When the U.S. Department of Labor’s (DOL) updated overtime regulations take effect Dec. 1, savvy restaurant operators across the country will be ready for the changes, which will extend overtime pay protections for more than 4 million salaried workers.
However, many others will not.
Nevertheless, it’s not too late for operators to get ready, say industry experts, many of whom recommend tactics ranging from strategic planning to restructuring to help them comply with the new guidelines.
“We’ve seen a lot of people … they still have their head in the sand; don’t believe it applies to them,” says Dean Small, founder and chief executive of Synergy Restaurant Consultants. “If you don’t evaluate your labor needs, you’re going to be in big trouble.”
Under the new rules, salaried employees making up to $47,476 per year (or $913 per week) will become eligible for overtime pay, compared with the current threshold of $23,660 per year (or $455 per week). As a result, restaurant operators will need to track the hours of a much larger number of employees to minimize compliance risk. Employers who violate overtime pay requirements will be subject to penalties of up to $1,100 per violation.
Additionally, compliance with the new rules may further exacerbate the challenges operators already face in attracting and engaging new employees, as well as retaining existing team members.
A recent survey of managers by the National Retail Federation (NRF) found that two-thirds of respondents predicted the new rules would cause employee morale to decrease, and nearly half of the respondents said the changes would make them feel as though they are performing a job instead of a career.
While the changes to the rules are intended to increase Americans’ take-home pay, restaurant operators believe that the changes would have the opposite effect. In particular, they indicated that the new rules would eliminate incentives for employees to become managers and make it harder for restaurants to promote employees. Even though the new rules don’t include any changes to the duties test, there is still the possibility that the flexibility managers used to enjoy would be lost, eliminating their ability to pitch in on non-exempt tasks, like preparing food or running the register, depending on the restaurant’s needs.
What operators should do now
To comply with the new rules and avoid costly fines, as well as attract and retain productive and engaged employees, industry experts agree that the first step for restaurant operators is to assess the impact of and define their strategy for managing the new rules.
Indeed, “calculate the impact,” is the first of a seven-step process for meeting the guidelines recommended by Aaron Allen, a restaurant consultant, speaker and industry analyst.
“A lot comes down to calculating the impact [of the new rules] on their organization and many operators haven’t gotten around to doing it,” says Allen. “It’s become so complex that a lot of operators are just putting out fires. Preparing for what’s coming is strategic work, not just tactics for crisis.”
The subsequent six steps in Allen’s process are:
- Review the different strategies that can be used to close the gap identified in step one
- Talk through the changes with those who will be impacted
- Make adjustments ahead of time rather than waiting for the deadline
- Implement the scheduled operating adjustments
- Review impacts from rolling out the changes
- Continuously monitor and adjust the changes as necessary.
Similarly, Small, whose firm advises many restaurant chains on compliance issues, says “smart companies” will first go through some internal strategic planning.
“Have an internal strategic plan — who needs to be a manager and who needs to be hourly — figuring out to how to compress management/labor schedules without having to have managers at the threshold level,” says Small. “That to me is the smartest approach.”
Jeffrey H. Ruzal, senior counsel in the Employment, Labor & Workforce Management practice in the New York office of Epstein Becker Green, also advises hospitality employers to first conduct a workforce audit to determine, for example, whether or not employees currently being treated as exempt meet or exceed the threshold for the new rules. That and other recommendations for hospitality employers working to comply before the December deadline appear in Ruzal’s article, “Prepping” for the DOL’s New White-Collar Exemption Rule,” which was published in the June 2016 issue of Epstein Becker Green’s Take 5 newsletter.
“If an employee’s salary need only be increased slightly to satisfy the new rule, it may be an easy decision to simply provide the employee with that salary increase,” Ruzal writes. “But if you would have to provide a substantial salary increase to meet the new threshold, it may be easier to reclassify the employee as non-exempt.”
But Ruzal cautions employers that converting employees from exempt to non-exempt may initiate other issues that employers will need to proactively address — such as estimating how much overtime an individual employee might be expected to work in order to determine a new hourly rate and ensure compliance with the overtime laws.
“Largely what’s happening is operators are taking rudimentary steps that will result in broad sweeping changes that will end up negatively impacting one of the [restaurant’s] value groups,” added Allen. “It’s not about shortcuts. [Restaurants] need to be an employer of choice.”
Despite everything, some operators may be hoping that they can skip some or even all of these steps and remain under the DOL’s radar. However, it’s a big risk, industry experts caution, given that the DOL has a history of holding restaurant operators accountable for compliance violations. Case in point: The DOL has brought more than 34,000 cases against restaurants since 2009 with over $200 million recovered in back wages from dining organizations.
“This is the reality,” says Small. “Operators really have no choice but to get on board sooner rather than later.”