For years, restaurant owners preferred to pay managers as salaried employees rather than hourly employees.

This had several advantages.  It would save employers money when managers had to work beyond 40 hours per week   The employer did not have to keep track of manager hours and could pay one amount per pay period (the salary) versus paying time and one half for any hours worked over 40 in a week. 

To be a salaried employee not subject to overtime regulations, a manager had to primarily work as an executive, administrator or a professional, or make hiring and firing decisions and work independently a section or department or shift of a restaurant and not do hourly type of work such as waiting on tables or helping in the kitchen.

A salaried employee must make at least $684 per week or $35,568 per year.

Under the new Big Beautiful Bill, a change was made that could benefit your salaried employees.  Individuals can deduct $12,500 of overtime pay on their tax returns starting in 2025.  Married filing joint couples can deduct $25,000.  The amount eligible for the deduction is the ½ time of the time &  ½.

In other words, if an hourly employee is making $10 per hour, if that person works 45 hours in a week, the employer is obligated to pay $15 per hour for any hours over 40. ($10 x 1 and ½).  The $5 is eligible for the deduction.

This benefit strictly accrues to the employee.  It does not benefit the employer.  To switch an employee from salary to hourly to take advantage of this benefit would be strictly up to you as the employer.  There is no additional cost to the employer other than having to keep track of the manager’s hours just like the hourly employees.  

Assume a manager earns $12,500 in overtime pay.  Assume he or she is in a 20 percent tax bracket.  The savings to that person would be $2,500.

The formula to initially calculate an hourly rate for a manager that has been paid previously as a salaried employee can be quite complicated.  If you are interested in doing this for any of your salaried employees, give Kallas a call to perform the calculations.