6 common labor and employment issues affecting the hospitality industry

by Kellen Scott

The Fair Labor Standards Act allows employers to pay certain employees less than the minimum wage and others no overtime at all.

But these exceptions frequently lead to incorrect minimum wage and overtime calculations and liability for unpaid wages, making restaurants and the hospitality industry particularly vulnerable to Department of Labor audits and wage and hour litigation.

Consider these tips to help you avoid common mistakes.

Consider workweek, not pay schedule

Unless exempt, employees must receive overtime pay for hours worked in excess of 40 hours in a workweek. Workweeks are fixed, regularly recurring periods of 168 hours (seven consecutive 24-hour periods). The FLSA’s overtime rules are tied to seven-day workweeks, not the employer’s pay schedule. Employers frequently pay overtime if employees work more than 80 hours in a two-week period, but employers must consider the number of hours worked in each workweek.

To avoid this mistake, establish any workweek you desire, including the day and time the workweek starts and ends. It need not coincide with the calendar week or pay period. Remember to maintain records showing the time and day the employee’s workweek begins and ends.

Classify correctly

Some employees are exempt from the FLSA’s federal minimum wage and overtime pay requirements. To qualify for an exemption, employees must perform certain job duties and be paid on a salary basis at least $455 per week. Misclassifying employees as exempt can result in owing back wages, overtime, penalties, and attorney’s fees.

Employers should ensure job descriptions accurately reflect employees’ responsibilities and duties. Consider each employee’s primary duties, salary amount, and whether you make reductions in pay based upon variations in the quantity or quality of the employee’s work.

Overtime for tipped employees

Employers can satisfying their minimum wage obligations owed to “tipped employees” by including part of their tips as a wage payment. Tipped employees customarily and regularly receive more than $30 a month in tips. Provided certain conditions are met, employers may pay tipped employees a sub-minimum wage and claim a tip credit to offset a portion of the minimum wage obligation.

Before you may take a tip credit, you must inform tipped employees you will be taking a tip credit, specifically:

• The amount of the cash wage you will pay them;
• The additional amount by which the tipped employees’ wages will be increased by the tip credit;
• The tip credit amount may not exceed value of tips the employees actually receive;
• Tipped employees must retain all tips received, except for valid tip pooling arrangements; and
• The tip credit will not apply to any employee who has not been informed of these requirements.
• Failure to provide this notice will cause you to pay tipped employees their full minimum wage and allow the tipped employees to keep all the tips they receive.

Calculating overtime rates for tipped employees is more complicated than simply multiplying their hourly rate by 1.5. Because their regular rates include the tip credit, the overtime cash wage is an employee’s regular rate multiplied by 1.5, minus the tip credit. Subtracting the tip credit first, then multiplying the reduced rate by 1.5 results in a larger tip credit than the FLSA permits.

Tip pooling

Tip pooling allows you to encourage or require a portion of your employees’ tips to be diverted to other tipped employees. Eligible employees must perform important customer service functions.

You can take a tip credit against minimum wage obligations for all tipped employees participating in a valid tip pool. However, employers:

• must notify employees of the amount of the required tip pool contribution
• can only take a tip credit for the amount of tips each employee ultimately receives; and
• cannot retain any of the employees’ tips for other purposes.

If you take a tip credit, you cannot require tipped employees to share their tips with non-tipped employees. Your tip pool can be invalidated if you fail to give proper notice or utilize a non-conforming tip pool, thereby losing your tip credits and incurring significant minimum wage violations for each hour a tip credit was taken.

Cautious deductions

Employers cannot require employees to pay for “tools of the trade” or other items that primarily benefit your business, if those expenses bring wages below the federal minimum. Deductions for cash shortages, uniforms, or customer walk-outs generally are not allowed from employees who earn a sub-minimum direct wage, such as servers.

Keep records

Be sure to preserve records concerning the wages, hours worked, and other conditions and practices of your employment. Employers must maintain payroll records for at least three years and basic timekeeping and earnings records for at least two years. Without detailed records, employers face considerable hurdles to rebut the DOL’s estimated back pay calculations.

Two to take to go

The DOL frequently piggy-backs a Family Medical Leave Act audit when conducting an FLSA wage and hour investigation. Take time to ensure you have posted all required posters in the workplace and confirm your employee handbook provides notice of the employees’ FMLA rights. Also, the U.S. Citizenship and Immigration Services recently issued a new Form I-9 employers must start using by September 18, 2017. Employers should incorporate the new form into its onboarding process by next month.

Kellen Scott is a senior associate in Chamberlain Hrdlicka’s Labor and Employment and Litigation sections. He defends employers against claims for unpaid wages and counsels employers throughout state and federal wage and hour investigations.

Original source: https://www.bizjournals.com/houston/news/2017/08/17/6-common-labor-and-employment-issues-affecting-the.html