Monday, April 14, 2014

Proposed OT Regulations Will Upset Management Structures

Food service operators who are worrying about a possible increase in the minimum wage are looking in the wrong direction.

The federal government’s proposal to tighten regulations on exemptions from overtime pay has received little attention, but if implemented, will have a far greater and more immediate impact on corporate and campus food service operations that an increase in the minimum wage.

Operators will have to rethink and restructure their on-site food service management teams.

In March, President Obama directed the Department of Labor to revise the regulations covering the minimum salary level that exempts an employee with some supervisory responsibility from receiving time-and-a-half pay for work performed over 40 hours in a week. Currently, the minimum is $455 a week or $23,660 a year. Proposals for the new minimum are as high as $984 a week or $51,168 a year.

In contrast, the impact of a raise in the federal minimum wage from the current $7.25 to a proposed $10.10 an hour – when it happens – will be minimal. The minimum wage increase will be phased in over two or three years, cushioning its impact. Many states have already raised their minimum wages and federal contractors must pay at least $10.10 an hour. Few food service employees are paid less than $8.00 an hour now.

Federal law permits an employer to pay employees who have some supervisory responsibilities, such as overseeing two or three other employees and exercising some independent judgment in the performance of their duties, on a salaried basis. They aren’t compensated for hours worked beyond 40 in a week.

In a food service operation, these would be chef-managers, chefs who oversee other food preparation workers, assistant managers and many supervisor positions, such as shift leaders. Many of these positions don’t pay much more than the $23,660 minimum to qualify. When that minimum is raised, even to $35,000 or $40,000 a year, persons in those positions will no longer be exempt from time-and-a-half pay. Operators will have to raise salaries, redefine salaried positions or begin paying for overtime work on an hourly basis.

What ever course operators choose, their labor cost will rise, much more than it will when the minimum wage is increased.