Overtime Changes Could Impact Bottom Line for Hoteliers

With the first half of 2015 in the books, the industry enters the second half with lots of momentum. In terms of RevPAR growth and overall performance, the first six months of the year was everything we thought it would be—and more.   

And, with solid fundamentals in place, the only thing that could derail the robust performance would seem to be external factors that could negatively impact profitability. The recent proposed changes to overtime rules by President Obama and the Department of Labor serve as a prime example.

The new rules would effectively double the salary threshold for overtime eligibility, meaning employees earning a salary of $50,440 or less automatically would be eligible for overtime pay if they work more than 40 hours a week. Since the current threshold is $23,660 a year, this would represent a dramatic increase. President Obama is also looking to automatically adjust the threshold in years to come based on inflation indexes or median wage levels.

The Obama administration has stated the proposed changes—which the President can put into effect without approval under the Fair Labor Standards Act—would impact an estimated five million workers nationwide. In addition to retail, the lodging industry, which employs some 1.8 million workers, could be dramatically impacted.   

One of the real problems with the changes is there would be virtually no phase-in period. Following a 60-day comment period, the Department of Labor is expected to announce a final rule. That doesn’t give hotel employers much time to figure out just how their respective bottom lines could be affected and manage accordingly.

Speaking of which, the other problem with the proposed changes is there are always ways to get around such things. One of the unintended consequences of this could be employers either cutting the number of employees, or reducing their hours, to not be subjected to additional overtime costs. Another possibility is that employers could reclassify workers as hourly employees, effectively taking away their benefits as well. These are both very likely scenarios for many small and midsized companies, in particular.

As you might expect, the AH&LA has spoken out against the changes and how they could curtail the pace of job growth within the industry and negatively impact both employees and employers. If you’re truly concerned about the impact of the overtime changes on your business, you need to speak out as well.