Industry Update
Opinion Article14 November 2018

Are You Unknowingly Running an Exempt-Employee Sweatshop?

By Bernard Ellis, President and Founder at Lodgital Insights LLC

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It stands to reason that the older you get, the less you get to work alongside people who are a lot older than you. Some of my favorite memories from working in hotels are the conversations I used to have with both guests and co-workers who were old enough to be my parents or grandparents. I miss that. It was one of many examples of the richly diverse environment hotels offer, where you can learn a lot about your fellow humans in a short amount of time. What do you have in common, and what makes them different and interesting?

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This is the very essence of why people travel on their own dime. Visiting a full service hotel's public areas can be one of the most efficient ways to get a sense of a community's culture-how they celebrate, how they mourn, how they work, how they play--and many of us first got into this industry because we wanted to be in the middle of all that, and have our fingers on the pulse of our communities.

But it can work both ways. in these polarized, chaotic times, hotels now offer a front row seat to witness all the dynamics that increasingly divide us. List any of the major issue of the day, and there are likely to be people in the building whom it affects, be it the immigration controversy, income inequality, racism, ageism, sexism, homophobia, and the list unfortunately goes on. Our older colleagues and guests will say these things have always been undercurrents that were hiding in plain sight, but now the ugliness and tension that have come to dominate our politics are also now quite at home in hotel employee cafeterias and breakrooms, and even front of house.

Participants in this diverse workplace have been discovering that they have even less in common with each other than they thought, not to mention with the guests who increasingly seem like they come from a different world, and who to a growing extent, can't seem to get out the door fast enough to seek their unique travel experiences off property.

While all this broader tension has been fomenting over the past year and a half, it has perhaps overshadowed another undercurrent of deep division, anger, and bitter disappointment that has affected a certain group of people: the new Fair Labor Standards Act overtime regulations that were supposed to go into effect on December 1, 2016--but didn't. 1 For those of you who don't know what I'm referring to (and clearly you don't work in HR), these were the rules that were to nearly double the minimum salary an employee had to be paid before being ineligible for (also known as "exempt" from) overtime pay.

Before I go any further, I should explain why this issue is so near and dear to me. Most of the life-long hospitality professionals now reading this will distinctly remember a significant career milestone: the day that your new name badge began to include your last name and job title. It may have also entailed turning in your ugly polyester uniform to the laundry one last time, and finally getting to wear the business attire of your choosing. Most significantly, the transition usually involved moving from being an hourly employee to a salaried one, otherwise known by the now familiar term "exempt."

Hmm, "exempt." Almost every other use of the word "exempt" I can think of is a positive one. It usually means one is excused from some sort of unpleasantness which still befalls most others, such as having to pay sales tax, or take the written driver's exam. Coming from that perspective, when my own milestone day finally came, the only aspects of being an "exempt" employee that were on my mind were a.) no longer having to wear a uniform, and b.) no longer having to punch a time card and worry about being a minute too late-or too early!

When I got back to the front desk on that special day, brandishing my new name tag, and jingling my new cashier bank keys, a couple of my self-appointed mentors at the time, Nancy, the crusty-yet-loveable sixty-something telephone PBX operator, and Walter, the unflappable, know-it-all bell captain who was even older, both looked at each other knowingly, then shook their heads. "I wish they'd stop taking advantage of these nice kids who come through here," she said. "It ain't right," he agreed. "Son, I'm sorry to tell you this, but you just got yourself a royal screwin'."

I wasn't an idiot. I knew I was no longer eligible for overtime pay. But I was taking home ten percent more money every week, and there were rarely opportunities to make overtime pay anyway. They carefully saw to that. What would I really be losing? Any semblance of a life, as it turned out. Any time someone called out sick, guess who filled in? The night auditor was out on another bender? "Thank goodness you're smart enough to handle the audit." Holidays? "I'm so glad to have someone of your maturity there to be manager on duty." OK maybe I was an idiot.

