Have you thought about the impact of the U.S. Department of Labor’s (DOL) new overtime rule?

Quick-service restaurants should really consider adjusting their pay practices now in anticipation of the DOL’s likely implementation of its plan to raise the salary threshold for exempt employees—a change that could make more of your employees eligible for overtime.

In a proposed rule back in August, DOL announced its intention to significantly raise the exempt salary threshold from $684 per week to $1,059—meaning employees would need to earn $55,068 or more per year to be exempt from overtime pay—a change the agency says would impact 3.6 million workers. Specific to the quick-service industry, your assistant and general managers are most likely to be affected.

The White House budget office recently announced that it is reviewing the rule, which is the final step before it is shared with the public. Although the final rule will likely face legal challenges, you can’t bank on a court halting its implementation, which means you should start planning now. Here’s a seven-step action plan to help you prepare as the rule is finalized.

1. Review Pay Practices and Prepare for Compliance

Under the federal Fair Labor Standards Act (FLSA), employees generally must be paid an overtime premium of 1.5 times their regular rate of pay for all hours worked beyond 40 in a workweek—unless they fall under an exemption. One of the criteria to qualify for an exemption is earning a weekly salary above a certain level.

Currently, the salary threshold for exempt employees is $684 a week ($35,568 annualized). The DOL’s proposal, if finalized in its current form, would raise the rate to $1,059 a week ($55,068 annualized) or high depending on cost-of-living adjustments. The proposed rule would also automatically update the salary threshold every three years, which means you’d have to adjust your budget accordingly. These are big changes that will require some planning if you have exempt employees (read: your assistant and general managers) who earn less than the proposed amount.

2. Work Through Your Decision Tree

Start by creating a list of your exempt employees who currently earn between $35,568 and $55,068 a year. You will have to decide whether to raise their salary to meet the new threshold or convert them to non-exempt status. If you decide to convert them, there are many considerations to take into account and you should work with legal counsel to review:

• how much you will increase pay for affected employees;
• how you’ll calculate the “regular rate”;
• how you’ll handle incentives and bonuses;
• how you will track working hours; and
• how benefits will be affected.

Additionally, you may want to start tracking their actual hours worked now to help you understand the potential impact of converting to non-exempt status as those individuals will need to be paid overtime.

3. Consider the Impact on Employee Morale

Reclassifying employees to non-exempt could have a negative impact on morale. Many employees associate prestige with being classified as an exempt-salaried employee, they like the flexibility that comes with being salaried, and they don’t want to track and record their hours worked. Therefore, employees may view a switch to non-exempt status as a demotion.

4. Plan to Provide Advance Notice of Changes

In addition to developing communications focused on employee relations and morale, you’ll want to provide a written communication to each employee about the specific changes to their compensation and what new responsibilities come with the changes, such as timekeeping, meal and rest breaks, record keeping, and other requirements.

Note that some states require advance notice of wage changes, so you should check your local requirements. Regardless of the state law, however, you should clearly communicate the new terms of employment before they take effect.

5. Develop a Training Plan for Managers and Newly Non-Exempt Employees

We highly recommend that you provide detailed training to newly reclassified employees and their managers prior to the changes taking effect. There’s a lot to learn, and you’ll want to make sure to cover things like scheduled hours, OT approval policies, timekeeping procedures, rules about meal and rest breaks, and more.

6. Ensure Exempt Employees Meet the Duties Test

Besides the salary test, exempt employees also need to satisfy certain duties requirements. Neither their job title nor job description alone determines whether an employee qualifies for a white-collar (or any other) exemption. This is a good opportunity to ensure they meet these standards as well.

7.Review Applicable State Laws

It is important to remember that other jurisdictions can have higher, stricter, or different wage and hour requirements. For example, some states already have a higher salary threshold for the white-collar exemptions than the FLSA’s $684 per week.

Many business groups have opposed the proposed rule, including the National Restaurant Association’s push back in the form of its officially filed comments with the DOL. It is similar to what we witnessed back in 2016 when the Obama administration attempted to raise the salary level to over $900 per week, but, back then, a federal court judge in Texas blocked the rule from taking effect just days before the hike was set to take effect and the DOL stopped pursuing the rule at that time due to a change in presidential administration.

We cannot predict what is going to happen this time around, but we would encourage you to make sure your quick-service restaurant is prepared because, as of right now, the proposed rule is likely to become final in April and take effect by early summer.

Courtney Leyes and Emily Litzinger are employment lawyers at Fisher Phillips where they regularly partner with restaurant industry clients to minimize liability and reduce risk with preventative strategies focused on compliance, training, and the implementation of best practices. Having both worked in the industry, they understand the delicate balance restaurant employers face when managing a diverse and ever-changing workforce in today’s complex legal landscape.