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Obama’s New Overtime Rules Will Give Restaurant Workers Much-Deserved Raises

How the policy could change restaurant culture, minimum wage, and the middle class forever

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President Barack Obama is raising wages unilaterally because he can't raise wages through Congress. It's pretty incredible when you think about it: In the face of staggering income inequality, wealth inequality, and stagnant pay — even during a time of economic growth, when workers should be getting raises — Republicans in Congress have blocked the president's effort to increase the minimum wage from $7.25 per hour, a paltry $15,000 a year, to $10.10 per hour.

But not all wage decisions require legislative approval, which is why Obama last night achieved what is perhaps the most significant development in federal labor policy over the past decade. In short, the Department of Labor issued a rule doubling the federal overtime limit. What this means is simple: millions of lower- and middle-class Americans who aren't earning a single extra cent for long hours worked will soon be more fairly compensated for their sacrifices.

Since 2004, the annual overtime threshold has remained at $23,660. Salaried employees earning in excess of that are frequently (and legally) excluded from time-and-a-half pay because their employers classify them as executive, professional, or administrative employees; that's why you don't see oodles of chefs, sommeliers, and food writers raking in the Bentley bucks when they burn the midnight oil. That will soon change.

Here's what you need to know about the new rules.

1. Salaried Employees Earning Less Than $47,500 Will Automatically Qualify for Overtime

The Department of Labor is raising the overtime level to $47,476 — lower than the $50,400 limit that the agency originally sought, but about a billion percent higher than Republicans would allow if they could do anything about it, which they really can't. So if you're a salaried sous chef at a fine-dining establishment, a regional manager at Taco Bell, or high-profile food blogger earning less than $47K per year, and if your boss asks you to work more than 40 hours per week, you automatically qualify for time-and-a-half pay. As long as your base salary is under this amount, your employer can't apply that pesky "duties" test that exempts executives and professionals. Note: This overtime rule doesn't apply to hourly employees who already qualify for time-and-a-half under the Fair Labor Standards Act.

The average U.S. wage for chefs, head cooks, and pastry chefs is $45,920. For bakers, that number is $26,270.

2. The Overtime Rule Will Benefit Scores of Chefs and Culinary Journalists

It's not uncommon for entry-level professionals at restaurants, fast-food chains, and news outlets to work more than 40 hours a week for no extra pay. Why? Because those workers are expected to do just that if they want to move up the corporate ladder. Because those workers view the extra hours as a necessary tradeoff for the more stable lifestyle and benefits of salary (versus hourly) pay. And because those workers don't want to lose their jobs.

Soon, those workers will no longer have to fight for the extra pay they deserve. Here's a little quantitative data to support that: The average U.S. wage for chefs, head cooks, and pastry chefs is $45,920. For bakers, that number is $26,270. And for reporters, a category that includes food writers and bloggers, the mean wage is $46,560. All of these workers, often salaried, and who commonly work 50 or more hours per week, will qualify for time-and-a-half pay for their extra hours. And while the mean wages of restaurant managers are above the threshold, many entry-level salaried employees in those jobs earn less. They will benefit from this rule, too.

3. The Overtime Rule Could Give a Needed Wage Boost to the Middle Class

New York City's $15 minimum will primarily help the people who need the most help: those earning less than the living wage of $14.30. But it also benefits workers earning more than the minimum when employers give them raises to avoid wage compression with staffers on the lowest end of the income scale. Translation: If you're an experienced line cook who's earned much-deserved raises over the years, you won't be happy when a young chef gets a bump to your pay grade thanks to government fiat. So bosses will try to adjust for this by giving you a bump, as well (albeit a smaller bump). The thing is, such collateral benefits can take a while to trickle up — and those benefits aren't guaranteed.

The overtime rule, by contrast, is calculated to directly help a wider range of workers across the income scale. The Department of Labor initially wanted to calculate the overtime cap at $50,400, the 40th percentile for income nationwide — a technical way of saying the agency wanted to make sure below-average salary earners received overtime protections. After opposition by business groups, that was adjusted down to the 40th percentile for the lowest earning region of the country, the Southeast, which works out to $47,476.

