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How overtime pay proposal could impact restaurants

How overtime pay proposal could impact restaurants

President Barack Obama proposes doubling threshold for overtime eligibility

Tens of thousands of additional restaurant workers and managers could become eligible for overtime pay under a new rule President Barack Obama proposed Monday that would double the threshold for overtime eligibility.

The rules could significantly impact the restaurant industry and operators’ labor costs. Restaurant operators rely heavily on full-time assistant managers and managers who are salaried and often work more than 40 hours a week without overtime pay. The proposal could make many managers eligible for overtime and force some restaurant owners to alter how they operate.

According to the proposal, which Obama announced in a blog on the Huffington Post, the threshold for overtime pay would increase from $455 a week, or $23,600 a year, to $970 per week, or $50,440 per year.

Nearly 5 million additional workers would be eligible for pay 1.5 times their hourly rate for all hours worked above 40 hours per week. The rule could be in place by next year, Obama said.

“That’s good for workers who want fair pay, and it’s good for business owners who are already paying their employees what they deserve — since those who are doing right by their employees are undercut by competitors who aren’t,” Obama wrote.

The restaurant industry has been concerned about potential overtime changes for more than a year, since Obama asked the U.S. Department of Labor to propose revised overtime regulations in March 2014. It would be the first change in overtime regulations in more than a decade.

Restaurants said they are still reviewing the rule and could not comment in detail. For instance, a spokesman for Prairie du Sac, Wis.-based Culver’s said the quick-service operator is still studying the regulation, but that “it will likely increase our labor dollars to get the same coverage.”

Industry trade groups sharply criticized the rules, saying they threatened to block worker advancement up the restaurant career ladder.

“While we are still reviewing the Department of Labor’s proposed overtime regulations, at first sign, it seems as if these proposed rules have the potential to radically change industry standards and negatively impact our workforce,” Angelo Amador, senior vice president of labor and workforce policy and regulatory counsel for the National Restaurant Association, said in a statement.

“Supporters of these regulations say they want to increase Americans’ take-home pay, but these sweeping changes to the rules could mean anything but,” Amador said. “More than 80 percent of restaurant owners and 97 percent of restaurant managers start their careers in non-managerial positions and move up with new performance-based incentives. If these regulations stand, that mobility and adaptability of employee schedules, which makes our industry appealing, will be severely diminished.”

The National Council of Chain Restaurants, which is part of the National Retail Federation, said the rule will “seriously impact” chains.

“The regulations being changed today were modernized in 2004 to specifically recognize the unique rule that supervisors in restaurants must perform and the exceptional career advancement opportunities that restaurants provide to hourly workers,” Rob Green, NCCR executive director, said in a statement.

“If allowed to stand, the one-size-fits-all proposal issued today will harm chain restaurant managers’ career advancement, eliminate key management positions, and have a negative impact on customer service and workplace morale,” Green said. “We need policy that encourages workplace advancement and this is a step in the wrong direction.”

More changes impact the labor line

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Labor advocates have been increasingly concerned that the current rule exempts too many salaried white-collar workers who should be covered because their duties are routine and they have little control over their time.

In its notice of proposed rule changes, the Department of Labor noted that some convenience-store managers and quick-service workers may be expected to work 60 hours a week or more, “making less than the poverty level for a family of four, and not receive a dime of overtime pay.”

The proposed rule change would also automatically update the requirements to distinguish between executives, administrative and professional workers who are exempt from overtime and those workers who are eligible.

For the restaurant industry, the overtime regulations come in addition to other major changes impacting the labor line. That includes requirements that companies provide health care to employees who work more than 30 hours a week — a regulation expected to have an outsized impact on restaurants.

In addition, a National Labor Relations Board classification of McDonald’s Corp. as a “joint employer” of its franchisees’ workers, as well as proposals to increase the minimum wage, also stand as issues expected to cause problems for the industry.

“This is a very unfortunate and consistent pattern that will prevent many employers from hiring more workers and expanding their businesses,” Robert Cresanti, executive vice president of government relations and public policy at the International Franchise Association, said in a statement. “IFA will continue to aggressively oppose this proposed regulation throughout the public comment process.”

Contact Jonathan Maze at [email protected].
Follow him on Twitter: @jonathanmaze

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