The 6 Most Common Wage and Hour Mistakes Restaurant Operators Make

Most HR topics can be quite challenging, but wage and hour issues often top the list. Luckily, the Fair Labor Standards Act (FLSA), regulated by the Department of Labor, provides state-specific guidelines for things like overtime, employee classification, and minimum wage. In addition to the FLSA, states have also adopted their own statutes and regulations in regard to these employment topics. As such, all of these federal and state guidelines can still be difficult to translate to your own restaurant and employees. And since failure to comply can result in hefty fines, penalties and legal fees, this is one area you really can’t afford to get wrong.

Here are the six wage and hour mistakes we see most often in the restaurant industry.

1. Misclassifying employees as independent contractors.

FLSA requires that each employee receives a classification upon hiring. And while it may seem like a simple step, the classification options can be confusing.

One of the most common mistakes is classifying employees as independent contractors when they’re not. The IRS states that if “an employer-employee relationship exists (regardless of what the relationship is called)” then the employee is not an independent contractor. Whether or not such a relationship is considered “employer-employee” depends upon the culmination of a number of factors as well as the individual circumstances of the situation. Such factors may include (1) the right to discharge the individual; (2) the mode of payments; (3) the supplying of tools and/or equipment; (4) the belief of the parties as to the existence of an employer-employee relationship; and (5) the length of employment.

Here you can also find several scenarios that will help you determine contractor status.

2. Misclassifying nonexempt positions as exempt.

Nonexempt vs exempt status tends to lead to trouble for operators as well. In fact, a former Dunkin Donuts employee recently filed a class action suit about this very topic.

The general difference between the two classifications is that nonexempt employees are usually hourly while exempt employees are salaried. The former is eligible for overtime pay while the latter group is not.

According to FLSA, to be considered exempt, an employee must be:

· Paid at least $23,600 per year ($455 per week); and

· Paid on a salary basis; and

· Perform exempt job duties.

Even with the above-mentioned elements, classifying employees as exempt or non-exempt may still prove to be a difficult task. If your employees are performing a combination of exempt and non-exempt work for your restaurant, how do you determine their proper designation? The answer to this question is rooted into the facts of the specific situation as you apply the “primary duties” test. To use this test, you set apart the employees’ primary duties from their collateral tasks. The classification of their primary duties determines their overall classification as either exempt or non-exempt employee.

3. Incorrectly calculating overtime.

If exemption status hasn’t been properly established, then it’s likely that you are (1) either paying overtime to employees who should be exempt, or (2) not paying overtime to nonexempt employees.

Either way, it’s put you in a less than ideal position by opening you up to possible litigation, back pay, and unnecessarily stressful employee relations.

4. Meal and rest periods.

Another tricky area can be differentiating between meal periods and rest periods and when, or if, they should be paid.

In general, or at least in the states that Restaurant HR operates in, here’s how meals work for an employee working a 7.5 hour shift:

· Employee is entitled to a 20-minute meal period.

· Meal period must occur no later than 5 hours after beginning of the shift.

· Meal periods may be paid or unpaid.

Besides meal periods, rest periods (or breaks) should be documented. Typically, but not always, these short breaks are classified as compensable work hours.

5. Minimum wages.

Minimum wage can be challenging since it is influenced by state, federal, and municipal regulations. The federal government enforces a minimum wage of $7.25. And depending on the state that your restaurant operates in, minimum wages could vary from $7.25 up to $11.50. (Note: Washington DC and a number of cities have a higher minimum wage so be sure to check with your city to be sure you’re paying the correct wage).

To add more confusion, there are separate minimum wages for non-tipped and tipped employees. For example, in Illinois, non-tipped minimum wage is $8.25/hour and tipped minimum wage is $4.95/hour.

You also must abide by the highest minimum wage. So if your city and state have a non-tipped minimum wage of $8.00 (as compared to the federal minimum of $7.25), you must pay the higher rate.

6. Final pay.

Regardless of whether an employee was fired or quit, you must provide their final paycheck to them on the next regularly scheduled pay day.

Sometimes employers will hang onto the final paycheck until all uniforms and any other company property are returned. However, this is actually illegal.

Even if the employee still has possession of company property, you cannot withhold their check from them. You also cannot deduct the value of the unreturned property from their paycheck either; that is, unless the employee agrees to and signs off on the deduction.

Need legal advice?

These six issues are really just the tip of the iceberg when it comes to wage and hour mistakes. There are a tremendous number of scenarios that may occur with each employee, so it can be helpful, and necessary, to seek outside assistance.

If you’re looking for more legal advice about a specific HR situation, we highly recommend contacting the Chicago-based firm, Taft Law. They have been instrumental in successfully navigating highly sensitive and complex wage cases and their firm closely monitors HR-related legislation.

Follow Restaurant HR Group on LinkedIn and never miss a post. Or visit us here.



  • Subscribe to our latest insights


Are you capital raise ready?