There’s still time for hoteliers to prepare for the U.S. Department of Labor’s new overtime-exemption rule, which is set to take effect one month from now.
REPORT FROM THE U.S.—With the U.S. Department of Labor’s new overtime-exemption rule scheduled to go into effect next month, the question hotel employers should be asking is, “Are we ready?”
In May, the Department of Labor announced its plans to raise the salary threshold to $47,476 a year—up from the current $23,660—by 1 December 2016. Anyone who earns less than the new threshold after the deadline becomes eligible for overtime pay.
Since that announcement, a bill to delay the new rule was presented to United States Congress and passed 28 September by the House of Representatives. Several states also have sued the Department of Labor over the rule.
These developments might cause some employers to hold off preparations for the exemption change, said Andria Ryan, partner at law firm Fisher & Phillips, but that’s not a good idea. President Barack Obama is likely to veto any bill out of Congress to delay the rule, she said, and the lawsuits consolidated in Texas will be heard by an Obama-appointed judge.
“This is being implemented on Dec. 1,” she said. “We think it’s unlikely that is going to change. … If you haven’t already put pen to paper on this, you’re behind.”
The Department of Labor is authorized to do what it’s doing, Ryan said. However, there might be things within the new rule that can be challenged, such as the automatic increases to the threshold every three years and the 10% limit on bonuses and incentive payments, she said.
“That’s subject to some argument, so realistically, a few things you might get a little relief on, but not overall,” Ryan said.
To begin preparations, Banyan Investment Group performed a thorough analysis to identify which positions would be affected by the new rule, said Leanne Lloyd, corporate director of HR at Banyan. Most midlevel managers are making about $10,000 to $15,000 below what the new salary threshold will be, she said, and that’s a lot of money for a tightly controlled budget to absorb.
The company then conducted an in-depth cost analysis of potential options, Lloyd said. Those options included moving positions, increasing salary to meet the threshold, or switching employees to nonexempt status and paying overtime. Banyan considered whether duties could be delegated to other employees and explored other ways of managing hours.
“It took quite a bit of time,” Lloyd said. “We did it individually per property. Each one depends on the market for salary standards.”
After this process, Banyan decided which employees would receive salary increases to remain exempt and which would become eligible for overtime.
Adjusting to the new overtime-exemption rule will increase expenses, Lloyd said, but the company took proactive steps to try to offset some of that. Those steps included making other areas of the company more efficient, as well as renegotiating contracts with suppliers.
“There’s no way around that we would have some increase,” she said. “We’re paying more salary to keep some managers exempt or we’re paying overtime to some now not previously being paid overtime.”
Alliance Hospitality Management wasn’t looking forward to the new rule, said HR Director Kelly Friend-Jones, but the timing works well. It goes into effect just as the company prepares its budget for 2017. To help offset higher labor costs next year, Alliance is re-examining its packages for paid time off and holiday pay, among other options.
“We’ve been working on (efficiencies) with the director of finance and president,” she said. “We’ve been able to make the changes and just try to compensate in some way for the budget for next year.”
Sources said it’s important to be transparent with employees about the changes associated with the new overtime rule.
Banyan officials met with affected managers, Lloyd said, to talk about the importance of what the managers do and their role in the company.
“We wanted to keep morale up, to show while having to be in compliance with the new change, we feel it did not diminish our valuation of them,” she said. The company realized that employees who would be switched to nonexempt status would be worried about losing pay or benefits, and didn’t want them to feel as though this were a demotion.
Employees appreciated the honesty about the changes, she said, and they understood the company still valued them and their work.
Alliance held numerous seminars to inform employees about the coming changes, Friend-Jones said. Once the Department of Labor officially announced the new rule, she said, the company provided information to each of its hotels. Each property had its own meetings, designed to make sure GMs had all the information they needed.
It was important that employees hear directly from the company instead of only from outside sources, she said.
“A lot of people are affected by this,” she said. “They needed to be aware of what was happening so it doesn’t get to Dec. 1, and it’s a big surprise for them. We’ve been pushing communication and education out to our hotels.”
Not too late
Employers who haven’t prepared for the new rule still have time, Ryan said, but it’s a lot of work. Her advice:
- Take a look at which employees won’t meet the salary test, she said, and then decide whether to help them meet the threshold or keep them below it.
- Over the next 10 days, talk to employees as much as possible about the changes and how it will change their lives. “People who are used to a set salary and budgeting their lives around it will have more fluctuations in pay,” she said.
- Be prepared to explain to employees how this will affect areas of their employment, such as pay, benefits and timekeeping. Tell them whether their title is changing, if their responsibilities are changing and how they are viewed in the organization, she said. The positions that seem to be most affected by the new rule are in second-tier management, such as assistant managers and the sales department. These positions are on the Department of Labor’s radar; their salaries generally aren’t high enough to meet the threshold, and it’s questionable whether they pass the duties test.
- Keep in mind the new rule goes into effect 1 December, which is a Thursday—a possible problem for adapting payroll. Compounding that problem, the previous Thursday is Thanksgiving. “Dec. 1 sounded like a nice day, but it’s not so good for payroll,” Ryan said.