A salaried sous chef who earns under $40K annually and who works 55 hours a week will earn an extra $428 for those 15 hours.

What this all means: The overtime rule will boost the income of salaried staffers earning as much as $22.83 per hour to 1.5 times that rate — $34.25 — after a 40-hour week. A salaried sous chef who earns just under $40,000 annually and who works 55 hours a week, not uncommon for a sous chef, will earn an extra $428 for those extra 15 hours. Not bad, right? But keep in mind that employers do have other options, which you'll see below.

4. Many Employers Will Pay Higher Salaries to Avoid Overtime

Giving raises, even to avoid regulation, isn't necessarily a bad thing; the Department of Labor even mentions this as an acceptable method of compliance on its website. Many businesses will take this route to avoid the burden of having sous chefs, sommeliers, reporters, social media editors, and other typically salary-based workers clock in and out every day — as well as to keep control over labor costs. Danny Meyer's Union Square Hospitality Group, for example, told Eater last fall that its restaurants would be working toward getting all sous chefs and entry-level managers above the overtime threshold by the time it takes effect.

5. Other Employers Will Cut Hours (Or Risk Wage Lawsuits)

Employers who don't raise salaries or pay overtime can simply cap hours at 40 per week. This isn't necessarily a bad thing, either: Employees will consequently earn their full salaries for a more reasonable work week and theoretically enjoy a better work/life balance (even a rosy-eyed labor advocate like myself will admit this sounds a bit too good to be true). Also worth noting: Employers who don't raise salaries will need to monitor any overtime closely to avoid becoming the subject of what will inevitably be an onslaught of wage lawsuits.

6. It's Unlikely Employers Will Cut Annual Pay to Adjust for Overtime

Lobbyists are trying to scare the masses by claiming that the new overtime rules will cause businesses to cut the base pay of salaried employees to account for the extra money they'll now make in overtime. That's hogwash. The unemployment rate is hovering at pre-recession levels of around five percent; the economy is booming; consumer confidence is strong; and New York restaurants, at least, are packed. That means finding good workers is a challenge and a necessity for employers, especially in hospitality. Restaurants in New York, San Francisco, and elsewhere will have little leverage in cutting sous chef or manager wages without risking defections to other restaurants who choose to pay more.

7. The Overtime Rule Has Some Risks for Managers and Full-Time Journalists

Regulations, almost by definition, are taxes on business, and the new overtime rule is a big tax on business. And so this is when I tell you there's a possible downside to all this: Businesses could slowly combine certain managerial duties into the workflow of lower-wage salaried workers and chip away at the ranks of middle management. And it's possible that journalistic outlets and food publications will use this rule as another reason to cut back on full-time staffers and rely more heavily on freelancers, who often don't qualify for full benefits. Alas.

8. The Rule Goes Into Effect This December and Will Increase Every Three Years

State and municipal minimums are rising throughout the country, but many of those regulations are being phased in slowly. Seattle approved a $15 minimum, but some workers in the city won't see that wage until 2019. That's not the case with the new overtime rules, which will go into effect on December 1. The threshold will be updated every three years, starting in 2020, to match the 40th percentile income of the country's lowest-income region (the Southeast).

9. Prices Will Keep Going Up at Restaurants (But You Knew This)

According to the April U.S. consumer price index, a leading measure of inflation, food prices are largely down or stable, and yet "food away from home" prices are up 2.6 percent over the past year. It's surely a sign that the U.S. hospitality industry is still learning how to deal with skyrocketing labor costs, from state minimum wage hikes, to the Affordable Health Care Act's employer mandate, to mandatory paid sick leave in certain municipalities.

This overtime rule, like many of the preceding regulations, will affect virtually all American businesses, but it will affect restaurants even more, as hospitality is an industry that traditionally employs some of the country's lowest paid workers and offers them the fewest benefits. So if consumers want this all to work, they'll have to pay a few extra cents for pork buns. That's a good thing.

Illustration: Stephen Finn/Shutterstock
Ryan Sutton is Eater NY's chief critic and data lead.
Editor: Erin DeJesus


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