Restaurants prepare for the reality of overtime

The new federal overtime rules are about to get real. To comply with the mandate that takes effect Dec. 1, operators—even amid uncertainty about the law’s future under a new president—are choosing their path to compliance. Our informal survey of restaurateurs finds the industry pursuing different alternatives, from sticking with the status quo to eating the higher management costs. We found no shortage of operators who are raising managers’ salaries above the new $47,476 cap for overtime eligibility, converting salaried roles into hourlies or both.

The wild card is how restaurants are handling the side effects that each of these approaches brings—namely, higher labor costs, the need for more diligent time tracking, and morale among employees who find themselves back in the pool of the hourly workforce.

Restaurants are hedging off some of the extra costs of the rule with training and technology.

Ruby’s Diner got a jumpstart on the issue. Most of its units are in California, where market forces already push most managers above the new overtime threshold. To balance the marginal costs of overtime and other labor mandates, the chain will begin testing tabletop ordering and payment in January, which will expand server sections.

To protect the investment it has made in deciding to raise salaries, Persona Pizzeria says it’s enacting a more comprehensive hiring process for managers. That includes adding prescreening software that administers psychological tests to applicants to determine their judgement and how they delegate authority.

The three restaurants within hotel management company NVN Hotels will be driving some salaries above the cap and switching others to hourlies, based on evaluations of job duties and qualifications. To absorb the costs, the restaurants are streamlining operations by cross-training individuals so that they can do more with less people, says CEO Sheenal Patel.

Some operators are changing their hour-tracking protocol and adding safeguards to accommodate a larger number of hourly employees.

At Famous Toastery, a growing chain with 15 locations on the East Coast, the regulations affect 100 of its 150 corporate employees; their positions will become hourly. “We will have to make very clear that if you don’t check in and you don’t check out, you don’t get paid,” says CEO and founder Robert Maynard. To help accurately track hours, the chain is considering integrating fingerprint technology into its POS system.

At Buffalo Wings & Rings, about half of the management staff falls below the threshold, which will significantly affect the chain financially, CEO Nader Masadeh says. The 49-unit chain will bump up salaries that are close to the threshold, and restructure managers who are around the $30,000-per-year range into hourlies. To help navigate the rules, the chain has beefed up its compliance team. 

To counteract the negative connotation of transitioning to hourly employment, some chains are swooping in with extra benefits and solid succession plans. 

At corporate stores, Mooyah Burgers, Fries & Shakes is pushing all general managers above the cap. Some managers will be receiving 10% to 20% pay increases, but COO Michael Mabry says the investment will preserve morale. However, assistant managers will become hourly at corporate units, and the chain is advising franchisees do the same. 

“It gets complicated with assistant managers,” Mabry says. “If you have some people with the title manager and they work an hourly wage, it has the potential to dishearten them.” To combat that sentiment, Mooyah plans to support assistant managers with online continuing education, and boost the pathway to general manager roles with mentor relationships.