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FLSA Overtime Ruling and the Hospitality Industry

Aug 16, 2016 11:26:34 AM

               For many companies within the hospitality industry, ensuring employees’ wages are compliant with the Department of Labor’s recent FLSA ruling on overtime will be a challenge. The updated Fair Labor Standards Act (which goes into effect December 1, 2016) states that in order for employees to be exempt from overtime, they must be paid an annual salary of at least $47,476 (or a $913 weekly salary). Because many hotel workers currently work overtime, hotels will need to determine the most cost-efficient way to ensure they are compliant with FLSA guidelines.

               Running a hotel is relatively expensive, and as a result, hotels typically want to keep payroll expenses at a minimum. The idea of changing large numbers of employees from exempt to non-exempt can seem like a daunting and expensive task. But by carefully considering different options, employers can make the most cost-effective decision for their business. For employees that frequently work overtime and have salaries relatively close to the $47,476 threshold, in many cases, it would be less expensive to increase their annual salary to keep their exempt status. The hotel industry has many employees that fit this description. For example, the average salary for chefs and head cooks is $45,920, approximately $1,500 less than the exempt threshold. On the other hand, for employees with salaries that are significantly lower than the exempt threshold (or employees that very rarely work overtime), it would probably be more cost effective for them to remain non-exempt.

               Calculating overtime costs will be especially challenging for the hospitality industry. The industry’s business is largely dependent upon factors such as the weather and season so the amount of overtime that employees work fluctuates throughout the year. This variation can make it difficult for management to track the hours and overtime that their staff work. Also, because of the high overhead costs associated with operating a hotel, it can be difficult for employers to budget higher payroll expenses. Businesses will also have to consider a potential domino effect associated with raising wages. Once one group of employees’ wages increases, other employees will possibly question why they haven’t received raises. Although determining the best way to handle the Department of Labor’s new overtime legislation can be difficult, employers will still have many options on how they will pay their employees.

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