7 Wage Violations In The Restaurant & Food Service Industry
According to the National Restaurant Association, 14 million Americans currently work in restaurants.
Some of these employees love the fast-paced challenge of serving customers on a busy night. Some are on the path to their dream job of owning their own restaurant. For others, especially talented young servers in large cities, a food service job can be extremely profitable.
But for many workers, food service is a job, pure and simple: a way to support themselves and their families.
Wage Theft In The Restaurant Industry
No matter your motivations, whether you’re a working artist trying to get by or a gifted server who just loves interacting with others, restaurant jobs are hard.
For employers, they’re also extremely lucrative: the restaurant industry raked in $709.2 billion in sales in 2015 alone. That’s nearly double what restaurants pulled in only 15 years ago. But those incredible gains haven’t managed to trickle down.
The median annual wage for a server in the US is now $21,640, according to the Bureau of Labor Statistics, around $8,000 lower than the median wage across all occupations.
Thankfully, the Fair Labor Standards Act entitles most low-wage restaurant workers to earn overtime wages. Over the course of a year, overtime pay can substantially increase an employee’s earnings, opening possibilities that would remain a dream on base wages and tips or a salary alone.
But wage theft, particularly common in the restaurant industry, undermines those possibilities every day. Here are the 7 most frequent FLSA wage violations found in restaurants, banquet halls and catering services.
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7 Common Restaurant Wage & Hour Violations
Wage and hour regulations for food service are particularly complex, and some businesses violate them simply out of ignorance. Other owners know they can skirt the law and still get by. In either case, employers can and should be held accountable for violating the Fair Labor Standards Act.
1. Using The Tip Credit – Unlawfully & Lawfully
In most restaurants, FOH staff make a substantial portion of their wages from tips. But even servers who make a lot from tips are still entitled to an additional base wage; it’s illegal for employers to “pay” their workers through customer tips alone.
If you make more than $30 on average every month in tips, you’re considered a “tipped employee” under the FLSA. Your employer is allowed to take a “tip credit,” which reduces their wage obligations in proportion to how much you make in tips.
But there’s a hard limit to this credit: $5.12 per hour. Which means that your hourly wage must be at least $2.13 every hour, since $2.13 and $5.12 add up to the federal minimum wage of $7.25. If you’re making less than $2.13 an hour in base wages, it’s very likely that you’re being stolen from.
States That Stand Up For Restaurant Workers
Several states have passed laws that require employers to pay even their tipped employees the full state minimum wage, effectively eliminating the FLSA’s “tip credit option”:
In Alaska, restaurant workers are entitled to $9.80 per hour, the state minimum wage, regardless of how much they make in tips.
In California, workers are guaranteed at least $10 (at companies with 25 workers or fewer) or $10.50 (at employers with 26 employees of more) an hour before tips.
In Minnesota, employers with gross annual sales less than $50,000 must pay their tipped employees $7.25 per hour, regardless of tips. For businesses with sales over $50,000, tipped workers are entitled to $9.00 an hour.
In Montana, businesses with more than $110,000 in gross annual sales have to pay their tipped employees an hourly wage of at least $8.15. Businesses with lower sales who aren’t otherwise covered by the FLSA are allowed to pay their workers as little as $4 per hour.
In Nevada, tipped employees who don’t receive health insurance through their employer are entitled to a base wage of $8.25. Workers who do get health insurance must be paid at $7.25 an hour, regardless of tips.
In Oregon, all tipped employees are entitled to an hourly wage of $10.25, no matter their tips.
In Washington, employers are required to pay their tipped workers at least $11.00 an hour.
In states with minimum wages higher than the federal wage of $7.25, the maximum tip credit is proportionally lower. For example, Arizona’s minimum wage is currently $10 per hour. Employers are allowed to take a tip credit no more than $3.00, and must pay tipped employees a base wage no less than $5.05 per hour.
To find out if your state has a minimum wage that changes how much your employer can deduct from your base wage, visit the Department Of Labor’s Wage & Hour Division website.
Overtime With A Tip Credit
Most restaurant workers who work more than 40 hours in a given workweek are entitled to overtime wages for their extra hours.
The rate at which these wages are paid must be calculated on the minimum wage, not the base wage that’s been lowered through a tip credit. The tip credit then comes in after the regular rate has been calculated. Here’s how:
Under the FLSA, covered workers are entitled to overtime wages at one-and-a-half their “regular rate,” an hourly rate that includes base wages, salary and commissions. For tipped employees, who often make less than the minimum wage in cash wages, the “regular rate” begins with the minimum wage.
Rebecca is a server working in a state where the federal minimum wage of $7.25 per hour holds. No matter how many tips she makes in a given week, her employer calculates her overtime wages using the federal minimum wage: $7.25 times 1.5 is equal to $10.88. Now her employer applies a tip credit to that time-and-a-half rate. Let’s say Rebecca makes good tips and her employer is going to take the maximum tip credit allowed: $5.12. Subtracting $5.12 from $10.88 makes Rebecca’s overtime wage $5.76. She’s entitled to that wage for any hours worked over 40 in a workweek.
