As you have probably heard by now, effective December 1, 2016, nearly all restaurant employees that are exempt from the requirement to pay overtime for hours worked over 40 per week must be paid an annual salary of at least $47,476 ($913/week) in order to remain exempt. This means that if you have any employees, including Managers and Assistant Managers, that are not currently being paid overtime because they are exempt, and those Managers currently make less than $47,476, you must take action before December 1, 2016 in order to come into compliance. Plaintiffs’ attorneys and the United States Department of Labor are expected to be particularly aggressive in ensuring compliance with the new rule after December 1, so taking steps to come into compliance is critical and urgent.
While all situations are different, there are essentially three options restaurants can take to come into compliance:
Option 1: Give everyone a raise. The easiest way to comply is to increase the salary of any exempt employees to a minimum of $47,476 per year. If the employees can reasonably be expected to receive non-discretionary bonuses or other payments of at least $4,747.60 per year, the salary can be as low as $42,728.40. Note that a “non-discretionary” bonus means one that is automatically earned upon achievement of stated objectives rather than one that is earned based on a subjective decision of the restaurant.
Option 2: Keep the employees’ salary under $47,476 and pay overtime for hours worked over 40 per week. Under this option, a restaurant can keep an exempt employee’s salary below the new minimum, but must pay overtime (time-and-a-half of the employee’s “regular rate” of pay) for actual hours worked over 40 per week. By way of example, if the employee’s weekly salary is $673.08 ($35,000/year), the employee’s “regular rate” is $16.83/hour. The restaurant would have to pay the employee $25.24/hour for all hours worked over 40 per week. Note that this option requires the restaurant to begin tracking these employees’ hours. This option is generally not favored by restaurants given the high number of hours most Managers and Assistant Mangers work. Other options are available if the employee’s hours fluctuate each week which permit the restaurant to pay half-time for hours worked over 40 per week rather than time-and-a-half. If this situation is applicable, consult counsel to make sure all requirements are met to take advantage of this option.
Option 3: Begin paying these currently exempt employees an hourly rate and overtime just as current, non-exempt hourly employees are paid. Note that this option also requires the restaurant to begin tracking these employees’ hours.
If you have further questions regarding the salary basis change, or for advice on creating pay practices that comply with the law and avoid costly litigation, please contact Eric Magnus at Jackson Lewis, P.C. He can be reached at 404-525-8200.