• The Top 10 Wage and Hour Mistakes of Hospitality Employers
  • January 14, 2011 | Author: Douglas H. Duerr
  • Law Firm: Elarbee, Thompson, Sapp & Wilson, LLP - Atlanta Office
  • Regardless of whether your establishment is a QSR, white tablecloth dining, motor inn, or luxury resort, it is increasingly likely that you will be the target of a law suit or a U.S. Department of Labor (DOL) audit. Both the DOL and plaintiffs’ lawyers have determined that the hospitality industry is a “target rich” environment, and restaurateurs and hoteliers such as Mario Batali, Bobby Flay, and Westin have paid as a result. While the claims against these iconic, as well as lesser-known, names have varied, there are some wage and hour mistakes that come up more often than others.

    Addressing the following “Top 10” mistakes now will help you avoid a lawsuit or at least reduce your potential exposure:

    1. Including the wrong employees in the tip pool. If you require tipped employees to pool their tips, it is imperative that the pool exclude “non-tipped” or supervisory employees. For example, servers should not be required to share tips with cooks, plate polishers, or assistant managers.

    2. Not counting all hours worked. Sometimes, employees will come in early for their own convenience and then volunteer to perform tasks or get an early start on their jobs before clocking in. Unfortunately, the time an employee is allowed to do any work, must be counted as “time worked” for minimum wage and overtime purposes. An employee cannot volunteer to work for free.

    3. Requiring uniform purchases. Many employers require employees to buy uniform items such as shirts, caps, etc. However, most hospitality employers pay at or just above the minimum wage, paying tipped employees the lower “tip credit” wage when possible. As a result, even if the employees take home a substantial amount of money in tips, they are still “minimum wage” workers in the eyes of the law. This means that deductions for “business expenses” (such as uniforms) cannot be made.

    4. Misclassification of employees as exempt. Because of the long hours of work, there is often a desire to classify managers, chefs, and others as “exempt” from overtime. The rules governing who can be classified as exempt are complex and often difficult to apply in real world situations. Generally, positions such as cooks, kitchen managers, assistant managers, and similar positions do not meet the legal requirements for exempt status. Management trainees are almost always properly classified as non-exempt.

    5. Deductions for “walk outs” or “shortages.” As with uniform purchases, because most hospitality employers pay the minimum wage to servers, it is not permissible to make deductions from wages other than for taxes, 401k, and other permitted deductions. Business losses, even if caused by the employee’s negligence or failure to follow the rules, cannot result in deductions that take an employee’s wages below the minimum wage. These deductions might also violate state wage payment laws.

    6. Using the wrong rate to calculate overtime. When overtime compensation is required, it must be paid at 1½ times an employee’s “regular rate,” which might not be the same as the employee’s hourly wage. The “regular rate” includes all of an employee’s earnings, except for things like retirement contributions, health insurance, and the like. Thus, shift differentials and bonuses, for example, must be added to determine an employee’s regular rate.” If you are taking advantage of the “tip credit,” overtime compensation is not based on the lower cash wage (e.g., $2.13/hour under federal law), but on the higher minimum wage (currently $7.25/hour).

    7. Failing to give required breaks. Although this article focuses on federal wage and hour law, which does not require breaks for meals or otherwise, many states do have laws that require breaks for employees. Because of the unique issues arising in the hospitality industry, employers face special challenges complying with laws requiring breaks. While some states have special or limited exemptions for food service establishments, many do not. Make sure you keep very good records documenting your compliance with these laws.

    8. Not paying “make up” pay. If you utilize the tip credit, you must make sure that employees receive enough in tips to “make up” the difference between the cash wage and the minimum wage. If employees do not report receiving enough in tips, then you need to “make up” the difference.

    9. Treating the “complimentary” valet as an independent contractor. The valet parking your customers’ cars is not free, no matter what the sign says and no matter how much customers leave in tips. More often than not the valet is an employee and not an independent contractor. As such, it is necessary to monitor hours worked and meet minimum wage and overtime requirements. Even if the valet is provided by a “parking company,” make sure the company is meeting its obligations.

    10. Failing to keep good records. The law places the obligation on the employer to monitor and record the hours worked and the compensation paid to employees. In the absence of records, the employee’s statements regarding the hours worked and compensation received, will normally be accorded more weight than a manager’s or supervisor’s after-the-fact claims. This is one of those times when the more records you have, the better off you are likely to be.