What many restaurant operators fail to realize is that paying a fixed salary is only one of the tests used to determine if an employee is exempt from overtime rules. The Fair Labor Standards Act (FLSA) exempts executive, administrative and professional employees from minimum wage and overtime protection rules provided the employee meets the requirements test for exemption.
The stance most often taken to classify restaurant managers as exempt is the executive exemption. To qualify for the executive employee exemption, all of the following conditions must be met:
- The employee must be compensated on a salary basis (as defined in the regulations) at a rate not less than $455 per week.
- The employee’s primary duty must be managing the enterprise or managing a customarily recognized department or subdivision of the enterprise.
- The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent.
- The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.
But on December 1, 2016 the minimum base rate of $455 per week is increasing to $913 per week. In annual pay terms, the base rate for salaried employees rises from $23,660 to $47,476 per year. To retain the overtime exempt status as defined above, you will need to increase those managers to a minimum salary of $47,476 per year. The good news is, for the first time ever, employers will be able to use nondiscretionary bonuses and incentive payments to satisfy up to 10 percent of the standard salary level. In prior years, bonuses were excluded from the base rate calculation for the purpose of meeting exemption criteria.
Your alternative to giving a raise is to convert managers making less than $47,476 to an hourly rate, and then pay overtime when working more than 40 hours a week.
What about your restaurants? Do you currently pay salaries to key employees? If so, do they meet the litmus test to be considered exempt from minimum wage and overtime rules?