• Sun. May 19th, 2024

How Hospitality Employers Can Avoid Wage and Hour Mistakes


May 18, 2023
Tip pooling and tip credits are two common areas employers may not fully understand, putting them at risk of running into trouble with labor laws. (Getty Images)


HOUSTON — Even when employers are acting with the best of intentions, they can make mistakes that could get them in trouble with wage and hour laws.

Speaking at the Hospitality Law Conference, Courtney Leyes, partner at Fisher Phillips, outlined ways hotel and restaurant employers have run afoul of the U.S. Department of Labor’s Wage and Hour Division by not understanding the Fair Labor Standards Act and associated state labor laws.

For operations that have employees pool tips, such as in a restaurant, the rule of thumb is never include a manager, supervisor or even a team lead in the pool, Leyes said.

It’s common enough in restaurants for servers to make more than their managers because of tips, making it enticing for managers to wait tables when the team is short-staffed for a shift or two, she said. Some may say that when the manager is waiting tables, they’re not acting as a supervisor.

“There could be problems with that because sometimes employees know them as a manager or supervisor, and they might be tempted to give some advice or direct somebody,” she said. “The best advice with that is to keep your managers and supervisors out of that tip pool.”

When determining whether an employee should be salaried or paid hourly, the Labor Department looks at whether the employee performs executive duties, Leyes said. The three tasks it considers are whether the employee’s primary function is to manage, they direct the work of at least two full-time or full-time-equivalent employees and they have the ability to hire, fire and write up employees.

Courtney Leyes, parter at Fisher Phillips, explains at the Hospitality Law Conference some common mistakes employers make that can get them in trouble with the U.S. Department of Labor’s Wage and Hour Division.(Bryan Wroten)

“What would that look like in your restaurant? Somebody that’s interviewing, firing, writing somebody up — those types of functions, even if they’re not salaried and you don’t consider them exempt, they could still be considered a manager for the purposes of that tip pool,” she said.

Another tip pool problem arises when trying to share the tip pool with back-of-house employees, Leyes said. Under the Fair Labor Standards Act, there can be two types of tip pools. One is when the employer takes the tip credit, allowing them to pay below minimum wage with the expectation that tips will make up the difference. The other is when the employer pays at or above the minimum wage, and any tips that come in are on top.

When there’s a tip pool for employees paid through the tip credit, only the tipped employees can be part of the tip pool, she said.

“You cannot include anybody else in that tip pool,” she said. “You can’t include your chefs or your dishwashers or anybody else in that tip pool.”

When employers don’t use the tip credit and they’re paying at least the full minimum wage, back of house employees can be part of the tip pool, she said.

Employers can run into problems if they don’t include non-discretionary bonuses in regular rates of pay, Leyes said.

A discretionary bonus, such as a $500 holiday bonus awarded to all employees because of a great year, doesn’t have to be included in the regular rate because it’s not tied to any employee’s performance, she said.

A non-discretionary bonus would be a bonus awarded to a manager or team lead based on achieving specific performance goals, she said. The Labor Department says that has to be included in the regular rate of pay.

Similarly, restaurants that charge a service fee and/or automatic gratuity that is paid out in any part to an employee must include that in the regular rate of pay because it’s not considered tips, Leyes said. The newer 80/20 tip rule is designed to discourage employers from using a tip credit, she said. Employers can then use the service charges and automatic gratuity to make up the expense of paying the full minimum wage and overtime obligations.

However, some states require that the service charges and automatic gratuity go directly to the employees, she said.

Employers cannot cut into their employees’ minimum wage or overtime pay for the cost of uniforms, Leyes said. That means those taking the tip credit cannot deduct the cost of uniforms from employees’ pay. Those who are paying above minimum wage without the tip credit can make a deduction, but it can’t cut into the minimum wage itself.

One option employers have is to require dress that the Labor Department doesn’t consider to be a uniform, she said. For example, if they require employees to wear a black shirt without a logo and khakis, that’s considered street clothes, not a uniform.

“Even if an employee has to go out and buy a new pair of khakis or a new T-shirt, it’s not going to be anything,” she said. “There’s no impact; there’s no liability.”

Slip-resistant shoes are also considered to be street clothes because employees can wear them outside of the workplace, she said.

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