncertainty breeds rumor. You don’t want to risk losing staff before you even have a chance to make an operational decision.
And if you do end up reclassifying duties or roles for an employee, take great care to ensure they understand the reasons behind the decision. While it might seem like a small thing, especially if their duties or pay rate are ostensibly the same as any other worker, many assistant managers take great pride in their job titles.
If it is necessary to change their job titles to conform with their new non-exempt status, this should be handled sensitively, as these employees may feel slighted and upset by the change.
But how will I pay for it?
If your restaurant’s short term finances are looking to take a hit with the new overtime regulations, Rewards Network may be able to help. Our restaurant financing program doesn’t just get your business the cash it needs to maintain operations – we also drive new business through your doors.