Know Your Exemptions. No Exceptions.

There’s no doubt that 2016 will prove to be a monumental year for change in the restaurant industry. While tipping seems to be the hot topic both for insiders and in the media, there’s another obstacle lurking that may create unwelcome change in the way you compensate employees. On the surface, it certainly isn’t as sexy or buzzworthy for consumers, but it’s something extremely important for those of us in the industry. I’m talking about the reform of the Fair Labor Standards Act (FLSA) and the presidential mandate that will fundamentally change the definition of exempt and non-exempt employees.

In this context, “exempt” and “non-exempt” are used in reference to overtime. An exempt employee is paid an annual salary and therefore exempt from overtime compensation. Non-exempt employees are entitled to overtime compensation for working over 40 hours a week.

Currently, under the FLSA, to be exempt from overtime compensation, an employee must:

  • Perform certain job duties (primarily involving executive, administrative, or professional work) as defined by the FLSA
  • Be paid a predetermined and fixed salary of at least $455 per week ($23,660 annually)
  • Be paid a salary that cannot be subject to reduction because of variations in the quality or quantity of work performed

So what exactly are the changes being proposed and how will they impact your business? Overall, the U.S. Department of Labor wants more employees eligible for overtime. They are proposing to:

  • Raise the exemption salary limit to $970 a week ($50,440 annually), which is estimated to give 4.6 million workers overtime eligibility in the first year
  • Automatically update the salary threshold each year
  • Revise the “job-duties test,” which will likely make it much harder for managers to be “hands-on”
  • Require that exempt employees spend a specified amount of time performing their primary duty (likely the so-called California test of 50%)

While the proposed changes to the FLSA have not yet been finalized, it is almost certain that they will go into effect in late 2016. This is largely due to the political landscape. President Obama is in the final year of his final term so having this federal mandate come directly from him is a key part of his legacy. In addition, this change is sure to be important for the Democratic candidate who is running on a platform of “helping the little guy.”

These changes to the organizational and operational structure of your restaurant may seem daunting, however, they are all solvable. And the good news is, we still have a little bit of time to think and plan ahead.

Take this first step to prepare: Engage legal counsel.Why? Because this topic will certainly be highly litigious once it goes into action, and you will want the attorney/client privilege for all findings during your discovery period prior to making any decisions.

2016 will usher in a tremendous amount of change for our industry. As the saying goes, change is inevitable. And if you react to change with fear, anxiety, resentment, or defensiveness, you’ll inevitably open the door to having your life overtaken by negativity.

So why not embrace change? Be excited by it. Use it to your advantage. Take this as an opportunity to design a new future. And if you need support along the way, just know, you’ve got a community behind you.

See you at the Colab,

Originally published at on November 13, 2015.

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