What bugged me most was that the hourly employees I was filling in for weren't getting paid, but neither was I. Anytime one of my employees no-showed, it was a windfall for the hotel. My requisitions to bring in more part-timers to buffer against these outages? Denied. "We don't want to bring people on, when we're not sure we'll have enough hours for them to keep them happy." Groan.

So fast forward almost thirty years, when the Department of Labor under the Obama Administration decided to address the issue, it caught my attention. The existing threshold of $455 per week, or $23,660 a year, had only been updated once since the 1970's, and the new rules called for it to double to $47,476 year, which was the 40th percentile income level in the country's poorest census zone. But pressure from business groups, our own industry playing a major role, led to lawsuits from 21 states opposing the regulations.

Less than ten days before the regulations were set to take effect, a federal judge in Texas issued a preliminary injunction that put them on hold. Employers cheered, and many of their employees who had been told to expect raises to meet the threshold, had them rescinded. So, to be clear about the status quo that remained, let's say a line-level manager making the threshold of $23,660 was required to pick up a couple of extra shifts. Not a big deal? This would now be a 56-hour work week, so he would effectively be paid only $8.12 an hour. Perhaps your organization is more generous or has market conditions that require paying $30,000? Great, so now the manager makes about $10 an hour, not even minimum wage in ten states.

In opposition to the regulations, Brian Crawford, vice president of government affairs at the American Hotel & Lodging Association, had warned, "With roughly half the hotels in the U.S. owned and operated by small or independent property owners, this regulation could force many hoteliers to reduce hours and flexibility or cut jobs in order to stay in business." Now the very survival of the business was at stake! Whether that's hyperbole or not, one thing that became clear from the high level of resistance our industry mounted, was just how prevalent the practice actually is. Andria Ryan, partner at national labor and employment firm Fisher Phillips, was more sympathetic, saying, "Most employers don't want to cut pay, but they can't afford to give thousands of dollars' worth of raises. "

And it's not all the employers' fault. Ironically, there were even affected workers who were relieved when the regulations didn't kick in. For some, offering to work longer hours without extra pay-or just going ahead and doing it-- is the only way to stand out from the crowd, show commitment, and position for future advancement. Others feel that without being around all the time to keep an eye on things, they would only come back to more work and bigger problems. I'll admit I've been guilty of both of those positions at times. On the other hand, we've all known long-hour martyrs who really just hung around because their lives at home were less interesting, and work offered an environment where they felt more respected. One even said, "I don't have the energy I used to, so if I earn a reputation for long hours, then I won't be expected to be working as hard every single minute I'm here." What better cure for low energy, than working more hours?

Either way, I think it's safe to assume that all these extra hours are not being worked by employees who are at the top of their game, or motivated by the business's best interest. Moreover, more time hanging around after hours also means more time to potentially suffer an injury and incur workmen's comp, or be tempted by opportunities for embezzlement, or be exposed to harassment and other workplace crimes that are more likely to happen after hours.

Though the Obama Department of Labor appealed the court's decision before leaving office, it was not expected to be picked up by the new administration, since for them the regulations were thought to hold, well, no appeal. And for 18 months they hadn't. But in July the administration released a request for information, surveying stakeholders for more information. "Listening Sessions" are occurring in select cities in early September. The line of questioning in both forums is hinting that the new administration definitely intends to raise the threshold, just by a more modest amount, and the Regulatory Agenda that was just released promised a new rule proposal in October.4 Implementation of such a new rule might not be required for another year. Like so many other unpleasant changes, it will at least be held back until after the midterm elections. Or perhaps it will be discovered that the new rules have popular support, and be rushed out before them. Either way, they are coming.

