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How Overtime Rule Will Affect Hospitality

How Overtime Rule Will Affect Hospitality

It might only be June, but hoteliers are already preparing for how the U.S. Department of Labor’s (DOL) recently announced overtime rule will impact their properties when it takes effect Dec. 1. The rule, introduced on May 18 by the Obama administration, will broaden the number of workers eligible for overtime pay by raising the salary threshold for exempt workers to $47,476 from $23,660 per year.
Ryan Glasgow, Hunton & Williams labor and employment lawyer, has been advising employers in preparation for the final DOL rule, which will likely set the salary requirement for the professional, executive, and administrative exemptions at 40 percent of the national average for all non-hourly compensation in all industries.

“The DOL’s intention in increasing the salary was to increase the opportunities and increase the compensation pay to a lot of workers,” Glasgow says. “About 4 million workers are either going to be entitled to overtime or now receive an increase salary as a result of the change.”

Since hotels employ a large number of workers who fit the bill, many properties will go through an adjustment period as they restructure based on employees’ current wages.

“In the hospitality area, it’s the frontline, entry-level managers who will mostly be affected,” Glasgow says. “They have been, thus far, exempt under the Fair Labor Standards Act (FLSA) executive exemptions. The problem is a lot of those frontline managers are currently making somewhere between $23,000 and $47,476. The hospitality industry is going to take a look at each one of those employees and decide if they’re going to increase that salary to the $47,476 level, or reclassify this person as non-exempt.”

A main concern for hoteliers, Glasgow says, is that most hotel operations are around the clock. Converting assistant managers and frontline supervisors who work long hours to non-exempt employees who receive overtime pay could result in some hefty payouts.

“The financial impact is going to be significant and because of that, the employers are going to have to start thinking about ways to reorganize their staff and change schedules in order to try to limit the amount of overtime that employees will be working and to minimize the impact of having to increase some of these people’s salaries,” Glasgow says. Another option, Glasgow says, is to gross the employee up at the end of the year if they do not earn as much as they did with their old salary. Additionally, hoteliers could convert the salary employees to an hourly rate, so once the overtime hours are factored in, the budget would come to a net neutral.

Glasgow says consolidating jobs is another option. If a hotelier has two employees that are being paid $35,000 and are exempt, those two jobs can be combined into one to allow one employee over the $47,476 hump.

“The overarching message is the rule does not go into effect until Dec. 1, 2016, but that is not as much time as it may initially appear to be,” Glasgow says. “It’s not a one-size-fits-all decision.”

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