Wage and Hour Tips and Traps for Restaurateurs

by Robert Wagner, CPA

Wage and hour law is a hot topic among Georgia restaurant operators. While the latest increase in the minimum wage is having minimal impact on labor costs at least in the full-service dining sector, it has raised the awareness of operators to wage and hour problems.

Following are some areas of potential trouble:

Uniforms (such as shirts, hats, etc.) which servers are required to wear-- Under wage and hour laws, a minimum wage employee, such as a server, cannot be charged for uniforms at any time. This even includes replacement of uniforms that the employee lost! Operators can only legally charge for uniforms if the employee’s non-tip compensation is in excess of the minimum wage -- $5.15 per hour.

Vacation Pay and Termination -- The Fair Labor Standards Act (FLSA) DOES NOT require payment for vacation time! Nor, for that matter, does it require the employer give an employee a reason for or notice of termination. However, care must be exercised so that company policy and procedures do not run afoul of non-discrimination laws.

Tip Pooling -- Tom Power hospitality attorney at Power and Power (telephone - 703-841-1330) in Washington believes that tip pooling should be voluntary. Operators can protect themselves by having pooling employees sign an agreement to participate. Generally, tip pooling must be limited to only employees who provide services to the customer. That usually rules out cooks and dishwashers. In Georgia, the wage and hour police are active on this front! One Atlanta restaurateur was fined almost $10,000 in back pay for having the tip pool include inappropriate employees.

Offsetting of Wages -- For minimum wage employees such as servers and dishwashers their wages cannot be offset to cover 1) breakage, 2) customers who walk out or 3) cash shortages. Since tips are deemed to be owned by the employee, tips cannot be offset to reimburse the restaurant. However, if these employees normally receive incentives or bonuses over minimum wage, the excess may be offset.

Overtime -- It is usually easy for restaurant managers and assistant managers to meet the definition of management employee exempting them from overtime pay. (The Overtime Test: To be exempt from overtime the employee must 1) make over $250 per week in wages and 2) be a bona fide executive/manager). Look for movement on this front in Washington in 1997. The President is expected to push to raise the wage test from $250 to $530 weekly compensation (or $27,560 per annum). Management making less than this amount will be subject to overtime pay. This could potentially be an enormous increase in wage expense for larger operators.

Credit Card Tips -- The Department of Labor allows the employer to reduce the amount of credit card tips paid over to the employee by their pro rata share of the processing fee charged by the credit card company. I’m aware of a number of Atlanta-based restaurants with high charge-card sales that have employees pay the credit card fee on their tip amount, say 4% on all American Express charged tips. However, care must be taken that the amount collected from the employee does not exceed their pro rata share of the credit card fee.

Class-Action Law Suits -- Unfortunately, the hottest trend in wage and hour law is not coming from government activity but from attorney’s prowling for unhappy employees. Recently restaurant operators in Tennessee and other states have been stung by class-action law suites filed on behalf of current and former employees alleging overtime violations. With long hours and high turnover, the restaurant industry is fertile ground for these class-action suites. Multi-unit operators in particular need to be vigilant.

Robert Wagner is a principal in Robert Wagner & Company, LLC, CPAs. The firm provides tax and accounting services to restaurants, bars and hotels. He can be reached at 404-874-7000, fax 404-874-1132, email: rwagner@bellsouth.net.