Colin Barnacle is Senior Counsel in Holland & Knight's Denver office

The U.S. Department of Labor (DOL), on May 18, 2016, released its rule updating overtime regulations for executive, administrative and professional employees (commonly referred to as white collar employees) under the Fair Labor Standards Act (FLSA). The new rule more than doubles the salary threshold (from at least $455 per week/$23,660 per year to $913 per week/$47,476 per year) to equal the 40th percentile of weekly earnings for full-time, salaried employees in the lowest income region of the country (the South), as reported in the U.S. Census. The DOL rule is expected to expand overtime coverage to roughly 4.2 million employees. The new rule is set to take effect on Dec. 1, 2016.

Restaurants are one of the industries most affected by this new ruling that increases the overtime threshold limit. The change will affect existing exempt salaried workers, such as entry and mid-level management, chefs, bakers and supervisors. According to the Bureau of Labor Statistics (BLS), there are 696,730 "first-line supervisors/managers of food preparation and serving workers," most of whom are exempt. A significant portion of these workers will be impacted, given their average annual income is $32,410.

Restaurant owners/operators will need to decide how to effectively and legally manage the new regulation if existing exempt employees who fall under the new pay threshold are working more than 40 hours in a workweek. In practice, compliance with the new overtime standards will involve a variety of approaches to labor management as well as other creative adjustments.

For example, options may include cutting hours, creating multiple positions, job sharing, paying eligible employees overtime, raising salaries above the threshold and/or reverting existing exempt salaried employees to "non-exempt" hourly employees. Each of these alternatives has different consequences to consider. In instances where employees are not far from the threshold, it could make sense to increase their salaries, but this option may not be feasible for small, independent operations with small profit margins. There is also the issue of communicating changes to the employees and being cognizant of resulting morale and performance issues.

In any event, employers who have not yet planned for the change in the overtime exemption rules should begin doing so immediately to minimize the disruption to their operations and bottom lines.

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