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The New Overtime Rule: Q&A with Fazoli’s CEO


With some 2,975 team members in its 123 company-owned restaurants and support center, Fazoli’s, the nation’s largest fast-casual Italian restaurant chain, is addressing the Department of Labor’s new overtime rule head on. CSA spoke with Carl Howard, president and CEO of Fazoli’s, about the company’s strategy regarding the new regulations, scheduled to take effect December 1.

How do you think the new overtime rule will impact your workplace?

Our biggest area of concern entails retaining an ownership mentality and entrepreneurial spirit among our assistant general manager ranks, which is the group being reclassified from exempt to non-exempt. This group comprises our future leaders and we must now be even more efficient in making sure they can fully contribute to the success of their restaurant while also leaving sufficient time to focus on their own skill development that lead to career advancement to the next level.

Fazoli’s chose to deal with the new rule head on. Tell us about your response.

Our objective in implementing new rules is to create a “win-win” for both team members affected by the new rules as well as the company. We felt the best approach was to neutralize, to the extent possible, any negative impact to individuals affected by reclassification from exempt to non-exempt status, either real or perceived, while also protecting our business model.

How are you complying?

Our primary tactics for compliance include the following:

• Maintaining our general managers (GMs) as exempt from overtime and, where appropriate, increasing base salaries to the new minimum threshold;

• Reclassifying assistant GMs from exempt to non-exempt. In doing so, we are engineering hourly wage rates to ensure they earn the same base pay on an hourly basis as they did previously on a salaried basis; and

• Implementing an incentive for GMs and assistant GMs in order to limit assistant GM hours to no more than 46 hours per week. Our greatest cost exposure as a result of the new overtime rule changes is the proliferation of assistant manager overtime.

How are you educating associates about the new rule?

We’ve undertaken an educational campaign entitled "Every Minute Counts!" to ensure all restaurant managers, both salaried and hourly, know and understand time tracking requirements under the Fair Labor Standards Act, including clocking in and out, break time, travel time and work conducted from home.

We have also developed a policy outlining when and under what conditions hourly assistant managers may conduct work from home or another off-site location, and we are providing a time tracking sheet to record and report these hours.

How can you ensure correct reporting of hours for those impacted by the rule and for maintaining that assistant manager’s stay at 45 hours per week?

The restaurant industry has a long tradition of promoting managers from within. Most restaurant managers came up through the hourly ranks and understand the importance of clocking in/out and recording and reporting hours properly. Our company culture also promotes absolute integrity in all aspects of our business and encourages reporting of any instances where integrity may have been compromised, including misreporting or manipulation of team member hours.

We have also provided our assistant general managers with a new “off-premise time tracking sheet” to be used to record and report any and all time worked while at home or other off-premise location.

Lastly, we have implemented a unique incentive plan whereby both GMs and assistant GMs will earn a bonus each fiscal period in which the assistant GMs’ hours fall between 44 and 46 hours per week.

How are you dealing with employees’ concerns that their salary will be negatively impacted by the rule?

We’re providing customized letters to each employee that includes a worksheet showing how their new hourly wage rate will equal the salary they were earning prior to the overtime rule change. We have ensured that those assistant managers who are being reclassified from exempt to non-exempt will not be negatively impacted by the new overtime rules. Compensation for a 45-hour workweek will be exactly the same as it was before the new overtime rules, as will eligibility for, and participation in, all benefit plans and offerings.

Do you expect the new rule will affect Fazoli’s bottom line?

Yes. The estimated impact of the new overtime rules to our bottom line will be approximately $600,000 annually, or about $4,900 per restaurant. Coupled with other significant labor cost increases in recent years, including the Affordable Care Act and state and local minimum wage increases, most restaurant chains are finding it necessary to raise prices and cut costs in order to offset these increases and maintain margins.

Tell us a little about Fazoli’s expansion plans.

As part of our national expansion plans, Fazoli’s is targeting new markets across the country including Atlanta, Cincinnati, Dallas, Detroit, Knoxville, Phoenix, Pittsburgh and other cities. We aim to open 20 new locations nationwide over the next two years.
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