The Side Dish

Finance to Table Education for Operating Your Restaurant

Are you violating wage and hour laws?

Running a restaurant is complex and there are many different regulations that must be followed; including federal, state and local laws. When it comes to how to account for hours worked and pay to employees, it’s important to keep in mind wage and hour laws. Here are some of the more common wage and hour violations and tips on how to avoid them:

  1. Misclassifying employees
  2. Failure to pay minimum wage
  3. Not paying for off-the-clock work (hourly employees)
  4. Taking deductions illegally
  5. Incorrectly paying tipped employees

Don’t miss: 401k audit reminders and common errors for restaurants to avoid

The first step is to get your restaurant properly staffed and this can include hourly employees, salaried employees, contractors, etc. When each person is hired it is up to the hiring manager to properly classify the employee into the various categories and identify the person’s job duties (as you will see later, tipped employees can cause even more complexities). To help you with this is it is extremely important to have a payroll/HR system that can accommodate these needs and track the information.

Also, when setting up an employee it is important to identify the correct minimum wage. For instance, federal minimum wage is $7.25 and hour, but the Arizona minimum wage is $12.15 and hour and Flagstaff is $15 an hour. Thus, it is important to understand if you qualify for any exemptions to pay the lower wage or if employees will be paid the hire wage. Furthermore, in Arizona employees that are tipped at least $30 a month can be paid up to $3 less than the minimum wage if the employee can earn the correct minimum wage for all hours worked including tips. Again, a robust payroll/HR system can accommodate this need.

Not only is it important for restaurants to pay minimum wage, but it is also imperative that it does not allow employees to work off-the-clock. If an employee is classified as hourly and performs job related functions (e.g., check emails or take out the trash) while clocked out the restaurant must record that time and ensure the employee is paid for that time. This can create some difficulties and so it is important to create an environment that does not encourage this type of off-the-clock work and to include a policy in the employee handbook informing employees of the issue.

Another common wage violation is taking illegal deductions, unknowingly. Some common examples are deducting cost of uniforms, drawer shortages or customer theft from minimum wage employees. To avoid these types of issues there should be proper controls to avoid drawer shortages and catch theft (e.g., cameras or drawer counts).

Lastly, given restaurants rely heavily on servers, bussers and bartenders there are special rules regarding tipped employees including the minimum wage rules noted above. Another special consideration is if the restaurant incorporates a tip pool it must only include tipped employees. That means cooks, managers, owners, etc. must be excluded. Also, no employee can be forced to share tips as it is their money and if a tipped employee does not earn the proper minimum wage the restaurant must pay additional funds to get the employee to the minimum wage. To help avoid these tipped employee violations it is important to have a payroll/HR system that can properly track earned tips and include all of these on the employees W-2.

In the end, this is a short list of common wage and hour laws and violations but if this is a concern for your restaurant Henry+Horne is willing to consult with you to ensure risks are mitigated through proper information systems, policies and controls.

Michael Teasdale

Get in on the conversation.

Unfortunately, we cannot give free advice to non-clients by email, comment response, or phone call. Thank you! Read our disclaimer.