First, the employer can simply give the employee a raise of $8,400, safely removing the employee from overtime eligibility for purposes of the salary-basis test. The pros of this are apparent. If the employee also meets the duties test, the employer need not track the hours worked by the employee, and business can remain apace. The cons, unfortunately, are also fairly obvious. Here, the employer eats the entire cost of rule compliance with a direct and substantial burden to its coffers. At its core, this “raise” represents a 20 percent increase in the employee’s salary without the addition of any new responsibilities or necessary skillsets. While this will undoubtedly increase employee morale (at least with similarly situated employees), this may not be a viable option for business owners without much cash to spare, or for those that have a significant amount of employees in this situation. Moreover, other employees who either are already subject to the overtime rule, or who maintain a salary well above the new minimum may be agitated by what appears to be a meritless raise for the lucky few. And they might also demand similar raises. Second, the employer may choose to restrict the employee’s weekly hours to 40. While this option ensures the employer doesn’t take on any costs with respect to the employee, it carries with it its own challenges. The employer may, for instance, need to hire new employees to make up for the work not being done due to the fact that an employee, who normally
Wait, Our Little Restaurant Doesn’t Gross $500,000 In Sales… Foodservice businesses with annual gross sales from one or more establishments that total at least $500,000 are subject to the Fair Labor Standards Act (FLSA). What if your small operation doesn’t meet this threshold? The U.S. Wage & Hour Division of the Department of Labor says, “any person who works on or otherwise handles goods that are moving in interstate commerce is individually subject to the minimum wage and overtime protection of the FLSA. For example, a waitress or cashier who handles a credit card transaction would likely be subject to the Act.”
worked 50 or 55 hours per week, now can only work 40 hours per week. Further, simply adding a new employee and telling that person to “pick up where Employee X left off” is not a practical solution for many positions, especially supervisory ones. If the responsibilities of a given job do not readily change hands from employee to employee, this may not be a viable route. Another option would be to have the employer opt to simply pay the 1.5 times overtime pay for hours worked in excess of 40 per week. If, for example, our $42,000/year sample employee typically works 50 hours per week, that would mean the employer would have to pay an additional $15,750 per year to maintain compliance with the rule. Of just about any course of action, this would seem to be the least practical. It nearly doubles the amount needed to simply raise the employee’s salary to the threshold level. With the new annual indexing requirement, however, it does cut down on time spent on compliance. An employer who raises the salary, as in Example 1, for instance, will need to check every year to ensure compliance with the annually adjusted 40th percentile salary. The aforementioned examples seem to be the most readily apparent. But there are other avenues an employer can pursue to lessen the direct financial burden of compliance. An employer can, for instance, pay the employee at a modified pay rate. If an employer is aware that their salaried employees typically work an average of 50 hours per week, for instance, they can “modify” the pay rate to allow for a lower salary, or simply convert them to hourly employees. For a hypothetical employee making a $40,000 annual salary, their weekly pay rate of $769.23 would need to be reduced to $559.60 per week. Modifying an employee’s salary downward is not something any employee wants to see, especially when their conduct or production doesn’t warrant it. Therefore, the employer should go to great lengths to explain why the change is happening, and how it will affect (or, more accurately, not affect) their “real” compensation level. All that said, it may still be a tough pill for an employee to see such a precipitous drop in their annual salary, even if they know the reasons. As an alternative, the employer may elect to convert certain salaried employees to hourly. In electing either of these two methods, an employer needs to keep in mind 1) the effect the shift could have on employee morale; and 2) the very real problem that a reduction in workload will directly contribute to the employee earning less. For those who have been on salary for a long time, however, this “new normal” could present its own challenges.
The Missouri Restaurant Magazine
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