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Department of Labor Series

The following series of alerts were sent in the spring of 2013 as a benefit to members of the Wisconsin Restaurant Association.

Tipped Employees | Overtime | Minimum Wage | Avoiding Department of Labor Investigations, Audits and Lawsuits


Tipped Employees
Fourth in a series of labor law-related alerts from WRA – sent 5/15/13

Avoiding Department of Labor Problems: Tipped Employees

There are plenty of ways to get in trouble with both the Department of Labor (DOL) and the Internal Revenue Service (IRS) when it comes to tipped employees.

Just ask celebrity chef Mario Batali who settled a $5.25 million class action lawsuit which alleged that eight of his New York restaurants (co-owned with Joe Bastianich) illegally withheld tips from hourly employees.  The primary claim in the lawsuit was that management deducted four to five percent of each shift’s wine and other beverage sales from the restaurants’ tip pools (liability was denied by the restaurant group). 

To keep you out of this sort of trouble, review the DOL’s Fact Sheet #15:  Tipped Employees Under the Fair Labor Standards Act (FLSA).  This fact sheet provides a very good overview of the rules and requirements regarding tipped employees as well as typical problems that can trip up employers.  Some of these include:  invalid tip pools, improper payroll deductions from tipped employees, incorrectly calculating overtime for tipped employees and failing to bring tipped employees up to the minimum wage rate if they haven’t received/claimed enough in tips plus base wages over the pay period.

Tipped Employees: Tipped employees are defined by the DOL as those who customarily and regularly receive more than $30 per month in tips. Tips are the property of the employee. The employer is prohibited from using an employee’s tips for any reason other than as a credit against its minimum wage obligation to the employee (“tip credit”) or in furtherance of a valid tip pool. Only tips actually received by the employee may be counted in determining whether the employee is a tipped employee and in applying the tip credit.

Tip Credit:  The FLSA permits an employer to take a tip credit toward its minimum wage obligation for tipped employees equal to the difference between the required cash wage (which must be at least $2.33 in Wisconsin) and the federal minimum wage. Thus, the maximum tip credit that an employer can currently claim under the FLSA is $4.92 per hour in Wisconsin (the minimum wage of $7.25 minus the minimum required cash wage of $2.33).

The DOL came up with new regulations surrounding the tip credit in 2011. Make sure you are following the rules outlined below.

The employer must provide the following information to a tipped employee before the employer may use the tip credit:

1) the amount of cash wage the employer is paying a tipped employee, which must be at least $2.33 per hour;

2) the additional amount claimed by the employer as a tip credit, which cannot exceed $4.92 (the difference between the minimum required cash wage of $2.33 and the current minimum wage of $7.25);

3) that the tip credit claimed by the employer cannot exceed the amount of tips actually received by the tipped employee;

4) that all tips received by the tipped employee are to be retained by the employee except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips; and

5) that the tip credit will not apply to any tipped employee unless the employee has been informed of these tip credit provisions.

The employer may provide oral or written notice to its tipped employees informing them of items 1-5 above. An employer who fails to provide the required information cannot use the tip credit provisions and therefore must pay the tipped employee at least $7.25 per hour in wages and allow the tipped employee to keep all tips received.

WRA recommends providing this notice in writing and has a form that you can use. Click here or visit Members Only on the WRA website.

Tip Pool:  The requirement that an employee must retain all tips does not preclude a valid tip pooling or sharing arrangement among employees who customarily and regularly receive tips, such as waiters, waitresses, bellhops, counter personnel (who serve customers), bussers and service bartenders. A valid tip pool may not include employees who do not customarily and regularly received tips, such as dishwashers, cooks, chefs and janitors. The FLSA does not impose a maximum contribution amount or percentage on valid mandatory tip pools. The employer, however, must notify tipped employees of any required tip pool contribution amount, may only take a tip credit for the amount of tips each tipped employee ultimately receives, and may not retain any of the employees’ tips for any other purpose.