So what's to be concluded from all this? Before the end of this term, it's likely that potential labor costs will significantly increase due to more salaried managers being eligible for overtime. That's on top of whatever labor cost increases you have already had to accept due to historically low unemployment levels. And because of that low unemployment, even if you wanted to spread the work over more employees, there might not be enough qualified applicants to fill your requisitions. As for those employees who are so dedicated to the business that you can hardly get them to leave, unless you're willing to pay them the new threshold, they now need to be told to leave. The existing law is very clear that an employer can't turn a blind eye to employees working more hours, even if of their own volition.

In figuring out how to solve this for the future, it may be wise to look to the past. The original intent of the Fair Labor Standards Act, which passed in 1938, was not actually to provide a way for people to work harder and get out of debt, but rather to discourage employers from requiring overtime, and consequently depriving employees of health, family time and their overall work-life balance. The intent was also to spread the work across more workers. 2 It was still the Great Depression, after all, and it had not yet become customary to offer health insurance, retirement savings plans, and the other benefits that we take for granted today.

Unlike today, a new hire incurred little in the way of overhead and fixed costs. Inflation was far from being a concern at that time either, so the salary threshold was not pegged for any automatic adjustment. It is widely assumed that any future regulations won't have the same flaw. To put it plainly, many forces are at play moving toward the same outcome: that exempt employees will no longer be a source of cheap labor, and overtime will no longer be a source of fast income. But what about the manager who feels she can't be effective without the ability to be omnipresent? And by the way, what happened to all that additional technology-fueled leisure time we were promised was coming when we were kids?

As you usually can guess my articles will conclude, the solution to all this lies in your IT department. There, as they've probably been struggling to deal with the demand for BYOD (Bring Your Own Device) policies from both employees and guests, they've witnessed first hand the irreversible blurring of work and leisure that has occurred over the past ten years. The popular complaint is how much work has "leaked" out of our tablets and smartphones into our leisure time. But, let's consider the new class of professionals who are responsible for harnessing the benefits of social medial for their employers.

This work has them in the both the back and front ends of social media sites day in day out. While there, like all of us, they are likely to see postings made by friends and family, content targeted at their known interests, advertisements tempting them from header to footer. Is it even conceivable that these harried folks don't ever take a detour to consume some of the personal content that constantly tantalizes? Of course not. Does that make them bad people or less competent employees, also of course not. Think about all the other employees who are not only allowed, but are encouraged or even required to surf the web and engage with social media to do their jobs: sales, HR recruiters, purchasing, concierge, revenue management, marketing, PR, in other words, almost the entire organization, in the course of their business, deals with constant attempts to lure their eyeballs over to personal content.

And for those rare souls whose position does not require any interaction with social media, can we not assume that many will be led into temptation for no other reason than the notifications simply wouldn't leave them alone? So, the dirty little secret is out, leisure activities are happening during the workday-they are happening a lot!

There are probably GM's out there who are still trying to "keep people from playing" by blocking Internet access to as many workstations as possible. But as more Software as a Service business applications are delivered via a browser, this is becoming less and less feasible. The Genie is out of the bottle, and try as they might, employers will never have workers full focus and attention ever again.

But in the same vein, most employees feel they will never have a completely free evening, or weekend, or vacation ever again. Instead of resenting all of these intrusions, isn't it time for employees and employers to embrace them instead? The control-freak manager can go home, and interact with later shifts via FaceTime or Zoom. The angry customer who demands to speak to a manager? Same way. Border security, medical exams and psychiatric evaluations are now done this way, so I think it should be able to handle the interaction with a guest who is upset about his lousy dinner. And it should be easily doable in forty hours. The exempt employee sweatshop you may have been unknowingly running, can now be shut down for good.

Reprinted from the Hotel Business Review with permission from http://www.hotelexecutive.com/

Bernard Ellis

Mr. Ellis has a track record of stewarding technology initiatives from industry startup to industry standard. He has spent most of his career at early- and mid-stage startups bringing best-of-breed solutions to market. then leading to successful acquisitions: namely, Micros (Oracle), SynXis (Sabre), and IDeaS, (SAS).

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