An Expert's Take on What's Really Wrong with Overtime in Restaurants | Food Newsfeed
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Improving employee satisfaction could solve your overtime problems before they even start.

An Expert's Take on What's Really Wrong with Overtime in Restaurants

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Changes are coming. Prepared or not, perhaps now is a good time to figure out why you're paying so much in the first place.
By Danny Klein February 2017 Employee Management

The early stages of Donald Trump’s presidency have proven contentious, to say the least. But love or hate the administration’s judgment so far, one thing remains certain: predicting the future is—and always will be—a fruitless task. For restaurant operators, just like any business, this means running your company from the edge of your seat. Regardless of where your political views rest, being prepared is critical. And perhaps no topic sits more top-of-mind than the future of overtime regulations.

To refresh, the overtime pay rule, which proposed hourly workers be eligible for overtime pay when they put in more than 40 hours a week and earn less than $47,476 a year, was set to go into effect on December 1. But it didn’t. Whether your restaurant acted accordingly or was ill prepared, now is a great time to get operations in order. FSR spoke with Joshua Ostrega, COO and co-founder of employee engagement platform WorkJam, on how restaurants should move forward.

What was your reaction to the delay?

I think a lot people who were worried about it got a get-out-of-jail free card. There are some people who prepared themselves and did what they had to do to adjust and communicate those changes, and others who basically had no plan and were trying to figure it out until the last minute. And there were also people who were just hoping it wouldn’t go through and didn’t plan anything. You had a mixed bag. It was coming quick and people were concerned. That’s for sure.

From an employer’s standpoint, I think they’re pretty happy for the moment. It is one cost that won’t be slamming them on top of all the other rising costs. Nobody knows what’s going to happen. Even with a new labor secretary, a lot of people, from an employer’s perspective, are optimistic. They think this is going to be a more pro-business labor department and may not push through a number of the changes that have been tabled right now. Things like wages, overtime, and others.

Given that Trump has been considered pro-business, as you mentioned, is now a good time for restaurants to relax?

You can’t really tell, though, what’s going to happen. Even though they have this pro-business stance, at the end of the day, there are a lot of surprises going on. With this new administration, nobody really knows. So for example, if someone thinks that just because Trump is in and he traditionally has a pro-business stance, he’s not going to do anything. I’m not sure that’s 100 percent the case. We really don’t know. Maybe certain things won’t be done as drastic or quick in terms of how long people have to adopt some of these changes.

For example, minimum wage, for a lot of people, is a bi-partisan issue that they agree on—that it needs to go up. The bigger issue going on is by how much and how quickly? You may see these changes still happen but not to the same degree. Or, you might see these things pushed down to the states to make the decisions. That’s something Trump has talked a lot about and maybe you won’t see the federal regulations but you will see them at the state level and, potentially, they could have the same impact. Or a similar impact.

Depending on where you’re located, say, if you have a restaurant and you’re in New York City, well, you may have the impacts to your labor cost that might be similar to what was happening.

For those restaurants unprepared for the overtime regulations, how should they proceed now?

Like I said before, it was a get-out-of-jail-free card. My colleague said this the other day to someone else: It’s like you had a test that you didn’t study for and you got a snow day. You got that brief chance to study.

I would say the recommendation we would have for companies is that while this didn’t pass, the reality is that there are other challenges around the corner in respect to labor costs and companies need to look at how to address those and not wait for them to happen. There are things they can do now to better prepare and take advantage of the situation.

There is also an impact from all of this. It’s not just, oh it stopped and nothing is happening. There were a lot of expectations going on in respect to the labor side. Some people thought they would be making more money, which was very interesting. Others were worried about their jobs because a lot of companies couldn’t absorb those costs and were going to have to reduce their labor. It also sounded like a lot of companies were looking at all sorts of loopholes to get around it. The reality is, if you were one of these employees and you were expecting more take-home pay and now you’re not going to get it, what does that do from an attrition standpoint? Attrition is already extremely high in this industry and now that these businesses have this opportunity not to have this additional cost burden, it doesn’t mean there’s not cost now. The labor market is pretty tight right now. There are still a lot of opportunities for hourly workers.

Has this idea of worker satisfaction been lost in the discussion so far?

It has. Think of it this way. All of sudden, somebody else might be paying a little bit more and it’s harder to hold on to your staff. Or, if your employees are not engaged in your company and they don’t feel like there’s anything tying them down, they’re just going to take off and you’re going to have to deal with attrition and recruitment—all those costs. If you have constant turnover, your customer experience is not going to be as good as it would be if someone was there for a long time. That’s just reality.

