Labor costs are headed up for Upstate restaurants and other businesses thanks to a new federal rule extending overtime protection to 4.2 million workers.
Currently, employers don’t have to pay time and a half to salaried, white-collar employees when they work more than 40 hours a week if those employees earn at least $23,660 a year.
Under the mandate from the U.S. Labor Department, however, white-collar employees making less than $47,476 a year will become eligible for overtime pay as of Dec. 1.
The pending change has employers across the country trying to decide whether to raise the salaries of affected employees to the new threshold, start paying them overtime or limit their hours to 40 a week. Some businesses are also wondering how they’re going to absorb the impact.
Restaurateurs, in particular, say the new rule will hit their industry harder than others because it is labor-intensive with thin profit margins. A restaurant’s business ebbs and flows, they say, requiring workers to keep long hours at certain times and work less at other times.
Carl Sobocinski, owner of Table 301 restaurant group, said he estimates his labor costs will rise by $70,000 to $80,000 a year as a result of the new rule.
Sobocinski said he may have to close some restaurants earlier than he does now and cut back the catering man-hours he donates to charitable causes such as the March of Dimes, the Red Cross and Meals on Wheels.
“The government and the regulatory boards don’t need to be involved in trying to run our businesses,” said Sobocinski, a former chairman of the South Carolina Restaurant and Lodging Association and emeritus board member of the National Restaurant Association.
Sobocinski said he does all he can to make sure employees don’t have to work more than 40 hours a week, but it’s next to impossible during big downtown festivals such as Fall for Greenville, Artisphere and Euphoria, as well as on Furman University’s graduation and Mother’s Day.
“When it’s crunch time, and I’ve got customers, I need all hands on deck,” he said. “And people sign up for that. They’re willing.”
To comply with the new rule, Sobocinski plans to raise salaries for 15 of his 400 employees to the new threshold and reclassify another 30 workers from salaried to hourly.
“I’d love to pay all of my people $70,000 a year, $80,000 a year, whatever,” he said. “You pay what the business brings in, what the market will bear.”
Employers most affected by the new rule will be those that employ a lot of middle managers who don’t get overtime now but work more than 40 hours a week and earn less than $47,476 a year, said Charles McDonald, a labor and employment lawyer in the Greenville office of the Ogletree Deakins firm. Those include retailers, nonprofit organizations and local governments in addition to restaurants, he said.
“You’re talking about in one fell swoop having to double people’s pay potentially to keep them legally exempt,” McDonald said.
The U.S. Labor Department contends that too many of today’s salaried workers are overworked because their employers have no incentive to limit their hours.
The department says the new rule will put an extra $1.2 billion a year into workers’ pockets.
In addition, the department said in explaining the change, many workers will put in fewer hours for the same pay, “giving them more time to spend with their families and in their personal pursuits.”
The new rule also calls for the salary threshold for overtime pay to be updated every three years beginning Jan. 1, 2020.
Maurice Collins, owner of McDonald’s restaurants in Easley, Pickens and Powdersville, said he figures the change will raise his labor costs by two-tenths to three-tenths of a percent.
“It’s not going to be horrible, but I hate any kind of government intervention in this,” said Collins, who reclassified six of his 250 employees from salaried to hourly in order to comply. “It just makes it more complicated, more difficult to run.”
Collins said a previous mandate from the federal government, the Affordable Care Act and its health insurance requirements, was far more costly for his company.
“Our insurance premiums for next year increased 11 percent over premiums for this year,” he said.
Bob Munnich, chief operating officer for two restaurant brands that do business in downtown Greenville, Larkin’s on the River and Grill Marks, said the new rule will add to labor costs but he couldn’t yet say exactly how much.
“I would like to see a six-month delay and some discussion in between of how it can be phased in versus a 100 percent increase,” Munnich said.
At least one big company has already announced its compliance.
Walmart said it raised the salaries of its assistant store managers to $48,500 a year heading into the busy holiday season. The previous starting pay was $45,000.
South Carolina Republicans are working to undo the Obama administration mandate.
In Washington, U.S. Rep. Trey Gowdy of Spartanburg co-sponsored a bill to delay the new rule for six months. It passed the House and awaits action in the Senate, said Gowdy spokesperson Amanda Gonzalez.
Gowdy was special guest at a fundraiser for a National Restaurant Association political action committee earlier this month at the Lazy Goat, one of Sobocinski’s restaurants.
In the U.S. Senate, Sen. Tim Scott of Charleston has introduced legislation that he says would nullify the new overtime rule.
The mandate “promises to have a host of unintended consequences for the very workers they are trying to help,” Scott said in a press release. “Bureaucrats in Washington cannot create jobs, but they certainly can destroy them.”
In Columbia, South Carolina Attorney General Alan Wilson joined a coalition of 21 states challenging the new rule in court. Wilson said in a press release that it could force state and local governments to eliminate services and lay off workers.
“This overtime rule is bad for South Carolina businesses as it will put added pressure on business owners and take away employment opportunities for South Carolinians,” Wilson said. “Forcing these regulations on states is a violation of the 10th amendment and the rule of law.”
Photo: Greenville restaurateur Carl Sobocinski talks about how the Labor Department’s new overtime rule will affect his business during an interview at Soby’s, one of eight restaurants he owns downtown.
