On August 30, the Department of Labor (DOL) issued a proposed rule to update the current overtime regulations. Sean Kennedy, executive vice president of Public Affairs for the National Restaurant Association issued the following statement about the proposed changes:
“Restaurant operators are once again feeling the weight of uncertainty because of a Department of Labor change that will increase their operating costs. The average small business restaurant runs on a 3-5% margin, but DOL found that the changes proposed in this rule will increase costs for affected restaurants by 2.5%. Adding this kind of cost to the already high price of food and years of increasing labor costs will leave many of these operators in the untenable position of raising prices, cutting costs, or closing their doors.”
The DOL Proposed Rulemaking increases the minimum salary threshold for an individual to be eligible for overtime pay to $55,068, up from the current $35,568 – a nearly 55% increase. The proposal also implements automatic increases to the threshold every three years.
Background on the Unique Operating Perspective of Restaurants
The typical small business restaurant runs on a 3-5% pre-tax margin. Food and labor costs are the two most significant line items for a restaurant, each accounting for approximately 33 cents of every dollar in sales. Other expenses – typically non-controllable costs like credit card swipe fees and occupancy costs – generally represent about 29% of sales. For the vast majority of restaurant operators, these three categories increased significantly in recent years.
According to analysis by the National Restaurant Association, in 2019, pre-tax income represented approximately 5% of sales for a typical restaurant. For a restaurant with annual sales of $900,000, this translated to pre-tax income of $45,000. If a restaurant today is making total sales equal to their 2019 levels, then they are suffering a pre-tax loss of -12.3%.