The anecdote I always give people is, if you ever walk into a restaurant and somebody’s been there for a while, the experience could be excellent. They know the food, they can operate quickly, the service is good, they know and can handle exceptions. It results in a positive experience. You walk out of there, you’re happy, and you’ll go back. When you have somebody who’s new and fumbling all over the place, and that’s always the experience—where people never really know what’s going on with the food, and you can’t ask questions, or it doesn’t come in the time you expect, then it’s clear the restaurant doesn’t have the ability to make it a meaningful dining experience. Well, at the end of the day, what happens? The customer service and the customer experience suffer and your profits are hurt because people are not coming back. It’s all connected. And I don’t believe this change on the overtime rule is solving that problem. It’s solving a temporary cost problem but the reality is there are rising labor costs and there is a tightening market. It is a challenging market for employers to effectively manage their labor force, and there are likely other things around the corner that may incur these additional labor costs.

So what’s next?

I think people in the industry can’t allow themselves to feel like this is a long-term reprieve. They need to solve these problems. They need to work on engaging their workforce and improving how they manage their labor in a way that keeps them profitable.

They have to use their time more efficiently. Why are managers spending all this money on overtime in the first place? What it comes down to is that a lot of the overtime managers are accruing, I believe it’s over 60 percent, is related to administrative tasks. This is, for example, scheduling. You can imagine it’s 10 at night, a manager gets an email, phone call, and learns an employee can’t come in. And the manager then spends another hour trying to figure out how to get some coverage, get the right person, reach out. You can imagine it adds time.

And is that necessary? If you don’t have the right systems in place, it kind of is.

At the end of the day, it’s one example of reducing the amount of overtime one manager has to take. So for that company that made the change, they can keep that change in terms of increasing some wages, or go back to what it was, but then basically tell the employee we’re working toward avoiding overtime.

That’s an interesting point. Perhaps the real problem here is why restaurant employees pick up so many extra shifts in the first place.

Why should you have to incur all of these overtime charges if you optimize how you’re spending your time? We can be a lot more efficient from a cost perspective. Managers sometimes pick up shifts because it’s too difficult to chase somebody down. We’ve all been in a restaurant where it’s understaffed. It’s not a fun environment. Everybody is stressed. It gets chaotic. Everybody gets antsy and upset. If that happens too often people quit. If people are asked to work overtime all the time they quit.

If you implement the right tools, you can not only improve your costs, but you’re also improving the happiness of the worker, which will eventually lead to them staying on and being a longer-term employee. The key is implementing technology that didn’t exist before, and it really didn’t, because a lot of the technology that exists today has to do with the more traditional workforce management tool.

It can add a lot of flexibility and result in a much stronger attachment to their restaurant because the employee feels like they’re working in a place that can not only provide them income, but also can offer flexibility that allows them to maximize income and enjoy their shifts.

Trump is here. Changes are coming. But what’s the best approach?

Some people look at it as, if Trump comes in this change will happen and this change will happen. But the reality is, that change is already happening. And there is, as we like to call it, a crisis going on in this space. And the real crisis is that there is only so much money to go around. There are only so many customers. Wages are rising. Even before Trump took office wages were rising. It’s happening at the state level. It could happen at the federal but that may or may not matter if states are making some of these decisions.

And the labor market is tightening. It’s at one of its lowest levels in a really long time, which means it’s challenging to find and retain workers. Especially where there are more opportunities, not only with the minimum wage going up but wages in general.

You see it with Walmart. People will be raising their wages because they need to be better than the person next door in terms of attracting labor. It is happening. It’s an extremely challenging environment and I don’t think it matters what it is happening.

What do you see happening in response?

There is either going to be a push toward more legislation or there is going to be less legislation. But, regardless, it’s still happening.

So yes, I agree if there was a particular legislation that says automatically tomorrow the federal minimum wage is going up to $15, obviously that would have a major impact. But the truth is, whether it goes up or not, it’s not going to go up by a lot and the bigger reaction is going to be by what’s happening today, whether it’s naturally rising as well as certain state legislation that is going to push things up.

So I don’t know. Probably some of the worker’s right legislation and things that have been discussed and tabled, some of it will get stalled and some of it will be rewritten or may look a little different, but the reality is the same. The employer has to figure out how am I going to retain workers, how am I going to use my labor more efficiently, how am I going to treat my employees to make sure they stay with me? If they focus on these areas, which can be done with the right tools, legislation shouldn’t matter. They should be ahead of the game.

Joshua Ostrega is the COO and co-founder of employee engagement platform WorkJam. A new study by WorkJam found 70 percent of managers clock extra hours to handle administrative duties like reassigning and swapping shifts. Within this majority, 42 percent log an additional one to three hours each week, while 39 percent log four to six in order to get tasks done.