Here’s how overtime changes could hurt restaurant employees

The National Restaurant Association and other business groups aren’t waiting for the Department of Labor to release its proposed changes to overtime regulations to make sure the regulators who are rewriting the rules fully understand the impact changes could have on opportunities for career advancement within restaurants and other industries.

The NRA is co-leading the Partnership to Protect Workplace Opportunity to educate policymakers about how changes to overtime regulations will affect businesses at the ground level.

More than a dozen leading business organizations have joined so far, including the Society for Human Resource Management and organizations representing retailers and manufacturers. Together, coalition members employ millions of Americans.

“The types of changes that are being discussed have the potential to radically change standards that have been in place for decades,” said Angelo Amador, NRA vice president of labor and workforce policy. “Any change in overtime regulations will affect all industries, but the restaurant and retail sectors may be hit particularly hard.”

The background: President Obama in March issued a memo asking the DOL to update overtime regulations, which were last revised a decade ago. Since then, the DOL has held a roundtable session with business leaders to hear their concerns about possible changes, but hasn’t released its proposal.

Three criteria are now used to determine whether an employee is exempt from overtime. All three are expected to be targeted for revision:

• Salary threshold: Employees must earn a minimum of $455 a week, or $23,600 a year.
• Manner of pay: Employees must be paid on a salary basis, meaning employers can’t reduce their pay for working a partial day. 
• Managerial/executive: The employee’s “primary duty” must qualify them as an executive, professional or administrative employee.

Get the NRA’s summary of the current rules on overtime.

The challenge for restaurants: Supporters say they want to increase Americans’ take-home pay, but far-reaching changes to the rules could have the opposite effect. That’s what restaurant operators told DOL officials in the recent roundtable session. Specifically, they said:

• Managers could lose pay. If the DOL’s criteria no longer align with the duties restaurant managers typically perform, many will likely be paid on an hourly rather than salaried basis. That could mean lower pay, even with overtime.
• Incentives could disappear. Many restaurant managers and executives start their careers in non-managerial positions and move up to managerial jobs with new, performance-based incentives. A shift back to hourly pay for managers will remove an incentive for other employees to become managers, and make it harder for restaurants to move people up.
• Flexibility will be lost. Under current rules, as long as an employee’s primary duty is management, a manager has the flexibility to occasionally pitch in on duties traditionally performed by non-managerial employees, like preparing food or operating a cash register, depending on the restaurant’s needs at the time. Bureaucratic, inflexible rules on managerial duties could mean managers lose that ability.

An increase in the salary threshold and change in the duties requirements could all but ensure that restaurant managers would no longer qualify as “exempt” employees, Amador said.  “We won’t get a sense of the precise impact until the proposal is released, but we are very concerned that the DOL will take an entire class of restaurant managers and re-define them as hourly employees.”

The DOL has said it intends to propose its overtime-rule changes by November.

President directs DOL to revise overtime-pay rules

President Obama, in a first step toward a proposal that could ultimately allow millions of additional employees to qualify for overtime pay, signed a memorandum to Labor Secretary Thomas Perez March 13 asking the Dept. of Labor (DOL) to propose revisions to federal overtime regulations to reflect the “changing state of the workplace.”

The federal Fair Labor Standards Act (FLSA) requires employees to be paid time-and-a-half when they work more than 40 hours a week. The DOL is in charge of writing the rules to explain who’s exempt from overtime pay under the FLSA.

Under current DOL rules, employees who work in a “bona fide executive, administrative or professional capacity” are exempt from the FLSA’s overtime provisions. The DOL sets three tests an employee must meet to fit this classification: 1. They must be paid a salary of at least $455 a week ($23,660 per year); 2. They must be paid on a “salary basis,” and; 3. They must pass a duties test that shows they qualify as executive/managerial, professional or administrative employees. DOL regulations spell out the fine print for the salary and duties tests. The National Restaurant Association’s Legal Problem Solver for Restaurant Operators summarizes the existing rules. The Louisiana Restaurant Association can provide you a copy of this information. 

The Obama Administration has not said what changes it’s looking for, but indicates it’s trying to increase pay for millions of private-sector employees.

Any new regulation would have to go through a lengthy process that would require the DOL to solicit public comments on proposed changes.

The National Restaurant Association is tracking this issue closely. The overtime rules were significantly revised about 10 years ago, largely in an effort to the make the rules clearer for both employers and employees. The issue has huge implications for all employers.

In his memorandum, the President said “regulations regarding exemptions from the Act’s overtime requirement, particularly for executive, administrative, and professional employees…have not kept up with our modern economy. Because these regulations are outdated, millions of Americans lack the protections of overtime and even the right to minimum wage.”