Ten Best Wage and Hour Practices for Restaurant Employers

With all the recent focus on pay equity and alleged gender-based disparities in compensation practices, restaurant employers should be aware that in the restaurant industry, the most important focus to avoid litigation should be on wage and hour practices. This is not to say that there is no need to always keep an eye on compensation practices from a gender equity perspective, but it is to say that there is far more wage and hour litigation in the restaurant industry than there is pay equity litigation, and it most often comes in the form of FLSA collective actions or class actions under state wage and hour law, which brings with it the higher potential exposure and cost of defense associated with class litigation.

Thus, the following best wage and hour practices are offered for consideration to stay in the restaurant, and out of court.

1. Never forget that there is no federal preemption of state or local wage and hour laws. A large number of states (over half) now have state minimum wage requirements that exceed the federal minimum wage rate of $7.25/hour. Moreover, in the past several years quite a few cities and counties have passed local minimum wage requirements that are significantly higher than the FLSA. There is no substitute for carefully considering whether your restaurant is located in a state or locality that has a higher minimum wage rate that applies to your establishment.
2. If you have tipped employees, best practice rule number 1 also applies to tip credit provisions. The current maximum tip credit under the FLSA is $5.12/hour. Many state and local minimum wage laws have higher minimum wage requirements and/or lower tip credit maximums per hour. Some even prohibit a tip credit of any amount. Thus, careful consideration of state and local wage and hour laws concerning tip credits is critical.
3. Speaking of tip credits, understand that the FLSA and most state and local minimum wage laws place several conditions on the taking of a tip credit. Among these are providing advance notice to tipped employees that a tip credit will be applied, the amount of the tip credit that will be applied, that sufficient tip income must be received to at least cover the amount of the tip credit, and whether tips must be shared or pooled with other customarily tipped employees.
4. Be aware of the applicable overtime requirements. The FLSA generally requires overtime pay for hours exceeding 40 in the work week. Some state laws impose various forms of daily overtime requirements.
5. Utilize a time keeping system that accurately tracks and records all hours worked and use those records for payroll purposes.
6. Prohibit all forms of working “off the clock.” If an employee is working, they must be clocked-in so they can be paid for that time. Consider including a daily or weekly certification in your time keeping system where each employee certifies that they have reviewed and confirmed that they have entered all their working time and they have not performed any work “off the clock.”
7. Don’t overreach by classifying too many managers or assistant managers in the restaurant as “exempt” from the minimum wage and overtime requirements of the FLSA and state overtime requirements. There are many variables that factor into exempt classifications, including the number of employees in the restaurant, hours of operation, overlap between managers, etc. This issue requires careful consideration of your unique factors in each restaurant along with competent legal advice.
8. Don’t forget about meal and rest breaks. The FLSA does not mandate that they be provided, but many state laws do. In addition, the FLSA does regulate whether break time must be paid when breaks are provided. Generally, the FLSA requires that in order for a meal break to be excluded from hours worked, it must be 30 or more minutes in duration, not interrupted, and the employee must be completely relieved from job duties.
9. The restaurant industry is a popular place for teens to get their first job. Thus, if you hire employees under the age of 18 years, remember that the FLSA includes a host of child labor restrictions, and most state wage and hour laws include child labor regulations that are even more restrictive than the FLSA. In general, the FLSA places strict limits on the hours that may be worked by 14- and 15-year old employees, and limits the occupations in which such employees can be lawfully employed. It also has certain hazardous occupation restrictions that apply to all employees under the age of 18 and prohibit the use of certain equipment deemed hazardous.
10. Consider providing an easy means for employees to raise questions or concerns about their paychecks. This can be as simple as adding an automated message to each pay stub that encourages employees to carefully review the information provided and call a designated telephone number if there are questions or concerns. Answering questions and resolving concerns internally is almost always easier, quicker and cheaper than responding to government agency investigations and/or attorney demand letters.

Remember, wage and hour compliance can be a tedious task, but it sure beats defending class or collective action litigation. The FLSA allows recovery of back wages and an equal amount in liquidated damages, plus costs and attorneys’ fees, looking back for either a two or three-year period. Most state wage and hour laws provide for similar recovery, but some allow for such recovery looking back for as many as five and six years. That makes ensuring wage and hour compliance up front the better option every time.