Web Exclusive | June 2016 | By Bruce Horovitz

The Next Labor Battle? Overtime

New overtime rule could force restaurant owners to change salaried workers to hourly.
QSR chains face legal fight after new over time pay law changes salary worker rules.
The new rule expands eligibility for overtime pay to those earning $47,476 or less annually. thinkstock

Until recently, much of the restaurant industry’s employment news focused on minimum wage laws and the push for $15-an-hour pay.

But the latest employment heat riling up the restaurant industry primarily affects lower-level managers who work overtime. The issue came to a head last month when the Department of Labor updated overtime regulations with new salary and compensation levels that will impact restaurants coast to coast.

The new rule vastly expands eligibility for overtime pay to those earning $47,476 or less annually. Previously, only those earning less than $24,000 were eligible for overtime.

The change could come at a steep cost to restaurant owners. Before the new rule takes effect December 1, operators nationwide might be forced to decide whether their salaried managers will receive modest pay boosts so that they can remain exempt, or if they will be asked to become hourly workers.

National Restaurant Association (NRA) executives say that while the ruling could have been far worse, it’s still a bad deal for restaurant owners and workers.

“When a salaried employee is made an hourly employee, you end up with a disgruntled employee,” says Angelo Amador, senior vice president and regulatory counsel for the NRA.

More than 80 percent of restaurant owners and 97 percent of restaurant managers start their careers in non-managerial positions and move up with performance-based incentives, according to the NRA. But under the new guidelines, Amador says, many salaried employees who worked hard to move up the ladder could be forced to become hourly employees again.

“When a salaried employee is made an hourly employee, you end up with a disgruntled employee.”

He points to one owner of a 32-unit restaurant chain who told Amador he plans to change from one manager per store to one manager for every two stores. Another restaurant owner in Idaho reported he will demote and even let go of some managers, while other managers will be asked to work longer hours.

If there’s a silver lining in this rule change for the industry, it’s forcing all restaurant owners to do a top-to -bottom audit of their workforce. That’s a good thing, says Jonathan Adler, partner at the New York City law firm Herrick Feinstein, which has a group that specializes in employment practice.

“This is an opportunity to do some risk management,” Adler says. “This is something that people in the restaurant industry don’t make enough time for: planning ahead.”

He recommends restaurants take this opportunity to reevaluate their staff through three steps. The first step, he says, is to take a hard look at staffing and identify which employees might be impacted. Step two, he says, is to decide whether or not it’s advantageous to reclassify some salaried employees as hourly. Finally, restaurant owners will have to decide if they want to reduce staff or increase investments in automation that typically require less staffing.

“It’s all about taking a holistic look at staffing,” Adler says.

Of course, restaurant owners should start by being informed, he adds. Many of his firm’s restaurant clients weren’t even aware of the rule changes until he told them. “Most are just learning about it through their payroll providers or their accountants or attorneys,” Adler says.

Restaurant owners also need to very carefully track employee time before the overtime rule kicks in, says Joyce Maroney, director of the Workforce Institute at Kronos, a workforce management and technology company.

Much of the impact of the rule change could be psychological, Maroney says. “If I’m a manager who suddenly has to track my own hours, it may feel like a step back to become an hourly employee—even if I’m making more money,” she says.

The bottom line is that, between now and December 1, restaurant operators will be paying extra close attention to any employee within a $1,000 range of that new overtime wage ceiling, Maroney says. Many will receive raises that lift them above the ceiling, while others will suddenly find themselves re-classified as hourly workers.

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