Exempt Status in the Restaurant Industry: Reassessing Your Workforce in Light of the DOL’s New Rule

In April 2024, the United States Department of Labor (DOL) published a new rule that significantly increases the salary threshold for exempt employees: how do these changes impact the restaurant industry?  With a scheduled increase in the salary threshold slated for January 1, 2025, employers may want to review their exemptions to ensure each position that has been classified as exempt passes the requisite legal tests, including both the salary and duties tests.  

As employers are aware, the Fair Labor Standards Act (FLSA) requires covered employers to pay employees a minimum wage for all hours worked and time-and-a-half (overtime pay) for hours worked over 40 in a workweek.  However, employees can be exempt from these requirements if certain tests are satisfied.  Generally, to be exempt, federal law requires satisfaction of the “salary” and “duties” tests.  The salary test refers to the fact that exempt employees must be paid a salary and for most exemptions, there is a specific salary threshold.  The duties test refers to the actual duties and responsibilities of the position.  The key changes in the DOL’s new rule relate to salary and compensation, not the duty requirements.  

Salary Test for Exempt Employees

Specifically, on July 1, 2024, the salary threshold for exempt employees increased to $884 per week ($43,888 annualized) and the highly compensated employee annual compensation threshold increased to $132,964 per year, including at least $844 per week paid on a salary basis or fee basis depending on the circumstances.  Starting January 1, 2025, the salary threshold will again increase to $1,128 per week ($58,656 annualized) and the highly compensated annual compensation threshold will increase to $151,164 per year, including at least $1,128 per week paid on a salary or fee basis depending on the circumstances.  In addition, starting July 1, 2027, and every following three years, the salary level for exempt status will increase based on current earnings data.  As a result, many employees in the restaurant industry may no longer be exempt due to these increases unless their salary is increased consistent with the law. 

Duties Test for Exempt Employees

While the duties test is not changing with this new rule, employers may wish to use this time to review the exemptions under this test to determine if employees have been classified appropriately.  The most common exemptions in the restaurant industry are generally the “white collar” exemptions, meaning the employee is employed in an executive, administrative, or professional capacity, although there are other exemptions.  Notably, employers can’t rely on job titles and descriptions alone—exempt status is based on actual job duties and may differ in each scenario. 

To satisfy the duties test under the executive exemption, three elements must be met: (1) the employee’s primary duty is management of the enterprise or a customarily recognized department or subdivision; (2) they customarily and regularly direct work of two or more employees; and (3) they have authority to hire/fire others or their suggestions and recommendations as to hiring, firing, advancement, promotion or other status change are given particular weight.  Common examples of employees falling within this exemption include certain managers and supervisors.  For example,, a kitchen manager overseeing 25 full-time employees could satisfy the duties test for exempt status.  In contrast, a beverage manager that does not supervise others might not.  While many managers and/or supervisors in the restaurant industry engage in a combination of exempt and nonexempt work, performance of nonexempt work does not defeat exempt status if the above requirements are met.  For example, a manager may assist in cooking meals, attending to guests, or taking orders during a particular rush hour to ensure operations run smoothly, but if the manager’s primary duty remains managing their department or subdivision, they might likely be treated as exempt.  

For the duties test under the administrative exemption, two elements must be met: (1) the employee’s primary duty is office or non-manual work directly related to the management or general business operations of the employer or customers; and (2) their primary duty involves discretion and independent judgment with respect to matters of significance.  For example, a restaurant human resources manager who does not supervise employees but manages and has responsibility over employee benefits, labor relations, government relations, and compliance could be exempt.  However, a restaurant’s only maintenance employee titled “maintenance manager” that does not use independent judgement or discretion with respect to matters of significance could possibly not be exempt, despite the managerial designation.

There are also two types of exempt professionals: learned and creative professionals.  For the duties test under the learned professional exemption, three elements must be met: (1) the employee’s primary duty includes work requiring advanced knowledge (i.e., work predominantly intellectual in character and includes consistent discretion and judgment); (2) the advanced knowledge is in a field of science or learning; and (3) the advanced knowledge is customarily acquired by a prolonged course of specialized intellectual instruction.  Chefs (like executive and sous chefs, with a four-year specialized academic degree in a culinary arts program) might easily satisfy the exemption.  However, the exemption does not apply to cooks performing predominantly routine mental, manual, mechanical, or physical work, or ordinary cooks.  

For the creative professional exemption, the employee’s primary duty must be work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor.  Chefs could also satisfy this test if their work involves invention, imagination, originality, or talent, which may be required in creating or designing particular meals, dishes, or menu items.  Because duties vary among chefs, this analysis would be specific to the position.

We note that there are other exemptions that may be available as well.  

At this time, in preparation for the increase in the salary threshold on January 1, 2025, employers in the restaurant industry may wish to take the opportunity to evaluate whether exempt employees have been properly classified and ensure they will be able to meet the new salary threshold.