How Proposed FLSA Changes May Impact the Restaurant Industry

In July 2015, the Department of Labor released a proposal that, if passed, could drastically alter current overtime regulations and minimum salary requirements under the Fair Labor Standards Act (FLSA).

Following the release, the proposal was opened to public comment for 60 days and received more than a quarter of a million comments. A final ruling is anticipated as early as this month, with full compliance by employers likely expected within 60 days of the final judgement.

Here is how the proposed FLSA changes may impact the restaurant industry.

Who could be included?

First, it’s important to clarify the distinction between exempt and non-exempt employees. Non-exempt employees are paid an hourly wage and are eligible for overtime under the FLSA. Exempt employees are ineligible for overtime and include those in salary positions.

The DOL has specific criteria for determining exempt and non-exempt status. But one way to determine if an employee is exempt is by looking at their job duties.

Exempt job duties may include:

  • Regular supervision of two or more employees;
  • Having management as the primary duty of the position; and
  • Having some genuine input into the job status of other employees (i.e. hiring, firing, promotions, and assignments).

The proposal is evaluating the current overtime and minimum salary requirements of exempt employees in executive, administrative, and professional roles — also commonly referred to as white collar workers. Sparked by a March 2014 Presidential Memorandum by President Obama, it’s estimated that the proposed changes could impact five million employees within the first year of implementation.

What could change?

Under the current FLSA regulations, exempt employees must meet the minimum salary requirement of $455 per week, or $23,660 per year. However, the proposed changes could significantly raise that minimum to $970 per week, or $50,440 annually. The exemption from overtime pay was originally intended to apply only to highly-compensated salaried employees — those making much more than $23,660 per year. However, due to lack of specificity, the law essentially permitted a salaried restaurant manager to work 40+ hours per week, without receiving overtime pay or a wage exceeding poverty level. The ruling seeks to remedy that oversight.

What does this mean for employers?

Since the proposed minimum salary requirements could more than double, employers may be forced to make one of two choices:

1. If you have exempt employees earning less than $50,440 annually, you may need to raise their salary; or

2. Reclassify them as a non-exempt employee and pay them overtime accordingly.
Either way, this will likely drastically impact an employer’s cash flow as well as relations with employees.
A National Retail Federation survey highlighted several worrisome outcomes if the ruling is passed, including:

  • Forty-five percent of respondents said the changes would make them feel as though they are performing a job instead of pursuing a career;
  • Forty-one percent of managers believe they would be paid less since hourly employees are not eligible for bonuses; and
  • Approximately two-thirds predicted employee morale would decrease.

Although the ruling is still pending, employers should start planning now by evaluating their options in regards to each employee’s status. Preparation is key.


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