Restaurant Industry Employers

Kayla Moreland , May 14, 2015

Over the past few years, violations of the Fair Labor Standards Act (“FLSA”) were found in nearly all of the 9,000 restaurants under investigation by the Department of Labor.  To address the rampant wage and hour violations in the restaurant industry, the Department of Labor has stepped up its enforcement initiatives to pursue civil money penalties, back wages, and liquidated damages when violations are found.

Here are a few of the recurring violations:

1. Overtime violations: Non-exempt employees are entitled to receive overtime pay at one and one-half times their regular rate for all hours worked over 40 in a workweek.  Employers violate this provision by paying employees “straight time” wages for overtime hours, or incorrectly calculating overtime.  The overtime requirement applies to both tipped and non-tipped employees.

2. Illegal tip pools: Employers may require tipped employees to contribute tips to a general pool to be shared with non-tipped employees.  Employees who do not “customarily and regularly” receive tips (dishwashers and cooks, for example) cannot be participants in a valid tip pool.  Nor will the tip pool be valid if management employees are participants. Employers must notify employees of any required tip pooling arrangements.

3. Deductions: Employers may deduct a percentage from employees’ tips to pay charges imposed by credit card companies when a customer’s tip is charged to a credit card.  However, this deduction cannot reduce employees’ wages below the minimum wage.  Employers many not deduct charges for phone lines or other administrative costs from the employees’ tips.

4. Dual jobs: When employees spend a substantial amount of time (more than 20 percent) performing general preparation work, employers may not take a tip credit for the time spent on those duties.  This means that a tipped restaurant employee may be entitled to the full minimum wage rather than the reduced tipped credit rate if a significant amount of time was spent performing duties unrelated to the tipped occupation, such as bathroom cleaning or food preparation.

Source:  Nathan Pangrace & Anne Prenner Schmidt, Department of Labor targets restaurant industry employers (September 16, 2014), http://www.lexology.com/library/detail.aspx?g=3abf7b31-db9f-4355-9fa2-1967d471169b.
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