Restaurant operators already have a dizzying amount to manage without getting bogged down by payroll or wage and hour issues. The Fair Labor Standards Act (FLSA) provides state-specific guidelines for things like minimum wage and employee classification that can make even a seasoned HR professional’s head spin. However, considering that failure to comply can result in substantial fines and penalties (and let’s not forget legal fees!), this is one area you can’t afford to neglect.
According to the Restaurant HR Group, one of the most common wage and hour mistakes in the restaurant industry is misclassification of employees. When you hire or contract with a new worker the FLSA requires that the worker be classified as an employee or independent contractor. The mistake most often made is to classify an employee as a contractor when they are not.
The classification process can be confusing and requires employers to determine whether or not an “employer – employee” relationship exists. But how do you know? Thankfully the IRS provides factors to consider when making this determination based on the ideas of control and independence in the relationship.
According to the IRS, factors that provide evidence of the degree of control and independence fall into three categories:
- Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
- Financial: Are the business aspects of the worker’s job controlled by the payer? (These may include things like how the worker is paid, whether expenses are reimbursed, who provides tools/supplies).
- Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
While there may be some indicators that lean toward an employee determination, and others that lean toward a contractor determination, the entire relationship must be considered. One final and often overlooked step in this process is making sure that you document how you arrived at the conclusion.
Another common wage and hour mistake in the restaurant industry happens when classifying employees as either exempt or non-exempt. With new overtime laws effective December 2016, it is important to review current employee classifications to prepare.
According to Eater.com, the average U.S. wage for chefs, head cooks, and pastry chefs is $45,920. For bakers, that number is $26,270. Based on the new Overtime Law, these workers, often salaried and working 50 or more hours per week, will qualify for time-and-a-half pay for their extra hours if employers do not consider options such as adjusting wages or cutting hours.
Based on the new law and the national increase in employee lawsuits related to exempt status, now is the perfect time to review employee classifications. Need some help? Don’t hesitate to reach out- we’re here for you.