2. Not Paying Minimum Wage For Sidework
Some tipped workers are required to perform “side work,” tasks for which they don’t receive tips. When a server isn’t serving, but has to fold napkins or brew coffee, they’re doing side work. Side work may or may not be directly related “tipped” work; for the FLSA, it doesn’t matter.
If a tipped employee spends more than 20% of their time performing side work, that time needs to be compensated at the federal or state-established minimum wage, not their “tip credit” base wage.
Let’s say Jen works an 8 hour shift. She’s actively serving customers, and receiving tips for that service, for 5 hours. But it’s a slow day, so the other 3 hours of her shift are spent polishing glasses, rolling silverware and making fresh pots of coffee.
She isn’t tipped for that time, and since 3 hours is around 38% of her shift, Jen’s entitled to the full minimum wage for those hours, rather than the base wage of $2.13 she usually makes. If Jen had done 1 hour of side work, she would only be entitled to $2.13 for that hour.
3. Pooling Tips For Non-Tipped Workers
Some employers will “pool” all the tips earned in a given period and then divide them up among their employees. This is legal, if only tipped employees are allowed to share in the pool’s payout.
Pooling becomes unlawful, a violation of federal law, if workers who don’t receive tips (like managers, silver polishers and most back of house staff) receive a share of the pool.
Unlawful tip pooling is a way for businesses to subsidize a portion of their untipped workers’ wages at the expense of tipped employees. Unfortunately, the total amount of tips can become so large after pooling that many FOH workers won’t realize they’re being taken advantage of.
4. Not Informing Employees Of A Tip Credit
Your employer has to tell you about the tip credit they’re taking before they can take it. If they don’t notify you first, the tip credit is invalid and constitutes a wage violation.
Either verbally or in writing, an employer has to tell you:
What your cash wage will be after the tip credit is deducted
The amount the employer is claiming as a tip credit
That the tip credit cannot be greater than the amount of tips you actually made
That you have a right to retain all of the tips you received, unless you’re part of a tip pool that’s valid under the FLSA
That the tip credit is invalid unless you’ve been informed of this information
Unless your employer informs you of these 5 things, they are not allowed to take a tip credit and must pay you at the applicable minimum wage.
5. Not Paying The Minimum Wage When Business Is Slow
Mark works in a state where the FLSA’s regulations hold and is entitled to a minimum wage of $7.25. As a server he usually makes good tips, and his employer deducts the full tip credit of $5.13, paying Mark a base wage of $2.13 per hour.
But during the winter, business slows down. One Wednesday, Mark works a 6 hour shift, and only makes $20 in tips. When Mark gets his paycheck, he notices that his employer has only paid him at the base wage of $2.13, $12.78 total, for that Wednesday shift.
On a really busy day, when Mark does well in tips, that might be okay. But Mark only made $20 in tips Wednesday. After some calculations, Mark realizes that he only made $3.33 in tips per hour. But since $3.33 plus $2.13 is $5.46, Mark’s been paid at lower than the minimum wage.
Mark’s employer should have paid him a base wage of at least $3.92 to make up the difference. $3.92 plus $3.33, Mark’s hourly wage in tips, would have come to $7.25, the applicable minimum wage where Mark works.
Noticing wage violations like this can be very difficult. Workers often find that keeping track of their own hours and tips, and then calculating how much they are entitled to under the FLSA for their time, is the only way to ensure they’re being paid what they deserve.
6. Misclassifying Employees
The vast majority of servers, bussers and bartenders should never be classified as “exempt” from the FLSA’s minimum wage and overtime protections.
Back of house occupations are a little more complicated:
Most chefs who have earned culinary arts degrees from a four-year, specialized academic program will be considered “learned professionals” under the FLSA and not entitled to overtime pay.
But cooks who perform mainly routine physical or manual work should not be classified as professionals, and are usually entitled to overtime wages.
To learn more about valid and invalid exemptions from the FLSA, click here.
7. Paying Employees Less Than Minimum Wage To Make Up For Drawer Shortages Or Customer Walk-Outs
The vast majority of restaurant workers are entitled to the minimum wage, regardless of on-the-job contingencies. If a drawer comes up short at the end of a shift, or some customers walk out without paying their bill, employers are allowed to deduct from a worker’s wages to make up the difference – but only if that employee makes more than the applicable minimum wage.
Here’s an example:
Caitlin serves and works the register at a small coffee shop. One week she works 30 hours total, and between her cash wages and tips makes $8.00 an hour. For the week, she made around $4.50 an hour, and her employer made up the difference with $3.50 per hour in base wages.
But one day Caitlin’s drawer came up $30 short. Her employer wants to deduct $30 from her week’s wages to fill the gap. But her boss can’t do that.
Since $30 divided by Caitlin’s total hours, 30, comes out to $1, Caitlin’s base wage would be $2.50. Add $4.50 to that and you get $7.00, less than the federal minimum wage. The most Caitlin’s employer can deduct from her wage is $22.50, or $0.75 an hour, which preserves an hourly wage of $7.25.
Are you being misclassified or having tips pooled with non deserving staff? Check out the 7 wage and overtime violations that happen in the food industry.
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