Thanks to new federal rules, some mid-level managers are in line for a big raise

May 19, 2016 3 AM PT

For the last year, Stephane Bombet has worried about overtime pay.

The president of a hospitality group, Bombet has had to pay the 12 or so managers at his four Los Angeles restaurants more and more, thanks to a provision in California regulations that ties managerial pay to the minimum wage. The state minimum wage rose from $9 to $10 last January.

In California, workers must make over twice the minimum wage, or $41,600, in order to be exempt from receiving time-and-a-half pay for working more than 8 hours per day.

That threshold will increase in December, when new federal rules on overtime pay go into effect, mandating that employers pay managers more than $47,476 if they don’t want to pay them overtime.

And as California’s minimum wage rises over the next seven years toward $15, the pay ceiling will grow even more. By 2023, employers will have to pay more than $62,400 to keep managers from getting OT.

We talk about it every day. How are we going to survive? It’s insane. They are killing the business.

— Stephane Bombet, president of a hospitality group

Many employees see the changes as a welcome pay boost for work they’re already doing. Some 146,000 workers in California will be impacted by the new federal rules, the White House said Tuesday.

“It will have a positive effect, a substantial positive effect on worker and part of that will mean a transfer of dollars from corporate profits and executive salaries to workers,” said Ross Eisenbrey, the vice-president of the left-leaning Economic Policy Institute, which studied the effect of a higher overtime pay threshold.

Nationally, the industries with the largest share of workers impacted by the new federal threshold include agriculture, hospitality and construction, according to Eisenbrey’s analysis.

Bosses, however, already are having to decide whether it makes more sense to pay managers for their extra hours, raise their salaries to place them outside the rules, or cut their work day.

“We talk about it every day. How are we going to survive?” says Bombet, whose restaurants include Terrine and Faith & Flower. “It’s insane. They are killing the business.”

Bombet said he’s in favor of raising the state minimum wage. But the ripple effect on managerial compensation has dented his profits, which he says have fallen over the past year.

“We know how important it is to get good managers, so we sacrifice the bottom line to get them,” he said.

To compensate for the increased costs, Bombet says he has given managers more responsibilities, like handling marketing or social media, instead of hiring more people to handle discrete tasks.

“The more we pay an individual, the less individuals we have in the company,” he said.

Proponents of the higher threshold say that California’s recent experience should hearten national employers. Since linking overtime to minimum wage in 1999, California has added more than 2.3 million jobs, and in recent years employment has been growing faster in the state than in the country as a whole.

“All the doom and gloom from employers about what this is going to do has not played out in California,” said Eisenbrey.

California has a more stringent test than federal rules to determine whether the work someone does should exempt them from overtime pay. Employers here have to show that exempt workers perform executive or administrative duties at least 51 percent of their work time.

That means the new federal rules may create extra bureaucratic work. Brenda Rushforth, the Assistant Vice President of human resources at Pomona College in Claremont, said she would have to spend a lot of time making sure that employees who are exempt under California law are also exempt federally, and vice-versa.

“What’s complicating things is balancing on the edge of that sword between California regulations on the duty test and the federal regulations on salary,” Rushforth said.

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Before December, Rushforth said her team would evaluate which employees the college would pay more in order to maintain their exempt status, and who would be reclassified and become newly eligible for overtime pay.

Pomona may need to give raises to people who travel frequently, like admissions officers, because they log so many overtime hours that it would be more expensive to pay them time-and-a-half than to give them a salary bump.

On the other hand, it may make sense for the college to keep workers who have more fixed hours, like student counselors, at the same pay level and make them eligible for overtime.

One complication, said employment experts, is that asking salaried employees to clock in and out can seem like a demotion. Even if the workers are becoming eligible for time-and-a-half pay, the shift can feel like a loss of status.

“It is a morale issue. There is a feeling among staff as if it’s a promotion to be exempt versus nonexempt,” Rushforth said.

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Twitter: @Nataliekitro

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