Meeting Minimum Wage:  Employers electing to use the tip credit provision must be able to show that tipped employees receive at least the minimum wage when direct (or cash) wages and the tip credit amount are combined. If an employee’s tips combined with the employer’s direct (or cash) wages of at least $2.33 per hour do not equal the minimum hourly wage of $7.25 per hour, the employer must make up the difference.

Service Charges vs. Tips:  A compulsory charge for service, for example, 15 percent of the bill, is not a tip. Such charges are part of the employer’s gross receipts.  Click here for more details about service charges vs. tips.

How can I learn more?  WRA has put together Q & A’s to cover some of the basics about tipped employees.  In addition to DOL pitfalls, we’ve included information on avoiding IRS problems.

Feel free to contact the WRA Hotline Team with your questions or refer to the information available to you in the HERO manual and in the Members Only section of the WRA website.  Easy to follow guidelines on laws and regulations are available on topics like overtime, tips and taxes, minimum wage and state vs. federal laws. 

The National Restaurant Association’s Legal Problem Solver also has valuable information about many important employment and operational issues. Visit the NRA website.

The DOL has a variety of resources for both employers and employees about the FLSA. 
This link
describes what's available.

Please call the WRA Hotline Team at 800-589-3211 if you have questions.


Overtime
Third in a series of labor law-related alerts from WRA – sent 4/30/13

Avoiding Department of Labor Problems: Overtime

One of the most common refrains you’ll hear about Department of Labor (DOL) audits and lawsuits is overtime violations.  Typical problems include misclassifying workers, letting employees waive their overtime pay, refusing to pay overtime and incorrectly calculating overtime for tipped employees.

You can’t afford to get this wrong!

Straight from DOL

Characteristics

An employer who requires or permits an employee to work overtime is generally required to pay the employee premium pay for such overtime work [this would apply to unauthorized overtime as well].

Requirements

Unless specifically exempted [more on exempt vs. non-exempt employees below], employees covered by the FLSA must receive overtime pay for hours worked in excess of 40 in a workweek at a rate not less than time and one-half their regular rates of pay. There is no limit in the FLSA on the number of hours employees aged 16 and older may work in any workweek. The FLSA does not require overtime pay for work on Saturdays, Sundays, holidays or regular days of rest, as such.

The FLSA applies on a workweek basis. An employee's workweek is a fixed and regularly recurring period of seven consecutive 24-hour periods. It need not coincide with the calendar week, but may begin on any day and at any hour of the day. Averaging of hours over two or more weeks is not permitted. Normally, overtime pay earned in a particular workweek must be paid on the regular pay day for the pay period in which the wages were earned.

The regular rate of pay cannot be less than the minimum wage. The regular rate includes all remuneration for employment except certain payments excluded by the FLSA itself. Payments which are not part of the regular rate include pay for expenses incurred on the employer's behalf, premium payments for overtime work or the true premiums paid for work on Saturdays, Sundays and holidays, discretionary bonuses, gifts and payments in the nature of gifts on special occasions and payments for occasional periods when no work is performed due to vacation, holidays, or illness.

Exempt vs. non-exempt

FLSA provides an exemption from both minimum wage and overtime pay for employees employed as bona fide executive, administrative, professional and outside sales employees (and certain computer employees). To qualify for exemption, employees generally must meet certain tests regarding their job duties and be paid on a salary basis at not less than $455 per week. Job titles do not determine exempt status. In order for an exemption to apply, an employee’s specific job duties and salary must meet all the requirements of the Department’s regulations.

Note from WRA: Keep in mind that salaried employees who work more than 40 hours a week would still be owed overtime unless exempt as an executive, administrative or professional worker as defined by law. Just saying that your employee is salaried doesn’t mean that he/she actually fits the criteria.  Some employers mistakenly believe that labeling an employee salaried means no overtime.  Not true! DOL or Wisconsin’s Department of Workforce Development (DWD) could find that your employee is improperly classified. Click on the link to Q & A’s to learn more about exempt vs. non-exempt or contact the WRA Hotline at 800-589-3211. 

How can I learn more?

