Regardless of whether your establishment is a QSR, white-table-cloth 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:
2. Not counting all hours worked. In the hospitality industry, it is not uncommon to require employees to leave together at night for safety reasons or to clock out before settling up their tills. Sometimes, employees will come to the workplace early for their own convenience and then volunteer to perform tasks or get an early start on their own jobs before clocking in. Unfortunately, the time an employee is required to be on the premises or 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. Because of employee turnover as well as the fact that employees do not want to wear used uniform pieces, 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 correctly 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 (and might also violate your state's wage payment laws).
6. Using the wrong rate to calculate overtime. When an employee works over 40 hours a week, overtime compensation is required. Overtime 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" takes into account 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 pay employees for waiting or on-call time. Some restaurants require employees to come to the location and wait to see if they are needed due to “no shows.” Because non-exempt employees must be paid for all time worked, such waiting time must be paid. Whether on-call or waiting time is included as working time is dependent upon the circumstances of each case. Generally, if an employee is required to remain on the employer’s premises or so close thereto that she cannot use the time effectively for her own purposes, that is considered work time. On the other hand, if she is not required to remain on the premises but is merely required to leave word where she may be reached (or provide a cell number), she is not considered working while on call if she has a sufficient amount of time to report to the location once called. Among the factors that courts consider are: geographical restrictions imposed by required response times; flexibility when scheduling on-call shifts; level of on-call activity; periodic relief from on-call status; and the ability to engage in personal activities while on call.
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 the not the valet is an employee of either the restaurant or the parking service, not an independent contractor. As such, it is necessary to monitor the hours worked and meet the 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.
If you are not making any of these "Top 10" mistakes, you are a long way towards avoiding a possible lawsuit or audit by the DOL or reducing the potential exposure if you are sued or audited.
If you have any questions about these mistakes or any other aspect of wage and hour compliance, please do not hesitate to contact your Elarbee Thompson attorney or email us at firstname.lastname@example.org.