New OT threshold ‘palatable’ to hospitality industry, others – Mississippi Business Journal


New proposed federal worker overtime rules that would mandate time-and-a-half pay for many workers earning less than $35,308 annually would force Mississippi restaurants and other businesses to dig deeper to cover payroll.

But businesses can still avoid paying overtime to executive, administrative or professional employees who spend less than half their work time on non-managerial tasks. The exempt provisions make a lot of sense for hospitality businesses, though they do carry some challenges, said Pat Fontaine, executive director of the Jackson-based Mississippi Hospitality and Restaurant Association.

In the hospitality and restaurant business, a manager at one moment is a host, a night clerk, a cashier, a housekeeper, a kitchen helper, a dishwasher or even a bathroom janitor.  Restricting that flexibility or tracking time spent on the various duties would be a burden all the way around, Fontaine said.

“Managers in our industry need to have a ‘hands-on’ and ‘do-whatever-it-takes’ approach to ensure that operations run smoothly; and they should be able to lead, train, and inspire by example,” Fontaine said in an email.

They get to do that under proposed rules the Labor Department issued in March. The test is confined to whether the managers, administrator or professionals devote at least 50 percent of their time to managerial functions.

The new rules, which are in a comment period, replace those the Labor Department in the Obama administration sought to enact in 2016. Those rules specified a $47,300 threshold for overtime pay exemptions and scratched the need for a “duties test” since all workers below the threshold would be eligible for overtime pay of time-and-a-half an hour.

As Tommy Siler, an employment lawyer and partner with Phelps Dunbar’s Jackson office, summed it up in a 2016 MBJ interview, “You are not exempt if you do not meet the minimum salary level test, no matter what your duties are.”

The Obama rules never went into effect. A federal court in Texas threw them out and the Trump administration declined to appeal.

The new rule sets a single test: Does the manager, administrator or professional earn at least $35,308 a year ($679 weekly)? If yes, the employer does not pay for overtime work.

Up to 10 percent of the salary minimum can be met through nondiscretionary bonuses, incentives, and commissions that are paid annually or more frequently, according to the proposals.

The Labor Department says it intends to propose updates to the salary and compensation levels every four years. This is despite the strong criticism the automatic increase proposal in the Obama plan received.

Without the automatic increases, new thresholds would have to go through a lengthy rule-making process.

The Fair Labor Standards Act, or FLSA, requires covered employers to pay employees a minimum wage and overtime premium pay at least 1.5 times their regular rate of pay for employees who work more than 40 hours in a week. In Mississippi, the current overtime minimum wage is $10.90 rounded to the lowest nickel.

The salary threshold for highly compensated employees who are exempt from FLSA overtime pay requirements from $100,000 a year to $147,414 a year.

Fontaine said the 50-percent duties test puts an artificial cap on certain non-managerial work that managers can spend time doing. The result, he said, is to “place significant administrative burdens on restaurant owners, increase labor costs, cause customer service to suffer and likely result in an increase in wage-and-hour litigation.”

On the other hand, the increased labor costs — the first expansion of worker overtime eligibility in 15 years — are “palatable” for the Hospitality and Restaurant Association, Fontaine said, and noted the national organization feels likewise.

Beyond higher payrolls, the expansion requires businesses to assess their internal employee classifications, according to Fontaine.

“This means they may find the need to either transition some of their exempt employees to non-exempt status or alternatively increase salaries,” he said.

But, he added, switching employees from exempt to non-exempt status could dampen morale among workers who see the change as a demotion. The benefits for which the newly non-exempt worker is eligible will change as well, Fontaine noted.

Companies, he said, must also spend more time on record keeping and figuring out how to hire more part-time workers or redistribute work. Otherwise, they face the potential for “overtime situations,” he added.

Fontaine said the hundreds of hospitality businesses his membership represents fear they could face lawsuits from employees whose classification changed. The worker may claim they should have been non-exempt the entire time and are now due back-pay, he said.

In its worker projections for the defunct-2016 rule, the Labor Department said 40,000 Mississippians working in the private sector and for public and non-profit entities would have become eligible for overtime pay with the $47,300 threshold. Far fewer workers will be eligible under the new threshold nearly $12,000 lower than the previous proposed baseline, though the Labor Department’s Wage and Hour Division has not yet provided a new worker estimate.

Mississippi’s work force totals nearly 1.3 million people, the Labor Department’s Bureau of Labor Statistics says.

The Labor Department says its analysis shows 5 percent of private sector workers nationally fall within the overtime eligibility threshold. It estimates that about 7 percent of nonprofit and government employees nationally will be affected by the higher salary threshold.

In the 1970s, the overtime threshold covered 65 percent of American workers, says the National Employment Law project, a New York-based nonprofit that advocates for low-wage workers.

“The Labor Department’s decision to revisit the overtime rile is a slap in the face to millions of workers all across America who waited years to be paid fairly for their overtime hours, the organization told the Detroit Free-Press.

In Mississippi, the proposed thresholds represent dashed hopes and expectations for middle-class workers who need a raise, said Charles Lee, consumer protection director at the Mississippi Center for Justice, a non-profit advocacy organization based in Jackson.

The new threshold “clearly” misses the mark when compared with the 2016 proposal, Lee said in an email.

“The Labor Department should be defending the 2016 proposal instead of undertaking new rule making, if it wants to support the president’s promise to ‘make America great again.’”