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The “It’s tough to run a restaurant” department

Kalen Fraser //December 19, 2013//

The “It’s tough to run a restaurant” department

Kalen Fraser //December 19, 2013//

As if running a restaurant weren’t hard enough. Most restaurants contend with low profit margins, high competition, costly employee turnover, food inspections and increases in rent. One more thing to add to a restaurant owner’s worry list: U.S. Department of Labor (U.S. DOL) investigations.

The Wage and Hour Division (WHD) of the U.S. DOL is responsible for enforcing the Fair Labor Standards Act (FLSA) which establishes minimum wage, overtime pay, child labor and record keeping standards. Restaurants are notorious for having violations in all four categories, and the WHD has long considered the restaurant industry at high risk for non-compliance. In fact, according to the U.S. DOL Data Enforcement website, full-service restaurants and limited-service restaurants are the two categories of business industry most likely to be investigated.

Full-service restaurants alone have more than 12,000 cases while the next highest non-restaurant industry, hotels and motels, have just 4,500. Another reason for increased enforcement is that restaurants employ a high percentage of what the WHD refers to as “vulnerable workers”. Federal labor enforcement agencies have been targeting industries that employ these workers because of their relative high risk of exploitation due to low pay and benefits, ignorance of rights under the law, and/or reluctance to exercise those rights. 

A restaurant is subject to the FLSA if its annual sales volume exceeds $500,000 per year. Even if it does less than $500,000, some of its individual employees may be covered if they engage in interstate commerce activities like swiping credit cards or ordering goods from out of state. The state of Colorado Wage Order applies to all private sector employers in four main categories including food and beverage.

To stay out of trouble, remember these important nuggets of federal and state compliance information:

Overtime: Must be paid after 40 hours in a seven-day work week regardless of the length of the pay period. Colorado labor law also requires overtime payment after 12 consecutive hours. Employees cannot waive their right to overtime pay.

Tip pools: Tip pools may not include any kitchen staff or management employees.

Notice of tip credit: If you are taking a tip credit (i.e. paying your servers $4.76 and taking a tip credit of $3.02) then you must notify them of certain tip information either verbally or in writing.

Tipped Employee Overtime Rate: In Colorado, if you are paying a server $4.76 per hour and taking a tip credit of $3.02, the additional half-time owed for each overtime hour is half of the applicable minimum wage, which is currently $7.78.  (Assuming that no other service charges or non-discretionary bonuses were paid to the employee)

Service Charges and Non-discretionary Bonuses and Commissions: All of these payments must be included in the regular rate used to determine overtime pay.

Credit Card Processing Fee: Colorado labor law does not allow employers to deduct the credit card processing fee from employees that receive a tip credit.  

Uniform Deductions: Colorado labor law does not allow deductions from employees’ pay for the cost of uniforms.

Back of the house employees: Dishwashers, prep cooks and janitors are not exempt from overtime even if they are paid a salary unless they are in a bona fide management position. Paying these employees a salary does not exempt them from overtime.

In addition to these minimum wage and overtime requirements, be sure to check out the federal and state record keeping requirements and child labor restrictions. Making some small changes to your employment practices today can really help to limit your potential liability in the years ahead.