WRA has put together Q & A’s to cover some of the basics about overtime.  Look for more in-depth info in upcoming emails as part of this DOL alert series.  Upcoming topics include the tip credit and tip pools.

Feel free to contact the WRA Hotline Team with your questions or refer to the information available to you in the HERO manual and in the Members Only section of the WRA website.  Easy to follow guidelines on laws and regulations are available on topics like overtime, tips and taxes, minimum wage and state vs. federal laws. 

The DOL has a variety of resources for both employers and employees about the FLSA and overtime.  This link describes what’s available.

Please call the WRA Hotline Team at 800-589-3211 if you have questions.


Minimum Wage
Second in a series of labor law-related alerts from WRA – sent 4/8/13

Avoiding Department of Labor Problems: Minimum Wage

One of the most fundamental jobs of the Department of Labor (DOL) is making sure that all eligible employees are earning the federal minimum wage.  The restaurant industry has been targeted by DOL, leading to a dramatic increase in audits and lawsuits.  Minimum wage violations have been a common problem in these audits and have meant huge fines for many employers.

Wisconsin’s minimum wage rate has matched the federal minimum wage rate of $7.25 per hour since July of 2009, but there is still confusion out there.  WRA’s Hotline Team often gets questions about minimum wage, the opportunity wage, the (now defunct) Wisconsin minor minimum wage and the tip credit.

Remember, all Wisconsin restaurants must comply with Wisconsin state labor laws.  Restaurants meeting certain criteria are covered by the Federal Fair Labor Standards Act (FLSA) and must obey federal laws in addition to state laws.  If the two laws differ, the business must follow the stricter (or the law more favorable to employees) of the two. 

Here are the basics

Non-tipped employees:

General minimum wage          $7.25/hour

Opportunity minimum wage    $5.90*/hour

* The federal opportunity wage rate is $4.25. Wisconsin’s opportunity wage rate of $5.90 is higher and therefore more favorable for the employee and is the rate that should be used.

Since July, 2009 there is no longer a separate minor minimum wage in Wisconsin. The opportunity wage of $5.90 for eligible employees remains in effect.  After the opportunity wage period of 90 consecutive calendar days on the job, all employees regardless of age must be paid the full minimum wage of $7.25. An opportunity employee is an employee who is not yet 20 years old and who has been in employment status with a particular employer for 90 or fewer consecutive calendar days from the date of initial employment.

Tipped Employees:

For employees age 20 or older and employees age 14 - 19 (after opportunity wage)                           
  $2.33/hour (base wages)

+$4.92/hour (tip credit)
  $7.25/hour                             

For new hires under age 20 (using opportunity wage)                                                                          
  $2.13*/hour (base wages)

+$3.77/hour (tip credit)
 
$5.90/hour

*The federal cash wage for tipped employees is $2.13. Wisconsin’s rate of $2.33 is higher and therefore more favorable for the employee and is the rate that should be used AFTER opportunity wage period.  ($2.13 can be used during the opportunity wage period.)

How to avoid a common – and costly DOL violation

In accordance with the FLSA, an employer of a tipped employee is required to pay no less than $2.33 (using Wisconsin’s higher rate instead of federal rate of $2.13) per hour in direct (or cash) wages, provided that amount plus the tips received equals at least the minimum wage of $7.25 an hour.  If an employee’s tips combined with the employer’s direct (or cash) wages do not equal the minimum wage, the employer must make up the difference. (This can be calculated over the pay period, not per shift).

Don’t dip below minimum wage

Taking deductions for walk-outs, breakage or cash register shortages that reduce the employee’s wages below the minimum wage is another pitfall to avoid. 

How can I learn more?

WRA has put together minimum wage Q&As to cover some of the basics about minimum wage. Look for more in-depth info in upcoming emails as part of this DOL alert series.  Upcoming topics include the tip credit, overtime and tip pools.

