Recent changes to the overtime rules are shaking up the restaurant and hospitality industries and may cause a significant impact on how you pay your employees and track their time.
Under the new overtime rules the restaurant and hospitality industries will see a dramatic change in how they address wages with their employees, specifically their front and back-of-the-house managers. In the past, employers were able to structure compensation to reduce the availability of overtime by utilizing salary versus hourly pay. Depending on the salary level paid to full-time employees, you may be required to increase their compensation.
If you have a salaried employee that earns less than $913 a week or $47,476 annually, and works more than 40 hours a week, you are now required to pay him or her overtime beginning on Dec. 1, 2016.
Are any of my employees exempt from overtime pay?
Certain types of employees are exempt from overtime pay, based on their salary, salary level, duties, and whether they are considered highly-compensated.
Your employee does not qualify for overtime if:
- the employee is paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of the work performed (Salary Test);
- the employee is paid more than $913 per week, or the equivalent of $47,476 annually, for a fullyear (Salary Level Test) ;
- the employee performs an executive, administrative or professional role (Duties Test);
- the employee is a highly-compensated employee that performs office or non-manual work and is paid a total annual compensation of $134,004 or more, and if they customarily and regularly perform at least one of the roles defined in the Duties Test (Highly-Compensated Employee)
Overtime can be calculated in one of two ways:
- Straight Hourly Rate – one and a half times regular rate of pay
- Weighted Average Regular Rate – total compensation divided by number of hours
All compensation is included in total wages, this includes base salary, commissions and non-discretionary compensation. Non-discretionary bonuses can contribute up to 10 percent of the salary. In order to meet the requirements, the bonus must be paid out quarterly. If an employee’s salary does not meet the threshold by year end, you can make a catch-up payment to the employee within one month of year-end to meet the threshold.
What steps to do I take to become compliant with the new overtime rules?
Step 1: Classify your workers into two categories: exempt or nonexempt from the overtime rules.
Step 2: Understand how many hours each employee actually works. In the past, there was no need to track hours for salaried workers that were paid more than the old threshold, so most employers did not.
Step 3: Focus on tracking the time of your employees. If you have salaried employees that are answering emails and phone calls while not physically at work, these hours count as it applies to paying overtime if they are nonexempt employees.
Step 4: Make sure your payroll department or payroll provider is aware of the new overtime pay criteria for your employees.
What does this mean for my business?
The new overtime rules require businesses to focus on communication. The new rules must be properly and thoroughly explained to your employees. By creating an open dialogue you will avoid frustration and confusion. For example, if you switch a salaried employee to an hourly employee, this may be seen as a demotion, even if the employee ends up earning the same wages as before the new rule was put into place.
While the new rules can be seen as costly to employers, there are several ways to mitigate the total financial impact to your company, including:
- increase the salary of an employee who meets the Duties Test to at least the new salary level to retain his or her exempt status;
- pay an overtime premium of one and a half times the employee's regular rate of pay for any overtime hours worked;
- reduce or eliminate overtime hours;
- reduce the amount of pay allocated to base salary (provided that the employee still earns at least the applicable hourly minimum wage) and add pay to account for overtime for hours worked over 40 in the workweek, to hold total weekly pay constant; or
- a combination of these options
We can work with businesses to explain the new overtime rules to employees and assist in strategizing the best way to manage wages, while keeping employees happy and motived. We can guide you to a qualified payroll provider to ensure the overtime rates and hour tracking are calculated correctly.
HAW Payroll Services, LLC assists clients with overtime compliance through our all-in-one workforce management system. Real-time reporting allows employers to easily gauge the number of hours employees are working, as well as where their pay falls in relation to the new salary threshold. If a change to an employee’s pay is required, employers can easily convert their pay to a level or FLSA status that is within compliance. To further leverage our system’s real-time reporting capabilities, employers can have customized reports emailed to them on an ongoing basis, keeping them informed of any compliance concerns that may arise. Don’t spend your time on compliance when our system can do it for you!
If you have any questions about how the new overtime rules impact your business, please contact us at firstname.lastname@example.org or email@example.com.