More generous overtime protections will mean higher payroll costs.! The New Overtime rule from the U. S. Labor Department would more than double the threshold at which employers can avoid paying overtime and require employers to reclassify millions of salaried workers to hourly. The rule is likely to have unexpected consequences on the hotel industry. Hotel News Now, Patrick Mayock, indicates the key points governing the policy.
REPORT FROM THE U.S.—A proposed rule that aims to enhance compensation for 5 million American workers could have the opposite effect in the hotel industry, according to sources.
In in 29 June blog post on the Huffington Post, President Barack Obama outlined plans to extend overtime protection under the Fair Labor Standards Act to salaried “white collar” employees making less than $50,440 annually in 2016, up from the previous threshold of $23,660 set in 2004.
The protection would require employers to pay nonexempt employees for all hours worked over 40 in a workweek at a rate not less than one and one-half times their regular rates of pay.
As of press time, the U.S. Office of Management and Budget has reviewed and approved the Notice of Proposed Rulemaking, but the document has not yet been published in the Federal Register. It is expected to be published this week, at which point interested parties will be invited to provide feedback and comments.
The U.S. Department of Labor will consider such feedback before making issuing its final regulation, which likely will take effect in 2016.
Approximately 250,000 hotel employees will be affected, according to Randy Pullen, president and CEO of WageWatch and a Hotel News Now columnist.
Likely candidates include positions such as assistant GM or directors of sales—those employees who previously were exempt under the so-called “duties test” and make less than $50,440 a year, he said. On average, a typical limited-service property might have four eligible employees, while a typical full-service hotel might have eight, Pullen added.
Hoteliers could expect a 10% increase in overtime-associated labor costs for affected employees, Pullen said.
A psychological blow
The rule is intended to increase compensation for salaried employees who routinely work 50 or 60 hours a week but fall below the poverty level for a family of four, according to the Department of Labor.
“Right now, too many Americans are working long days for less pay than they deserve,” Obama said in his blog post.
But sources said the rule could do more harm than good.
“The proposed changes to overtime rules will hurt our employees and severely impact small business owners, who will be unable to continue the pace of job growth that has been so vital to boosting the economy,” said Vanessa Sinders, senior VP and head of government affairs at the American Hotel & Lodging Association, in a statement.
“The hotel industry offers good jobs and benefits and fair and reasonable wages that provide accelerated pathways to life-long careers. The majority of jobs in the hotel industry start above the minimum wage, and employers should have the flexibility to set salary parameters that foster a strong team environment and allow for good benefits, higher pay and workable schedules,” she continued.
Bob Habeeb, president and CEO of First Hospitality Group, took a similar stance, explaining the type of abuse this rule is designed to combat is few and far between in the hotel space. The industry is far too competitive, he said, and many workers would jump ship if forced to work a 60-hour workweek without fair compensation.
To that end, the rule is designed to help good employers who already compensate employees fairly because it holds the bad employers accountable, Obama explained in his blog post.
“(The rule) is good for business owners who are already paying their employees what they deserve—since those who are doing right by their employees are undercut by competitors who aren’t,” he wrote.
But even those doing right could now be forced to effectively penalize some employees, Habeeb said.
Because the rule specifies that even more salaried workers should now receive overtime pay, that means even more salaried employees must now track their hours. The only way to do that, he said, is to have them clock in and out each day—just as any hourly wage worker would.
If that’s the case, some operators might simply swap out salaried pay structures with hourly ones, which could affect other benefits such as health care coverage and other compensation packages.
The result could be a psychological blow for many workers, Habeeb said.
“My experience over my career is that when you promote someone to a salaried position, there’s both a (psychological) and practical appreciation of that that people embrace. People see salary as the next step up. It’s very predictable. They associate it with being in management. They’re off the clock, if you will,” he said.
Fewer hours for all
The other unintended consequence, Pullen explained, is that hourly workers could see their hours cut to accommodate more workers on payroll to lessen the need for overtime work by managers.
He offered the following example to illustrate the point:
An exempt front-desk manager often has to step in to cover extra shifts as her hourly associates call in sick, take vacation time or simply don’t show up to work.
Under the proposed rule change, however, that manager is now nonexempt and is forced to log hours and will earn overtime pay for each hour beyond 40 she works in a given week to cover those extra shifts.
To avoid allocating such overtime pay, the hotel operator might hire additional front-desk associates to more seamlessly fill unexpected gaps in shifts.
Thus, the front-desk team of eight hourly associates now flexes to 10 or 12 to ensure the manager works as little overtime as possible. That knock-on effect is that each of those associates now works fewer hours because there are more workers dividing the same number of hours required at the front desk.
“That’s probably the biggest situation they’re going to have to deal with at the hotel level,” Pullen said.