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The Ins and Outs of Restaurant Employee Compensation Law
Brandon W. Vahl

It is vital that restaurant owners be familiar with state and federal employee laws, including those pertaining to minimum wage, tips and overtime. This blog covers a few guiding principles of employer responsibilities which every restaurant owner should be familiar with, or alternatively have a consultant on stand-by for verification. Failure to comply with these laws can result in hefty fines from state and federal authorities.

Minimum Wage — Minimum wage varies by state and you should verify the law in your jurisdiction. Remember that in some states, servers have a separate minimum wage since they collect tips. Information on each state’s minimum wage can be found on the Department of Labor’s website.

Tips — Tips always belong to the employee. Some restaurants will pool their tips, meaning that all employees put their tips together and divide them up equally at the end of work day. This is a voluntary process, and employers cannot require their staff use this practice.

Overtime — Overtime rules vary by state and locality. As a restaurant owner and/or operator, it is vital to understand how overtime is computed for each location. Additionally, it is a good idea to limit overtime to avoid skyrocketing payroll costs.

Minors — The hours and job positions a minor can work also vary by state. There are differences of the time of day a minor can work, types of tasks (serving liquor, for instance) and the documentation required to verify age.

Alien Workers — Alien workers, (non-U.S. citizens) are another example of where you need to be diligent to verify eligibility. A restaurant owner should implement specific protocols to validate an alien worker’s visa or work permit prior to employment.

Garnishments — As a restaurant owner, if you receive a notice of garnishment against an employee’s wages, you must withhold a percentage of the employee’s paycheck and direct it to the garnishing agency. There are strict laws regarding the percentage you can withhold and garnishments only apply to monies you held or controlled on behalf of the employee.

Auto Gratuities vs. Service Charges — Restaurants that charge an automatic percentage service charge for large parties (i.e., 18%) will need to review how these charges are treated. The IRS concluded in a recent ruling that service charges paid on or after January 1, 2014, will be considered part of employee wages and subject to withholding and reporting requirement.

A full review of your restaurant’s policies and procedures on these items should be reviewed annually to maintain compliance with applicable federal and state law. For more information, contact Brandon Vahl at [email protected] or call him at 312.670.7444.

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