Hotel company executives worry the U.S. Department of Labor’s new overtime rule will have the opposite of the federal government’s intended effect.
REPORT FROM THE U.S.—Some hotel executives believe new federal overtime rules from the U.S. Department of Labor designed to grow wages and increase employment will hurt both employers and employees.
The main thrust of the new overtime rule is the increase in the white-collar salary threshold required to deem employees exempt from overtime pay. That threshold jumps from $23,660 to $47,476 a year starting 1 December.
“We think it’s a bad move,” said Woody Montgomery, EVP of human resources at PM Hotel Group. “There are certainly good intentions on the part of the Department of Labor and the Obama administration, but from our perspective, it’s a significant increase.”
Montgomery believes the new rules will force hoteliers to rethink staffing levels. The ambitious employees who try demonstrate skills and a willingness to go above and beyond to get the job done have a new restriction on them, he said.
Higher costs could drive companies to possibly end some of the benefits offered to management staff, such as free life insurance and quicker and better vacation entitlement.
“We can come up with options and make decisions whether they give us 90 days or six months,” Montgomery said. “We want something that really keeps our associates in mind. Any choice we make will have adverse effects on that group of people.”
Marshall Hotels & Resorts might decide to increase an employee’s salary above the threshold, according to President and CEO Mike Marshall, but he said that would mean the employee would take on a heavier workload while the company eliminated lower-level positions. Another option would be to hire two people to do the same job for $10 an hour, he said.
“That increases the workforce, but it’s at $10 an hour,” Marshall said. “They’re not going to have any excess money.”
The new overtime regulation will require hoteliers to determine the overall impact it has on their companies, said Michael Doyle, managing director and EVP at CHMWarnick. One of the first steps will be to determine whether managers will make less than they currently make now in order to avoid overtime, he said.
“Another approach would be to see if the management position is even necessary,” Doyle said. “Can the work be done by other managers or the currently hourly supervisor positions?”
This process will require a property-by-property review, he said, and will require an in-depth look.
“We do expect somewhat of an impact in our business and how we structure management teams,” he said.
Finding another way
As the higher threshold is a significant change to impose on businesses, the new rule isn’t good for the hospitality industry, Montgomery said. He hopes organized opposition could lead to something a little more reasonable.
“If they believe it is absolutely the right thing to do, the 100% increase of the threshold, I think anyone would categorize it as a radical change in six months to get ready for,” he said.
While his company will follow the law, Montgomery said there needs to be a financial impact study conducted on the change. The Department of Labor did not do such a study.
Marshall said he would have preferred to see a tiered approach that takes the different cost-of-living expenses based on different geographic locations. Someone receiving $40,000 in Salisbury, Maryland, is making well above the median income, he said, while that same person would receive $60,000 in Manhattan.
“The biggest problem with this ruling is it does not take into effect the cost of living per market or part of the country,” Marshall said.
While the government factored in an employee’s pay when determining the new overtime rule, Doyle said, it ignored the other factors, such as strong benefit packages, provided uniforms, meals and other benefits. There’s more to an employee’s compensation than pay alone, he said.
“It’s unfortunate they don’t factor in the other parts of the total compensation package when they think of these types of regulations,” he said. “I would like to see them consider those in the future.”
What the rule means
Many of those salaried employees who work at the mid-management level and have long hours will become eligible for overtime, said Andria Ryan, partner at Fisher & Phillips. Employers now have to decide who they will pay more to pass the threshold and those who will remain eligible for overtime, she said.
The new rule did not make any changes to the duties test, which determines what type of employee is exempt from overtime based on job responsibilities, such as having a supervisory role over other employees.
Hotel employers will need to determine if they can modify their pay plans and working hours, Ryan said. A client recently spoke with her about flex time for certain groups of employees, like sales managers, she said, that would keep them eligible for overtime but allow them to work from noon to 8 p.m.—when they might have more job responsibilities—than the typical 8:30 a.m. to 5:30 p.m. shift.
There are a number of creative pay plans out there, Ryan said, but a number of them receive strict scrutiny from the Department of Labor. Others aren’t accepted at all, she said, so it’s important employers fully vet any pay plan they want to use.
“Wage and hour (court) cases are dangerous,” Ryan said. “When you’re doing it wrong, it’s not just with one person. If you get it wrong with one, you’re likely getting it wrong with many. That makes them ripe for the challenge.”
Ryan also recommended developing a communication plan for employers to get out in front of the federal government’s announcement. Employees will hear about this and could think they will get a raise starting 1 December, she said.
As employers ready themselves to roll out new pay plans, Ryan said there will be two groups of employees: those who have to clock in and out and keep time records and the supervisors who are now managing people who were previously exempt and didn’t have to worry about overtime. Training is necessary for both groups.
“You have an assistant restaurant manager working 60 to 70 hours a week at peak times now overtime eligible,” she said. “The manager has to pay more attention to an employee they never had to worry about before with that.”