These are tough times for restaurant operators, and they are only getting tougher. On June 30, the U.S. Department of Labor published a Notice of Proposed Rulemaking seeking primarily to revise the baseline salary requirements that must be satisfied in order for an employee to be exempt from overtime.

Under the proposed rules, the minimum salary threshold that must be paid to exempt employees will more than double. Although these proposed regulations have been expected, they have created a lot of confusion.

While the proposed regulations contain a number of significant changes, of most concern to the limited-service restaurant sector is the proposal that the minimum salary for an employee to qualify for most overtime exemptions would increase from $455 per week (or $23,660 annually) to $970 per week (or $50,440 annually). This proposed change would dramatically increase the number of employees, who would be entitled to overtime compensation, even where those employees primarily perform executive, administrative, professional, or other exempted "duties" under current regulations. In addition, for the first time, the DOL has also proposed an automatic annual increase to this salary threshold that will either be (i) tied to the 40th earnings percentile for all full-time salaried employees, or (ii) based upon the Consumer Price Index for All Urban Consumers ("CPI-U"). Thus, under the proposed regulations, the minimum salary threshold for exempt status will likely increase every year.

Another key element likely to have a significant effect on the restaurant industry is the DOL request for comments as to whether duties tests necessary to satisfy the white collar overtime exemptions should be revised. Among other things, the DOL has requested comments on whether there should be an upward limit on the amount of non-exempt work an exempt employee may perform (e.g., no more than 50 percent of working time) as well as whether the "concurrent duties regulation" (which allows the performance of both exempt and non-exempt duties concurrently) should be eliminated.

It is likely that the DOL will not issue final regulations until at least late 2016. However, once implemented, all employers (including employers in California and New York, where the salary minimum is currently higher than under current Federal law) will be affected by the increased salary thresholds if adopted in their current form. Budgeting early is more important than ever.

What do these proposed regulations actually mean for operators?

Operators need to take full advantage of what could be 6-12 months lead time before final implementation of the new regulations. These changes are expected to affect 5-10 million workers, possibly more. The workers most likely to be affected will be low- to mid-level managers in food service and retail, as well as sous chefs currently being treated as exempt from overtime. Particularly problematic will be those "working" managers who spend a good portion of a shift directly engaged in guest service on the floor (e.g. stepping in and taking orders, ringing in sales, busing tables), or sous chefs who spend much of the day on the line prepping, cooking, and expediting. The strong possibility that a duties test requiring a "50 percent" standard will go into effect will certainly turn operations and budgets on their head.

Additionally, a good portion of restaurants are currently paying these workers well below the anticipated $50,000 threshold. The repercussions for operators are significant: raise salaries, redesign jobs, possibly add more line employees, and/or convert exempt managers to hourly staff, and increase overtime costs. None of these are particularly appealing choices for an industry already reeling from increased health-care costs, mandated paid time off, and looming increases to the minimum wage in many jurisdictions.

A first step for any operator should be to look at the anticipated financial impact of the proposed regulations. Assess what the impact on budgets will be if salaries need to be ramped up to at least $50,000. Simultaneously, look closely at the positions themselves:

  • How many managers does an operation really need per shift?
  • Is an exempt floor managers or chef clearly meeting the current exemption tests, let alone the 50% test (already the standard in California.

Remember, the salary basis test is not the only standard, the worker must also meet the duties test and must perform managerial functions — as will likely be redefined in the regulations. Finally, make sure your business has a comprehensive clock-in/out procedure that is being followed. There is little doubt that the plaintiffs' bar is waiting anxiously in the wings and will pounce with a new round of class action suits if operators don't handle the new regulations correctly; be proactive now.

Originally published by Fast Casual.

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