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How Would President Obama's Proposed Change in Overtime Rules Impact Hotels?

Veteese Hobbs
Posted by Veteese Hobbs on December 21, 2018

On March 13th, President Obama directed the Department of Labor to use its rule-making authority to update overtime rules.  As he said:

Unfortunately, millions of Americans aren’t getting the extra pay they deserve. That’s because an exception that was originally meant for high-paid, white-collar employees now covers workers earning as little as $23,660 a year.

Under current Labor Department regulations, salaried workers making more than $23,660 a year are not required to receive overtime pay.

What changes are being discussed?

The new regulations are expected to make millions of additional workers eligible for overtime by increasing the income threshold that is required to be considered exempt from overtime.

Some economists have noted that if the overtime exemption salary had just kept up with inflation since 1975, overtime would be required to be paid to any employee who earns less than $50,440 per year.  This level has been mentioned as one possibility.  It’s also quite possible that they will compromise and require overtime at some income level between $23,660 and $50,440.  Many experts also expect that the new salary level will be indexed for inflation so it will automatically increase every year going forward.

The other change that is expected is an update to the percentage of time that an employee must perform exempt tasks to be considered salaried.  Currently, an employee can spend a significant amount of time on non-managerial work but still be classified as salaried if they also have managerial duties.  The new regulations are expected to specify that an employee must spend most of their time on doing managerial work.

When would they take effect and don’t these changes have to be approved by Congress?

Since these are changes to regulations and not changes to the underlying laws, the Labor Department can issue new overtime rule changes without Congressional approval.  The Labor Department will be required to issue an economic impact analysis of any proposed rule changes and allow the public to make comments before the rules can be enforced.  Most analysts expect that any new rules would take effect either the latter half of 2015 or early 2016.

How would these changes impact hotels?

Hotels have the potential to be one of the most impacted industries by these changes.  It's quite common to have front line managers (who are currently exempted from overtime) that might be caught up in either the changes to the minimum income requirement or the changes to the percentage of their time spent on non-managerial activities.  Hotels will have to carefully review the exempt status of employees like front desk managers and chefs whose jobs often involve significant non-managerial work.

What you should do now

It’s too soon to make any changes until we know what the regulations will be.  However, you should keep in mind that more employees will almost certainly be eligible for overtime in the future.  Decisions you make today should take this into account.

For example:  If you are hiring a new salaried employee or changing an existing position to be salaried, you should consider the possibility that you might have to pay them 1.5x their hourly pay rate for any overtime hours they work in the future.  It may not be wise to move an employee to salaried status and give them a big increase just because you want to avoid paying them overtime.  This short term savings could cost you a lot more in the long term.

Likewise, you should review the salaried status of management employees who do a lot of hands on work.  Again, it’s very common in hotels to have managers who spend a lot of their time doing in addition to the time they spend managing.  There is no need to change this today, but it may not save you overtime in the future.  The current Department of Labor guidelines on when an employee can be exempt from overtime is found at this link.

You should also realize that overtime eligibility will be a hot news item over the next year.  This may lead to an increase in employees who claim they should be eligible for overtime.  This is already an issue that is frequently scrutinized in department of labor audits.  It’s wise to be extremely conservative in defining which employees are salaried.  We also expect that it will eventually become much more normal for salaried employees to clock in and out so there is an accurate record of their time worked just in case their exempt status is questioned or changes.

Topics: Labor Costs