New overtime rules close the door on hospitality

Flexibility and upward mobility are trademarks of the hospitality industry and remain among the most desirable assets that attract employees. Think of the mother who needs to pick up her child from daycare, the college student who is taking night classes or the aspiring actor heading to auditions.

{mosads}America’s restaurants, service sector franchises, hotels and lodging establishments offer that needed flexibility to employees, but the Department of Labor’s proposed overtime regulations would undermine these opportunities and undo the best parts of working in our industries.

We share the department’s goal of setting a standard salary level for full-time salaried employees that “adequately distinguishes between employees who may meet the duties requirements of the EAP [employee assistance program] exemption and those who likely do not, without necessitating a return to the more detailed long duties test.” However, under the proposed revisions, the threshold for requiring employers to pay overtime would more than double from the current $23,660, or $455 a week, to $50,440, or $970 a week. Increasing the threshold by such a drastic amount will cause labor costs to dramatically increase. This will have a severe, negative impact on many of the employees the regulation was specifically intended to help while also driving a wedge between hourly and salaried employees.

Our industries run on slim margins. We are service-intensive and labor is always among our greatest costs. These new regulations would reduce the opportunity for employees to qualify as exempt salaried workers and would lead to less flexibility, fewer management opportunities for employees, greater litigation and no guarantee of higher income. Employers will be very careful to monitor and limit employee hours to avoid costly overtime. Hourly workers that could be eligible to become salaried employees would most likely become more stagnant.

One of the reasons we are among the nation’s largest private-sector employers is because of the career ladder that we offer our employees. More than 80 percent of restaurant owners and 97 percent of restaurant managers start their careers in non-managerial positions and move up with new, performance-based incentives. A large majority started in entry-level positions: dishwashers, bussers, desk clerks and valets.

The same holds true for the hotel industry, with the majority of hotel managers and general managers beginning their hotel careers in entry-level positions. Further, 80 percent of hotel minimum wage workers are eligible for promotions in less than a year and 100 percent are eligible in less than 2 years.

Employees that start at minimum wage and work hard can find themselves on a career track that can quickly take them above and beyond hourly wages and into salary positions that have numerous benefits, including healthcare coverage and vacation time.

President Obama proclaimed that the new overtime rule would benefit 5 million workers that are not currently eligible for overtime pay. However, a quick look under the hood reveals that out of those 4.7 million, 3.5 million are currently not working over 40 hours a week and 181,000 are currently working over 40 hours a week sporadically, which will probably change under the new regulation.

Consequently, President Obama’s own Department of Labor estimates that only 931,000 “are expected to become overtime eligible AND be paid the overtime premium”; in other words, only “19.9 percent of [the 4.7 million] affected” workers.

Thus, while fewer than a million workers might see some benefit, 3.5 million workers will be demoted from salaried positions — paid regardless of how many hours they work with salaried employee benefits, to an hourly employee status paid only for hours worked and less benefits. This isn’t just a hit on employee paychecks, it’s a blow to the career opportunity path that they would otherwise have.

Sadly, the new overtime regulation is just the latest example in a string of new regulations put forth by the administration in an effort to completely transform the American workplace. Rather than boosting the pay and livelihoods of employees, they are slowly chipping away at the critically important foundation that has led to so many successful career stories that have made our industries among the nation’s largest employers.

The Labor Department should revisit this misguided approach and work with employers to consider the potentially negative ramifications of this latest and unnecessary mandate on small business.

Sweeney is president and CEO of the National Restaurant Association. Caldeira is president and CEO of the International Franchise Association. Lugar is president and CEO of the American Hotel & Lodging Association.