Most HR topics can be quite challenging, but wage and hour issues often top the list. Luckily, the Fair Labor Standards Act (FLSA), regulated by the Department of Labor, provides state-specific guidelines for things like overtime, employee classification, and minimum wage. In addition to the FLSA, states have also adopted their own statutes and regulations in regard to these employment topics. As such, all of these federal and state guidelines can still be difficult to translate to your own restaurant and employees. And since failure to comply can result in hefty fines, penalties and legal fees, this is one area you really can’t afford to get wrong.
Here are the six wage and hour mistakes we see most often in the restaurant industry.
1. Misclassifying employees as independent contractors.
FLSA requires that each employee receives a classification upon hiring. And while it may seem like a simple step, the classification options can be confusing.
One of the most common mistakes is classifying employees as independent contractors when they’re not. The IRS states that if “an employer-employee relationship exists (regardless of what the relationship is called)” then the employee is not independent contractor. Whether or not such a relationship is considered “employer-employee” depends upon the culmination of a number of factors as well as the individual circumstances of the situation. Such factors may include (1) the right to discharge the individual; (2) the mode of payments; (3) the supplying of tools and/or equipment; (4) the belief of the parties as to the existence of an employer-employee relationship; and (5) the length of employment.
Here you can also find several scenarios that will help you determine contractor status.
2. Misclassifying nonexempt positions as exempt.
Nonexempt vs exempt status tends to lead to trouble for operators as well. In fact, a former Dunkin Donuts employee recently filed a class action suit about this very topic.
The general difference between the two classifications is that nonexempt employees are usually hourly while exempt employees are salaried. The former is eligible for overtime pay while the latter group is not.
According to FLSA, to be considered exempt, an employee must be:
- Paid at least $35,568 per year ($684 per week); and
- Paid on a salary basis; and
- Perform exempt job duties.
Even with the above-mentioned elements, classifying employees as exempt or non-exempt may still prove to be a difficult task. If your employees are performing a combination of exempt and non-exempt work for your restaurant, how do you determine their proper designation? The answer to this question is rooted into the facts of the specific situation as you apply the “primary duties” test. To use this test, you set apart the employees’ primary duties from their collateral tasks. The classification of their primary duties determines their overall classification as either exempt or non-exempt employee.
3. Incorrectly calculating overtime.