How operators are bracing for new overtime rules

As foodservice operators plan for the new overtime pay regulations set to take effect on Dec. 1, their blueprints for coping—and the rules' expected effects—vary greatly by segment, recent research says.

Quick-service restaurants are the most likely to raise managers’ salaries above the new $47,476 threshold that will exempt them from overtime pay, People Report learned in a survey of chain restaurant executives. More than two out of five (43%) said they plan pay increases.

The company, a division of the research firm TDn2K, found that fast-casual and full-service operations are more likely to recast salaried positions into hourly jobs—if they do anything at all. The canvass of chain executives revealed that 7% of fast-casual restaurant chains and 6% of full-service service companies do not have salaried employees who earn less than the new overtime exemption level, meaning those employees’ compensation will not be affected by the rules.

Among the other employees within those segments, 33% intend to convert salaried positions into hourly jobs, and the same percentage of fast casuals intend to use a combination of salary increases and job reclassifications.

None of the quick-service respondents said the changeover won't affect their employees, and 95% of all participants predicted they’ll be affected in some way.

A common coping strategy across all segments, People Report found, is adjusting bonus plans, which can generate up to $4,747 (10%) per year of the new threshold under the revised U.S. Department of Labor rules. More than a third (38%) of all respondents said they plan to revise their incentive pay programs, and another 11% said they are uncertain at present about whether or not they’ll pursue changes.

Many restaurant companies intend to take a blended approach, said Victor Fernandez, executive director of insights and knowledge for TDn2K. The survey found that 22% of respondents intend to both raise the pay of some salaried employees and convert other salaried jobs into hourly positions.

Still, the leading plan at the moment is to recast salaried jobs into hourly positions, a strategy cited by nearly a third (31%) of the respondents. Nearly another third (28%) intend to raise salaried employees’ pay about the $47,476 threshold.

But Fernandez noted that the situation is still fluid. “Most of them are trying to compute what the compensation will be once they go to hourly with some jobs, and they’re paying more for others—they want to end up where they are now,” he explained.

The new overtime laws provide three ways for employers to stay within the regulations, which are intended to raise the incomes of some 5 million Americans. Foodservice operators can either…

•  Raise the pay levels of salaried employees to the new level, which is more than double the previous threshold of $23,660;

•  Keep salaried employees below the new threshold at their current pay rates and pay them time and a half per hour when they work more than 40 hours per week; 

•  Or convert salaried positions into hourly jobs and pay overtime when those employees work more than 40 hours in a week.

“Most of them will use a combination of moving to hourly positions, and increasing compensation for others,” said Fernandez. “They’re trying to compute what the compensation will be once they go to hourly with some or raise the pay of others.”

One thing operators are unlikely to do, People Report found, is recast jobs and shift workloads from managers to hourlies or vice-versa. More than three of four respondents (77%) said they do not plan to change job duties because of the new rules.

Even if operators find a coping strategy that leaves their labor costs roughly where they have traditionally been, they could face two potential complications, Fernandez indicated.

If salaried employees are kept at a pay level below the new overtime threshold, employers will have to be more diligent about setting and recording the hours those managers work.

“Before, if a manager was at home making calls, doing scheduling—if they were a salaried employee, it didn’t matter,” Fernandez explained. “Now employers are going to have to count that toward the 40 hours.”

Similarly, salaried employees whose jobs are turned into hourly positions may feel a loss, even if their compensation is unchanged overall.

“One of the things we kept on hearing were the psychological effect on some people,” said Fernandez. “There’s some status, some prestige, to being a salaried employee. Now you go back to your hourly status.”