Charlotte business owners grapple with new overtime pay rules

JJ’s Red Hots owner Jonathan Luther is one of many Charlotte business owners who face tough decisions regarding the government’s new rules about overtime pay.
JJ’s Red Hots owner Jonathan Luther is one of many Charlotte business owners who face tough decisions regarding the government’s new rules about overtime pay.

Charlotte business owners have less than four months to figure out how they’ll adapt to the federal government’s new rules requiring overtime pay for millions more workers.

Some are reclassifying managers as hourly employees, meaning they’ll have to clock in and out, with less predictable pay. Others may raise workers’ salaries just beyond the new cutoff point, so they remain ineligible for overtime pay. Still others are consulting with lawyers as they seek to understand their options.

“We’re in a bind due to this new regulation,” said Yuriy Vaynshteyn, owner of Engel & Volkers, a south Charlotte real estate company with 14 employees. “We will need to consult with a pay compensation attorney or someone else who might help us to navigate through these new complicated rules.”

The regulations, issued by the U.S. Department of Labor, will more than double the threshold under which salaried workers must receive overtime for extra hours. Starting Dec. 1, workers must be paid at least $913 a week to be exempt from overtime pay, compared with $455 previously. That works out to $47,476 a year, up from $23,660.

Jonathan Luther, owner of JJ’s Red Hots on East Boulevard, said his restaurant has numerous managers who no longer meet the salary threshold.

“We ask our managers to commit to between 45 and 50 hours a week,” he said. “That is a reasonable request. ... But now, (the government is) requiring them to punch in and punch out and track their hours.”

Luther said he believes most companies treat their managers well, and that this new law designed to protect their time is actually “a slap in the face to managers.”

Companies have only a few choices, said Kenny Colbert, president of The Employers Association, which provides human resources and training services to about 950 Charlotte-area companies.

They can increase employees’ salaries above the threshold to keep them exempt from overtime pay. Or, they can reclassify them as hourly employees, paying them time-and-a-half if they work over 40 hours in a week. If the employer chooses to pay by the hour, they must decide what wage to pay and whether to allow overtime at all.

Each option, Colbert said, comes with its own pitfalls – either to the company or to the employee.

The simplest option – increasing an employee’s annual salary above the threshold – is only a short-term fix, he said. That’s because the new regulations require the threshold to rise every three years. The government estimates that in 2020, with the next increase, it will jump to about $51,000 annual salary. Colbert thinks it could go even higher.

The overtime regulations have been updated just once since the 1970s. The Labor Department says the new rules will extend protections to 4.2 million workers, ensuring they are paid for their extra work.

Some occupations, including teachers, lawyers and physicians, will not be affected, according to the final rule from the Department of Labor.

“To some degree, this is a classic example of the government passing a law that is designed to help people,” Colbert said. “But it may not necessarily help them.”

Pay may fluctuate

JJ’s will inform its managers they’ll be switching to an hourly wage, Luther said. The company will use an algorithm to determine an hourly rate based on an expected five to seven hours of overtime pay each week.

“This is a burden for (managers),” he said. “Their money won’t be predictable week to week. It might fluctuate week to week. ... That’s something they’re not looking forward to, I can tell you that.” He said JJ’s will try to use the algorithm to keep their pay in line with what they earn now.

In the past, Luther said, getting promoted to a salaried manager position gave those employees a sense of increased status and pride. Now, the hours week-to-week will still be unpredictable. In a slow week, when overtime isn’t necessary, the manager would end up taking a pay cut for the week, he said.

Some companies are converting their managers’ salaries to hourly wages – but then not allowing them to work overtime. Instead, Colbert said those companies might give the extra work to someone who is already exempt from overtime pay.

Colbert thinks that will be the most popular option in cases where an employee’s salary is well below the threshold. But it comes at a cost to employee morale, he said. Moreover, if managers are clocking out, they may not be around to respond to customer complaints or other unexpected problems.

But Luther, at JJ’s, said all restaurants face the same issues, and the industry will adjust.

“Their importance to the company doesn’t change,” he said. “It’s just about communication and sitting them down to talk it through.”

Around the country, other businesses are responding to the new rules by limiting hiring or cutting costs in other ways, according to the Associated Press. Others are turning to technology to get work done more efficiently or even automating parts of the business like customer service.

Lots of questions

Some companies are finding that every potential solution brings up new questions.

Vaynshteyn, at Engel & Volkers, hasn’t made a final decision about employees who are salaried but who now fall well below the new threshold. He said the company is considering transitioning them to hourly pay.

“But this is not an answer,” he said, “since some employees sometimes answer calls on weekends and after hours in cases of emergency, and with new rules we’re not sure how to handle such situations.”

Luther echoed this concern. Both he and Vaynshteyn said they will face new challenges navigating through these regulations – especially for managers whose work might not lend itself to clocking in and out.

“What is work?” Luther said. “You go home and you think about work sitting at your table … strategizing for the next six months. Is that work?”

Rachel Stone: (704) 358-5334, @RStone1317