Restaurant owners need to be aware of state and federal regulations governing employee pay.
Among the issues that most consume the attention of restauranteurs is hours and wages requirements. Every U.S. state possesses a body of labor laws so, depending on the state in which the restaurant is located, the State Labor Department website should be consulted. Since, however, states tend to follow the applicable Federal law— the Fair Labor Standards Act (“FLSA”) — we will discuss the high points of the FLSA with the caution that a State’s own labor laws may impose stricter standards.
1. Who is and who is not covered by the FLSA Overtime and Minimum Wage Rules
Among the categories of laws focused on by the FLSA, the most significant involve Minimum Wage, Overtime and Child Labor laws, the latter category of which will not be discuss here.
Not every worker is covered by these laws and some, known as “exempt employees,” fall outside their protection and are, therefore, exempt from minimum wage and overtime rules. Among the most important exempt categories, as related to restaurant corporations, is the category– Executive, Administrative, and Professional Employees– and, in particular, the Administrative Employee Exemption.
As defined by the U.S. Department of Labor, Administrative Exempt Employees must be compensated at a rate of not less than $455.00 per week and be primarily performing non-manual work directly related to management or general business operations and involve tasks that would include the exercise of discretion and judgment with respect to matters of significance.
For example, a restaurant employee who is principally a server, but who, on occasion, serves as a shift manager is unlikely to be considered an “exempt employee” even though the latter activity in and of itself could be considered an exempt activity.
2. Minimum Wage and Overtime Rules
Under the FLSA, the minimum wage mandated is the Federal minimum wage, but it is more often the case now that state law mandates a higher minimum wage. In some states, that wage can be as high as $15.00 per hour.
Non-exempt employees, who work more than 40 hours per week (excluding meal breaks of at least 30 minutes) are also entitled to overtime pay in the amount of time-and-a-half (150% of the Minimum Wage). With respect to employees who are working more than one position in a business, the employer must add up all work time to determine if the employee is entitled to overtime pay.
Similarly, if an employee works for more than one business, and those businesses are jointly owned by the employer, the amount of time spent by the employee at each of the employer’s businesses shall be added together to determine if overtime pay is required.
Important to consider is that even undocumented employees, who are working in violation of U.S. immigration laws, have the same rights as documented employees under the Labor Laws and, thus, are entitled, if they are “non-exempt employees,” to be paid at least the applicable minimum wage and overtime pay.
3. Spread and Split Shift Rules
Although the FLSA does not prescribe “Spread” or “Split Shift” rules, they are often prescribed by state law. In New York, for example, if a restaurant employee works more than 10 hours over the course of a day (excluding lunch periods), she would be entitled to an extra hour of pay at the minimum wage. In other states, in addition to, or instead of Spread Pay, an employee working two separate shifts in a single day could be entitled to Split Shift pay, usually equivalent to an extra hour of wages at the prescribed minimum wage. Spread and Split Shift Pay are in addition to Overtime Pay.
4. Holiday Pay, Sick Day Pay, Vacation Pay, and Severance
Unless the employer has a written policy to the contrary, the FLSA does not require employers to pay workers for holidays, sick time and/or vacations. Likewise, employers are not obliged to pay terminated workers severance. However, the FLSA may differ from state law so it behooves restauranteurs to consult the websites of their State’s Department of Labor.
Termination rules are prescribed by state law. At least in New York, which is an employment-at-will state, an employer can terminate an employee for any reason or no reasons, as long as it is not a reason that would violate local, State, or Federal discrimination statutes.
However, terminating an employee mandates that the employer pay all the wages and benefits owed to the employee. In certain states, like New York, the failure of an employer to pay the wages to which a terminated employee may be entitled can expose the principals of the restaurant corporation to personal liability.
6. The Take Away
The touch stone for regulations governing minimum wage and overtime regulations is Federal law’s Fair Labor Standards Act, but state laws can impose more stringent standards on employers, including mandating the payment of a higher minimum wage. As such, employers should consult the literature provided by their State’s Department of Labor as well as keep informed concerning changes in regulations and requirements.
Ignoring wage and hours regulations can lead to an expensive regulatory audit and the imposition of penalties, including the award of back wages, which can potentially expose corporation principals to significant personal liability.