New FLSA Exempt Salary Proposal: How it Could Impact Hospitality Companies

Recently, the Department of Labor proposed updated rules for salary overtime exemptions, potentially making 3.6 million more workers eligible for overtime. While there will undoubtedly be pushback and negotiations regarding the new overtime rule, here are the essential points of the current proposal:

  • The Minimum salary-level threshold for overtime-exempt employees would rise to $55,068.
  • Highly compensated employees’ thresholds would increase to $107,432.
  • New minimum thresholds would be set every three years.
  • Overtime rules would extend to U.S. Territories.

In an industry like hospitality, where many employees work well over forty hours, this could be seismic. Hospitality employers may wonder, “How will this impact my business?”

Companies Must Revisit Classifications

Employers will need to take inventory of which employees are overtime-exempt, and which are not. Then, consider how currently exempt employees would be affected by the proposed rules. Will employees like mid-level managers or chefs now possibly be eligible for overtime? Extra payroll costs will need to be audited and analyzed to assess the best course of action.

Strategic Pay Structure Adjustments

Employers must prepare to make some strategic decisions: increase salaries to reach the new threshold, convert employees to hourly pay, or tack overtime onto existing salaries.
While bumping salaries would be the simplest, it would cause significant payroll stress. However, changing classifications could also impact employee morale and increase the possibility (and headache) of payroll errors. Furthermore, employers must decide if all positions will face similar compensation adjustments, or only those directly affected by the new rule. The decisions must be made based on each company’s unique structure, finances, and team dynamics.

Employers Need a Long-Term Plan

Another aspect of the newest rule schedules increases to exempt salary thresholds every three years. Companies will need to be mindful of economic factors and employment climates so as not to be surprised when new thresholds are established. Thankfully, the DOS intends to set new thresholds with plenty of advance notice.

Prepare for Uncertainty

The new rule proposal impacts not only hospitality companies’ bottom lines but also the livelihoods of their employees. Transparently share strategies and potential changes with employees. As the ruling moves through its legislative path, there will be countless legal oppositions from industries and states. While planning is good, be sure any new rules have gone into effect before implementing strategies.

Partner with Strategic Recruiting Experts

When it comes to managing your talent, use every resource available. The team at Horizon Hospitality has years of industry experience, and not only can find the top hospitality talent, but also advise on your company’s compensation, benefits, and position structure.
Contact us today to learn more.

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