Many of you may have heard that on May 8, 2016 the Department of Labor (DOL) has changed the minimum thresholds regarding the overtime exemption. Prior to December 1, 2016 the threshold was at $23,600 annually allowing low cost salary exempt staffing in many South Florida businesses especially restaurants, resorts, and hotels. In the hospitality business, many salary exempt staff members are required to work minimum 50 hour work weeks with many approaching 60 hours plus a week to meet their job requirements. These rules severely limit the employers ability to continue these work practices for lower wage entry level managers.
The current overtime exemption taking effect December 1, 2016 has moved to $47,476 annually .
This will have a significant impact on Palm Beach County businesses and will make many CFO’s lives very difficult over the next several years as they assist in determining business plans to help offset the increase. Although this change on the surface may not seem like a significant adjustment. Starting to track hours for those under $47,476 and paying applicable overtime will have a significant impact on the bottom line. There are many outcomes that may result from these changes and below are a few that quickly come to mind:
- These rules will have a similar impact to that of the economic downturn in which businesses pushed hard to become more efficient and were able to get their team members to do much more with much less. The lack of jobs allowed businesses to apply much more pressure to staff to increase productivity. The job markets are currently much better than the prior downturn but in an effort to cut losses many companies will implement several productivity tactics specifically targeting this entry level management wage.
- Many employers may increase the wage of their salary exempt staff that are close to the new rate to continue to avoid the overtime implications.
- Many current salary exempt positions below the threshold will convert to hourly and some of the work load will shift to more senior salary exempt managers to reduce work loads and allow the staff member to complete their roles in under 40 hours a week. This does not bode well for the more senior middle managers who just added 10+ a week to their work schedule.
- Businesses will pay the additional overtime and pass costs through to their customers via price increases and subsidies such as service charges and fees.
Hypothetical Case Study:
Looking at a mid-sized resort/hotel style business as a hypothetical scenario of cost increase. Total Employees: 700 Salary Exempt Staffing: 200 Approximately 30%-35% of salary exempt staffing will fall below the newly implemented $47,476 threshold. Utilizing those assumptions that identifies about 65 managers below the $47,476 minimum requirement. Assuming an equal spread from the $26,600 to $47,476 range we end up with an approximately net wage increase of $136,095. Add in 6.2% ($8,438) Social Security Tax, 1.45% ($1,974) Medicare Tax, and any 401(k) Match ($1,701) and the gross cost increase equates to about $148,208. These figures do include any ancillary costs such as workers compensation et al.