It’s been 12 years since the U.S. Department of Labor set the minimum pay threshold for salaried employees working more than 40 hours per week at $23,360. But come Dec. 1, that number will almost double, to $47,476. That sharp increase has many business owners, particularly restaurateurs, fretting over how to compensate employees whose salaries don’t meet the new standard. Bottom line, restaurateurs say, is the boss either raises salaries to meet or exceed the threshold or salaried employees go back to punching a time clock.
Rob Green, executive director of the National Council of Chain Restaurants, had harsh words for the new standard, calling it “outrageous” and predicting restaurateurs will be forced to trim staffs in order to manage the cost increase.
“By dramatically increasing the wage threshold for determining a restaurant manager’s overtime eligibility, key management positions will be eliminated, restaurant employee career advancement will be derailed and workplace morale will plummet,” Green said in a statement May 18, a day after the DOL announced the change.
Included in the new regulation is the promise that all future adjustments of the threshold will happen every three years, which heightened Green’s disappointment.
“If this outrageous regulation remains unchanged, chain restaurants will be forced to convert tens of thousands of managers from being salaried professionals to hourly status in order to avoid costly and unpredictable impacts,” he said.
Angelo Amador, senior vice president of labor and workforce policy and regulatory counsel at the National Restaurant Association, said the cost increase is yet another in a series of burdens crushing thin margins in an already low-profit business.
“More than doubling the current minimum salary threshold for exempt employees, while automatically increasing salary levels, will harm restaurants and the employer community at large,” Amador said in a statement.
Amador added that the career advancement path in restaurants is commonly paved with performance-based incentives, but under the new regulations, only 10 percent of a bonus can be applied to a salaried employee’s base pay to meet the adjusted threshold. Without the ability to apply full bonuses, some employees will certainly lose their salaried status.
“These regulations may mean that salaried employees, who have worked hard to get where they are, could be subject to becoming hourly employees once again,” Amador said.
In an industry with notoriously high turnover, keeping employees incentivized is crucial, said Debbie Long, owner of Dudley’s On Short. Long believes that earning a salary rather than punching the clock or working for tips provides managers predictable pay that leads to employee loyalty and job satisfaction. She also believes it provides managers a sense of ownership in the restaurant.
“There’s a security in it for them when they have a salary,” Long said. It also incentivizes salaried managers to work together to ensure all work fewer hours. “My crew really tries to make sure they all get two days o in ... an industry where 45 to 50 hours a week is common,” she said. “It gives them balance and quality of life.”
But she acknowledges that the new threshold will leave a portion of her managers’ pay below the line.
“I’ve got managers 21 to 23 years old who, with what they’re being paid now, are really doing well for their first management job,” Long said.
That salaried managers so young would start at $47,476 seems implausible, she added, since most work up to that level.
“Most of [our managers] are over the $47,000 number right now, but for those who come in at entry level, they come in at a lower salary. I mean, if you start out at almost $50,000, you have nowhere to go in a small business like ours.”
Long is not alone in her concerns. According to Stacy Roof, president and CEO of the Kentucky Restaurant Association, some veteran members have called the salary threshold increase “a business-killer.”
“Some are to the point that they’re saying they’re ready to sell their businesses and be done with it all,” Roof said. “Between the Affordable Care Act, menu labeling requirements and minimum wage increases, there are only so many new costs they feel like they can absorb and still make a living.”
Along with other state restaurant groups, Roof said the KRA worked nationally with the DOJ to make changes in the new threshold. Yet she said “there’s nothing more to be done” since the threshold increase “has become part of the legacy [President Barack Obama’s administration] plans to leave” when his term ends next January.
Not every restaurateur is concerned about the higher threshold, including Tom Behr, owner of Pazzo’s Pizza Pub. His current management team doesn’t “have anyone affected in that category. And the one person who would be working overtime is already over the threshold,” he said.
Still, that doesn’t mean Behr lacks an opinion on the increase. He said it’s one more example of how business owners are continually peppered with new costs that diminish margins.
“I think that this, coupled with minimum wage going up, puts a heavy burden on a business trying to stay afloat,” said Behr. “It’s another bump in the road that just makes things harder.”
John McNamara, Lexington market partner at Bluegrass Hospitality Group, declined to comment on the matter, saying the multiunit operator “didn’t know enough yet” and is “still studying the law” to gauge its impact on BHG.
Another restaurant operator, who declined to be identified on the record, said he believes fast-food restaurants will su er the most when the increase hits. Managers at that level have base salaries well below the new threshold, though their performance bonuses ultimately put them well above it. Yet the
10 percent rule will not add enough of their bonuses to their base pay to meet the new federal guideline.