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Blog | Scheduling

A Quick Guide to the New Overtime Law and Tips for Better Employee Scheduling

Overtime and the overtime law are on the mind of just about every business owner. If you’ve only just dipped your toe in the water, now is a great time to dive right in and get familiar with the Department of Labor’s (DOL) Overtime Final Ruling and how it’s going to impact your employees and […]

Overtime and the overtime law are on the mind of just about every business owner. If you’ve only just dipped your toe in the water, now is a great time to dive right in and get familiar with the Department of Labor’s (DOL) Overtime Final Ruling and how it’s going to impact your employees and your business.

In this quick guide on the new overtime law, we’ll cover three things:

1. An overview of the Overtime Final Ruling and why it was created in the first place.
2. Methods to classify and manage your employees to be compliant with the overtime law.
3. Ways to better track overtime and manage employee schedules.

Will the new overtime law be overturned or delayed?

The short answer is “probably not.”

Before we go any further, let’s get the big question out of the way: will the new overtime law be delayed?

The short answer is “probably not.” Scott Nelson, an employment attorney with Baker & McKenzie, LLP joined us on a webinar in our overtime series. He answered the question by saying: “When it comes to the proposed legislation attempting to overturn or delay the new overtime legislation, I wouldn’t count on it getting passed before December 1. Most of us looking at this also agree that even if they made it passed the House and Senate, President Obama would use his vetoing power.”

Overtime Final Ruling: General Overview

On May 18, 2016 President Obama and Secretary Perez announced the publication of the Department of Labor’s final rule updating the overtime regulations, which will automatically extend overtime pay protections to over 4 million workers within the first year of implementation.

The most significant piece of the proposed law is the salary threshold for overtime eligibility. Previously, the salary threshold was $455/week and $23,660/year. Under the new legislation, the salary threshold doubled and is now $47,476/year or $913/week.

Why the increase in the overtime threshold?

The Obama Administration and the DOL state that their reasons for updating the salary requirements were:

Put more money into the pockets of many middle-class workers

Give workers more free time

Prevent future erosion of overtime protections and ensure greater predictability

Strengthen overtime protection for salaried workers already entitled to overtime

Improve work-life balance

Increase employment by spreading work

Improve worker’s health

Increase productivity

How does it impact my business?

As an owner, operator, financial director or steward of your operation, you now have to make some decisions regarding your managers and other administrative employees, including:

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    • Do you have to make any changes to your salaried employees’ hours, pay or classification?

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    • How are you going to classify and manage salaried employees who do not meet the Duties Test?

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    • How much is this going to impact your P&L?

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    • Are you going to have to raise your menu prices to offset the increase in labor costs?

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    • How are you going to track hours to stay compliant?

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    • How are you going to proactively manage overtime hours for hourly and non-exempt salaried employees?

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How should I classify my managers – exempt or non-exempt?

The Duties Test is the way in which you decide if your salaried managers or employees are exempt or non-exempt from overtime protection. In the restaurant and hospitality industry, this can actually be tricky because of the nature of the job.

Establishing that an employee is exempt from the FLSA’s minimum wage and overtime requirements involves three things:

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    • First, it’s assessing how the employee is paid under the “Salary Basis Test”

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    • Second, it’s how much the employee earns under the “Salary Level Test”

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    • Finally, it’s whether the employee performs the kind of job duties that Congress meant to exclude from the law’s overtime protection. This is the “Standard Duties Test.”

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There are three main types of Exemptions: Executive, Administrative, and Professional. You will need to run each employee or types of employees through the test to determine whether they are exempt or non-exempt.

Visit the DOL and the Wage and Hour Division website for more interpretive guidance the Duties Test and the White Collar Exemption Clause.

How do I meet the requirements of the overtime law?

The DOL recommends several different methods to meet the overtime requirements:

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    • Pay higher salaries to avoid overtime, meet threshold with up to 10% bonus

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    • Cap hours at 40 hours a week for salaried and non-exempt employees

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    • Pay current salaries plus overtime

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    • Spread work hours among more employees

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    • Adjust Wages

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A Word of Caution when Capping Hours: Beware of Understaffing

There are pros and cons to each of these options. And there is a careful balance between unplanned overtime, employee productivity, and customer experience.

One of the biggest cons we’ve heard from several industry consultants is that capping hours at 40 hours per week for all hourly employees can cause major employee productivity, guest satisfaction, and customer service issues. Ultimately, understaffing issues impact your traffic and sales.

Understaffing could indicate a need to hire more employees. It could also mean there’s an opportunity to improve and optimize schedules and even, in some cases, allow a manageable and even predictable amount of overtime for certain employees.

Do I have to track hours to be compliant?

Yes, however, the DOL doesn’t put forth any hard and fast rules about tracking employee time and attendance. They simply say that as long as those actual hours worked are complete and accurate, “employers may use any method they choose for tracking and recording hours.”

The DOL also suggests using current scheduling and time and attendance tools to track and keep records of actual hours worked. These systems can be used for newly overtime-protected employees impacted by the Overtime Rule.

What other kinds of compliance issues could trip me up?

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    • Keep payroll records for three years. Each employer is required to preserve payroll records, collective bargaining agreements, sales and purchase records for at least three years.

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    • Keep wage computations and time punches for two years. Records on which wage computations are based should be retained for two years, i.e., time cards and piece work tickets, wage rate tables, work and time schedules, and records of additions to or deductions from wages.

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How can I get better controls around overtime and scheduling?

Integrate your POS with HotSchedules to push scheduled and actual data between the two systems for better insight into your overtime hours

Manage and track scheduled, actual and overtime hours & costs

Use Overtime Reports including Overtime Warning Reports to make adjustments throughout the work week

Enforce Clock-In and Out Time

Use Projected Hours Report to monitor projected hours above or below 40 hours

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