Figuring Out the Final Rule

Despite expected legal challenges and congressional efforts to stop the implementation of the final overtime rule when it is set to take effect on December 1, experts urge employers to start preparing now to meet the requirements.

“Six months seems like a long time, but there are a lot of moving parts and you’ll have to tinker with the options,” Nancy Vary, JD, Director of the Compliance Consulting Center at Xerox HR Services told Modern Restaurant Management magazine. “There’s not going to be one size that fits all. Decisions will have to be made on an employee-by-employee basis. It has to be managed carefully for the betterment of your business. Employee communication and morale will be very important.”

Many are wondering: how do you make sure all the work gets done?

The U.S. Department of Labor’s new Final Rule announced May 18, more than doubles the current minimum salary that must be paid to treat employees as exempt. The amount goes from the current $455 a week ($23,660 annually) to $913 per week ($47,476 annually.)

Advice offered by the Knowledge Resource Center of Xerox HR Consulting includes:

  • Identifying currently exempt positions that are likely be impacted by the new threshold
  • Reviewing current overtime hours worked by currently exempt employees or positions
  • Modeling different scenarios to determine the potential impact of the new rule
  • Developing pay plans for exempt employees who will be reclassified as nonexempt
  • Identifying any effects of changes on employee benefits
  • Developing an appropriate communications strategy
  • Training managers and supervisors on the new overtime rules

Vary said employers are experiencing a “perfect storm.”

“With the Affordable Care Act, paid sick leave and new minimum wage and now this to deal with as well, you have a lot on your plate. I’m sure many are wondering: how do you make sure all the work gets done? How do you manage the change? How does the change affect the culture?”

She expects the final rule to have long-reaching effects for restaurants.

“Clearly, it’s going to add costs to businesses and when you are operating with such small margins, it puts more pressure to the bottom line.”

Carolyn D. Richmond, who is a partner at Fox Rothschild and serves as co-chair of the firm’s Labor and Employment Department and the Hospitality Practice Group, agrees the restaurant industry will be greatly impacted, but notes employers should have been preparing themselves for this eventuality.

“We’ve been waiting for this for two years. If you weren’t already doing analysis, you’re behind the eight ball.”

She advises employers to conduct an audit to determine risks and damages and see who can remain exempt.

“It’s going to be a balancing act and a mindset change. The margins are already so tight, this makes it harder to budget and control costs.”

In a statement when the final rule was announced, the National Restaurant Association noted it felt the threshold for exempt employees was still too high.

“Restaurants operate on thin margins with low profits per employee and little room to absorb added costs,” the statement reads. “More than doubling the current minimum salary threshold for exempt employees, while automatically increasing salary levels, will harm restaurants and the employer community at large. More than 80 percent of restaurant owners and 97 percent of restaurant managers start their careers in non-managerial positions and move up with performance-based incentives. These regulations may mean that salaried employees, who have worked hard to get where they are, could be subject to becoming hourly employees once again.”

Associate Professor Adam Seth Litwin of Cornell’s Industrial and Labor Relations School, feels the rule change could prove beneficial to many workers.

“Our society attaches more status to salaried roles rather than hourly roles. But, for the lion’s share of workers facing this ‘demotion,’ the promise of more money in their pockets far outweighs concern over a decline in status. These workers know better than anyone that you can’t eat prestige and that it can’t clothe, feed or supervise your children.”