Hotel Management Needs to Understand New Overtime Rules

By Andrew Glincher Office Managing Partner, Nixon Peabody LLP | October 28, 2008

One of the biggest changes to the overtime rules is that the salary threshold for exemption has been raised so that a greater number of lower wage workers will be eligible for overtime premiums. This change could be significant for hotels, which often employ a large number of individuals who fit into this category. Under the old regulations, employees making as little as $8,060 annually could be considered exempt if their job responsibilities fell under the exempt definitions. Now, workers making less than $23,660 per year - or $455 per week - will be eligible for overtime. Employees who make more than $100,000 per year are also exempt under certain circumstances, even if their job responsibilities do not fall under the exempt definitions. Hourly, blue-collar workers, and manual laborers, however, are guaranteed non-exempt status - which means they are eligible for overtime pay -- regardless of their compensation level.

While it is clear that a hotel manager would probably be exempt, and a bellhop likely would not be, there can be a significant amount of gray area when looking at the plethora of job titles within the typical hotel. For example, the category of executive employees would possibly include positions such as an assistant manager or housekeeping supervisor. But what if these employees, who have some supervisory responsibility, actually spend the majority of their time taking reservations, checking guests in and out, or cleaning rooms, work that typically fits the job description of a non-exempt worker? In that case, they would be non-exempt and eligible for overtime pay. Further, under the new regulations, the exemption would be lost if the supervisor's or manager's recommendations were not given "particular weight" concerning the hiring or firing of employees or making other significant changes to their terms and conditions of employment."

There were also important changes made to the descriptions of professional employees such as chefs, who may be considered "creative professionals." The old regulations stated that employees needed to have a degree in the field in which they were working to be considered exempt. The revised regulations clarify that the exemption may be retained in certain instances where the employee has gained through experience, training, and some education the same skill set and performs the same work as a degreed employee with the same job description.

In addition to the new salary threshold and revised job duty descriptions, another change in the overtime regulations that hotel executives should be aware of is the addition of a safe harbor provision. This provision minimizes the chances of an employee losing his or her exempt status because of an improper, payroll deduction (by accident or not), made by the employer for disciplinary or other reasons. Under the new regulations, if an employer has a clearly stated and disseminated policy prohibiting improper deductions - plus a mechanism for employees to file complaints - then an employee will retain exempt status despite an improper deduction, as long as the employer reimburses the employee and makes a good faith commitment to future compliance. This is a major improvement on the old rules, under which an employer could lose the exemption for the employee in question and possibly many, or even all, other exempt employees - even if the deduction was unintentional.

In order for hotels to take advantage of the safe harbor provision, a compliant policy should be distributed to all employees and included in a hotel's employee handbook.

Another important step hotel owners should take to ensure compliance with the new overtime rules is an internal audit. In any organization, over a period of time, job titles change, job responsibilities are shifted, and people are rewarded with new titles that may be inconsistent with their actual duties. An audit of the organization, performed by legal counsel under attorney client privilege, can help management understand where there are gaps and flaws and what management may do to rectify them. Job descriptions should be reviewed to ensure they are in compliance.

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