New Overtime Rules: How the Change Will Impact Your Restaurant

By: Ginelle Testa

6 Minute Read

Jan 12, 2018

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restaurant overtime laws

Restaurants are one of the industries most affected by the the U.S. Department of Labor’s new ruling that increases the overtime threshold limit. If you work in a restaurant, you probably have dozens of questions about these new laws and how they affect you.

  • What exactly does this mean?
  • What are the implications for restaurant owners and management?
  • How will restaurant employees be phased?
  • What are some options and considerations to help prepare for the change?

In this post, you'll find the answers to all labor-related questions so that your restaurant will be prepared for these new labor laws.

About the Law and Threshold Change

First, some background. According to the Department of Labor, “The federal overtime provisions are contained in the Fair Labor Standards Act (FLSA). Unless exempt, employees covered by the Act must receive overtime pay for hours worked over 40 in a workweek at a rate not less than time and one-half their regular rates of pay.”

new overtime rules


Source: https://www.dol.gov/featured/overtime

For the first time since 2004, The Fair Labor Standard Act's annual federal overtime threshold is changing. In fact, it will be doubled from $23,660 to $47,500. This means that any salaried employee that falls under the new threshold will be entitled to time-and-a-half pay if required to work beyond the 40-hour work week. The law goes into effect December 1, 2016 and the threshold will be raised every three years beginning on January 1, 2020.

Administration and Industry Opinions

The Obama administration intends the update to be a modernization and simplification of the existing regulations and is seeking to “put more money in the pockets of middle class workers – or give them more free time.” The hope is for employers to have a healthier, committed, and more productive workforce.

Of course, the change is a controversial move, inciting a great deal of discourse from all sides. The National Restaurant Association released a statement expressing grave concern, saying that “supporters of these regulations say they want to increase Americans' take-home pay, but these sweeping changes to the rules could mean anything but.” The association is rallying against the new rulings as it fears "these proposed rules have the potential to radically change industry standards and negatively impact our workforce.”

Although there’s fear of negative consequences, QSR Magazine interviewed a partner at a law firm with a group specializing in employment practice who feels there may be an interesting benefit. “If there’s a silver lining in this rule change for the industry, it’s forcing all restaurant owners to do a top-to-bottom audit of their workforce.”

Implications for Restaurant Employers

Restaurant owners will need to decide how to effectively and legally handle the new regulation if salaried employees who fall under the threshold are working over 40 hours. In practice, a solution to adhering to the overtime standards will involve a variety of approaches to labor management as well as other creative adjustments.

Some choices are to cut hours, pay eligible employees overtime, raise salaries above the threshold, and revert salaried employees to hourly employees. Each of these come with consequences to consider. In instances where employees are not far from the threshold, it could be an okay move to raise their salary, but this option may not be feasible for mom and pop shops with a small profit margin if the raise would be a significant stretch.


federal overtime laws

Source: https://www.dol.gov/featured/overtime


Effects on Restaurant Employees

The change will affect salaried workers such as entry and mid-level management, chefs, bakers, and supervisors. According to the Bureau of Labor Statistics, there are 696,730 “first-line supervisors/managers of food preparation and serving workers,” most of whom are likely to be salaried. A large portion will be impacted given the average annual income of these workers is $32,410. It’s important to note that hourly employees are not affected by the changes, as they were already covered for overtime.


obama overtime law

Source: https://www.dol.gov/featured/overtime


Ramifications for Restaurant Customers

Americans are spending more money dining out than ever. In March of 2015, sales at restaurants and bars surpassed those at grocery stories for the first time since the Commerce Department started collecting data in 1992. It’s possible that companies forced to better compensate their workers may need to raise prices. According to a Zagat 2016 survey, Americans are dining out an average of 4.5 times per week, so this could have a financial impact on customers by forcing them to make the decision to go out less or spend more.


calculate overtime


Tools and Takeaways

The overtime threshold shift will force restaurant owners to take an in-depth look at the way they manage labor and run their business. A top to bottom re-evaluation is necessary for many restaurants uncertain about raising overhead, even given the multitude of options. There are a few tools that can be used and actions that can be taken to prepare a restaurant for the change.

  • Closely monitor timekeeping before the rule takes effect. This will be crucial to making informed decisions about labor management. A POS system with effective labor management software is key to avoiding lawsuits and keeping clean records.
  • Utilize labor reporting to provide insights into how to best schedule your team. A POS with back-end reporting can help keep overhead costs down as restaurants face rising labor costs. Labor management features within a POS can be used to view detailed information such as an employee's total sales, average table turn times, average and total tips collected, total orders fulfilled, and any item voids or discounts.

  • Invest in technology, allowing staff to devote their energy elsewhere. For example, kiosks and online ordering encourage customers to interact with efficient technological platforms that can contribute to a rise in order volume, while freeing up employees to churn out orders faster. Look at the success of Panera’s kiosk system; QSR writes “Panera claims 60 percent of lunchtime transactions are completed on touch-screen kiosks at one bustling, Boston-area store near Fenway Park.” Not to mention that 40% of Domino’s domestic sales come from online ordering. It’s only the beginning for big chains, and mom and pop shops alike can hop on the bandwagon.

The new overtime rule is no small change and will require a great deal of action to get ready for the threshold shift. I anticipate that technology will play a huge role in helping restaurants to thrive. What else is controversial about the overtime change? What can restaurant owners do to prepare? We'd love to hear your thoughts in the comments below.

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