New Overtime Law For Restaurant Managers
Summer has come and gone, kids are back in school, and the inevitable law change that restaurant owners nationwide have distracted themselves from with backyard bbq’s and baseball all summer is right around the corner. Like a linebacker in the hole, there’s little escaping this one.
For those of you that don’t know, the Department of Labor has doubled the minimum salary requirements that allow you to not pay salaried employees overtime from $23,360 to $47,476. That’s right. If that assistant manager of yours doesn’t make an annual salary of $47,476, you will be paying them overtime for hours over 40 hours per week. Well how much does that really mean? Let’s use a very probable example. That assistant manager of yours that works 50 hours per week and makes a $35,000 salary would break down as follows: 40 hours per week x 52 weeks =’s 2,080 hours per year. At a $35,000 salary, that is $16.83/hour.
Now, for the additional 10 hours per week (at the current 50-hour schedule), you will be subject to paying the assistant manager time and a half ($25.24/hour) on those hours for an additional $252.40 per week or an additional $13,125 per year. Now, this $35,000 salary just blossomed to $48,125 per year if the schedule were to remain the same. Most small businesses simply can’t afford to pay this for all of their management team, so what is a small to medium sized business to do? It appears to us that there are a few options:
- Reduce the employee’s hours to a strict 40 per week and distribute the excess hours to managers that make over the $47,476 threshold already (if there are any).
- Change the employee to an hourly employee. In the example above, the $35,000 would then be divided by the 50 hour expected work week (2600 hours per year) and the calculation would come out to $13.46/hour. This is your target hourly rate. That said, you then need to factor in that as an hourly employee, 10 of those 50 hours will be required to be paid as overtime anyways so we need to forecast a blended average (don’t worry, we’ll keep it simple, it works out to this:)
- $12.24 x 2080 hours (40-hour work week) = $25,459.20
- $18.36 x 520 hours (10 extra hours per week) = $9,547.20
- Total Base Salary = $35,006.40
- The question is, how will the employee respond to going from a $35,000 base salary to a $12.24/hour employee despite the math working out the same? Let us know how it goes.
- Hire additional managers to distribute the hours amongst more people and make sure all of their schedules fall into the sub 40-hour work week threshold.
- Raise all salaried positions over the $47,476 threshold (I know, I know……..)
So there you have it. A classic case of which option hurts the least.
