3 Steps to Navigating Effective Wage and Hour Compliance

By Billy Waters, Chris Cona

Aug. 26, 2019

Restaurant operators face many unique challenges — labor management being a top one.

In addition to today’s tight labor market, operators must also manage high employee turnover, complex scheduling as well as ever-increasing regulations around hour, wage and tip reporting requirements.

It’s no surprise that the restaurant industry continues to be a major target for Fair Labor Standards Act and class-action litigation. This type of litigation has proven to be costly in recent years as claims can be triggered by any number of employee complaints, including pay and hourly discrepancies.

In 2018 alone, the U.S. Department of Labor collected more than $42 million in employee back wages from the food services industry. This amount will only continue to increase as attorneys are now spending enormous resources on TV, radio, billboards and social media marketing campaigns to attract and inform hospitality employees on compliance violations.

Because much of the wage and hour legislation is new, and not coming off the back of federal law, there is little case history or precedence. And while there is a risk that employers do not pay their employees correctly under these new rules, the greater risk is that they do not have sufficient processes and auditable history in place to demonstrate compliance when challenged. This leaves restaurant operators vulnerable.

To avoid costly and time-consuming litigation, here are three steps restaurateurs can take now to better manage wage and hour compliance.

1. Begin internally: Start by educating managers on the statutory requirements for scheduling and paying employees, which can vary from city to city and state to state. For example, San Francisco, Seattle and the state of Oregon have started to implement “secure scheduling” or “predictive scheduling” ordinances. These rules require employers to provide schedules to employees up to two weeks in advance and extra pay if the schedules are changed. This creates a burden for employers who are not accustomed to being locked down so far in advance.

Once managers are up to speed on the current legislative landscape, conduct a thorough wage and hour audit to identify any existing or potential violations. The most common violations we see are the misclassification of employees as exempt vs. non-exempt status, the improper calculations of overtime wages for tipped employees, failing to maintain valid tip pools and the misuse of the federal tip credit.

The violations mentioned above are fairly easy to prevent; it simply takes commitment. Therefore, the last step should be to make compliance a companywide initiative by assigning responsibilities to someone internally or through an outsourced HR relationship. As the complexity of managing a workforce seems to grow exponentially each year with the addition of new legislation, continue to evolve internal processes and train managers to help ensure future compliance.

2. Enlist technology: In addition to scheduling requirements, operators are also required to manage employee breaks. For instance, in California, if a meal break starts just one minute later than required, the employer must pay an additional hour of pay to the employee. In New York, employers must pay an additional hour pay (called spread of hours) if the daily work schedule spans greater than 10 hours, regardless of the number of hours worked.

As pay and scheduling requirements vary depending on the location of the business, it’s nearly impossible for operators to manually manage multiple locations on their own. Restaurant-specific technology, with legislation and business rules built in, can enable operators to proactively manage compliance as well as provide an auditable history should claims of noncompliance arise. Utilizing technology can also help operators significantly reduce payroll errors as well as support and drive scheduling and time and attendance compliance efforts.

3. Educate employees: The expansion of restaurant locations and low unemployment has made it more difficult to find labor. These labor challenges often have a negative impact in the areas of training and enforcing best practices, areas that impact wage and hour compliance. Once you have finalized your company’s wage and hour-related policies — and have the technology in place to automate compliance — the final step is to effectively communicate these policies to your employees. Educating employees regarding their compensation, rights and obligations and encouraging them to come to management with any questions can help to significantly minimize future wage and scheduling claims. Policies can be communicated directly during daily shift meetings and through monthly training classes as well as in the employer handbook, which should be updated regularly.

With the daily demands of operating a restaurant, many lack the time needed to effectively manage wage and hour compliance. By following these tips, operators can significantly reduce their risk of noncompliance as well as more efficiently manage their business.

Billy Waters is the solution director, workforce management, at Fourth.

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