Feel free to contact the WRA Hotline Team with your questions or refer to the information available to you in the HERO manual and in the Members Only section of the WRA website.  Easy to follow guidelines on laws and regulations are available on topics like overtime, tips and taxes, minimum wage and state vs. federal laws.  The DOL will not accept the excuse “I didn’t know about that law.”

The DOL has a variety of resources for both employers and employees about the FLSA and minimum wage.  This link describes what’s available.

Please call the WRA Hotline Team at 800-589-3211 if you have questions.


Avoiding Department of Labor Investigations, Audits and Lawsuits
First in a series of labor law-related alerts from WRA – sent 2/28/13

Avoiding Department of Labor Investigations, Audits and Lawsuits

Consider this official notice that our industry AND your restaurant are under heightened scrutiny!

The restaurant industry has been put on warning by the federal Department of Labor (DOL)!  Recently there has been a significant increase in wage and hour audits and lawsuits stemming from Fair Labor Standards Act (FLSA) violations.

It’s happening here in Wisconsin

Several restaurants in Wisconsin have recently come under investigation and are facing very expensive settlements and fines.  Earlier this month The Milwaukee Journal Sentinel featured an article about a Milwaukee-area restaurant that has agreed to pay $116,102 in back wages to 38 employees after an investigation disclosed violations of the FLSA.  The restaurant had failed to compensate workers with overtime pay correctly and also failed to record all hours worked by employees.

In an announcement from the DOL about that case, Theresa Walls, director of the Wage and Hour Division’s Minneapolis district office was quoted, “We are committed to protecting vulnerable workers employed in the restaurant industry and will vigorously pursue violators to ensure compliance with the law.”

Putting lawsuits in your employees’ hands

You should be aware of the “Bridge to Justice” program that the DOL uses to connect workers with an American Bar Association approved attorney referral system.  You can read more about it on the DOL website, but essentially it broadens the reach of the Wage and Hour Division.  Unable to remedy every violation of the FLSA and the Family and Medical Leave Act (FMLA), Congress empowered DOL by giving workers the right to pursue their own private litigation (private right of action) under these laws. In the past, for those workers it did not have the capacity to assist, the Wage and Hour Division simply informed the workers that, even though they may have valid claims under the FLSA or the FMLA, the Wage and Hour was declining to pursue their claims further and that they have a private right of action under the applicable statute.

This program connects these workers to a local referral service that will, in turn, provide the workers with access to attorneys who may be able to help.  As of December 2010, when FLSA or FMLA complainants are informed that the Wage and Hour Division is declining to pursue their complaints, they are given a toll-free number to contact an attorney referral system and determine whether to retain a qualified private-sector lawyer.  In addition, the complainant will now be provided information about the Wage and Hour Division’s determination regarding violations and back wages owed. This information will be given to the complainants in the same letter informing them that the Wage and Hour Division will not be pursuing further action, and will be very useful for attorneys who may take the case.

Typical pitfalls

Now that we are considered a “high risk industry” for FLSA violations you should be aware of the most common violations:

  • Paying employees flat salaries for all hours worked without overtime pay
  • Failing to combine hours worked at multiple locations for overtime purposes
  • Paying incorrect overtime rates to tipped employees
  • Making illegal deductions from employees’ wages
  • Failing to keep accurate records of the hours employees work
  • Misclassifying restaurant workers as independent contractors in order to avoid FLSA requirements

WRA has put together a few Q & As to cover some of the basics about the FLSA. Look for more in-depth info in upcoming emails as part of this DOL series.  The next email will focus on the ins and outs of overtime.  Other topics that will be addressed include the tip credit, tip pools and minimum wage.

How can I learn more to protect my business?

Feel free to contact the WRA Hotline Team with your questions or refer to the information available to you in the HERO manual and in the Members Only section of the WRA website.  Easy to follow guidelines on laws and regulations are available on topics like overtime, tips and taxes, minimum wage and state vs. federal laws.  The DOL will not accept the excuse “I didn’t know about that law.”

The DOL has a variety of resources for both employers and employees about the FLSA.  This link describes what’s available.

Please call the WRA Hotline Team at 800-589-3211 if you have questions.

 
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