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Q & A: Overtime

Q: I don’t understand the difference between exempt and non-exempt employees. What do I need to know?

A: There are two basic types of employees you may have in your operation:

Exempt employees — Exempt employees do not have to be paid time-and-a-half (they are “exempt” from overtime) when they work more than 40 hours per week. There are specific criteria an employee must meet to be considered exempt. Simply receiving a salary does not automatically make an employee exempt.

Non-exempt employees — Non-exempt employees must be paid time-and-a-half when they work more than 40 hours in one week. The vast majority of restaurant employees are non-exempt. All hourly workers are non-exempt and must be paid overtime and some salaried workers are non-exempt and must be paid overtime.

Who qualifies as an exempt employee?
Job titles do not determine exempt status.  To qualify as exempt, employees must 1) be paid on a salary basis, 2) earn at least $455 per week, and 3) meet certain criteria to be considered either an “executive,” “administrative” or “professional” employee. The criteria for those categories are described below:

“Executive” (managerial) employees This is the most likely category into which a restaurant employee may fall. The criteria for these employees are:

  1. The employee’s primary duty is management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof; and
  2. The employee customarily and regularly directs the work of two or more other employees or their equivalent (for example, four half-time employees); and
  3. The employee has the authority to hire or fire other employees, or his or her suggestions and recommendations as to the promotion, hiring, advancement or any other change of status of employees are given particular weight (not necessarily the final decision-maker).

“Administrative” employees This may include employees who are executive assistants, accountants, human resource employees or public relations account executives. The criteria for these employees are:

  1. The employee has a primary duty of performing office or non-manual work directly related to the management or general business operations of the employer of the employer’s customers (the employee may not devote more than 40 percent of his or her time to activities that are not directly and closely related to the exempt work); and
  2. The employee exercises discretion and independent judgment with respect to matters of significance.

“Professional” Employees There are two sub-categories here: “learned” professionals and “creative” professionals. Chefs, depending on the circumstances, may be included in one of these categories.

“Learned” professionals are those with advanced knowledge in a field of science or learning (for example, law, medicine, accounting), as opposed to the mechanical arts or skilled trades where the knowledge could be of a fairly advanced type, but is not in a field of science or learning. Chefs, such as executive chefs or sous chefs, who have attained a four-year specialized degree in a culinary arts program, may meet the “learned” professional definition.

“Creative” professionals are those whose primary duty is the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor. A chef may meet this definition if he or she is regularly creating or designing unique dishes and menu items. The U.S. Department of Labor intends this exemption to only apply to “original” chefs, such as those at fine dining establishments.

Determining an employee’s proper designation is a very gray area. Making sure your chef has the proper designation can be especially tricky. Please call the WRA Hotline at 800-589-3211. The following website from the U.S. Dept. of Labor may also be helpful: http://www.dol.gov/whd/overtime_pay.htm.

Very few restaurant employees legitimately qualify to be exempt from overtime
WRA highly recommends consulting an employment law attorney if there is any question on an employee’s proper designation (exempt vs. non-exempt).

Scheduling, tardiness, and sick time in regard to exempt employees
The assumption with exempt employees is that you are paying them a certain salary to perform a certain job – not work a certain number of hours in a week. In that light, the law makes you treat exempt, salaried employees differently than non-exempt, hourly employees.

If an exempt employee is late to work, leaves early or misses part of the work day for any reason, you may discipline the employee if they’ve broken your attendance policy, but you cannot deduct any portion of the employee’s salary.

If an exempt employee misses a full day for reasons other than sickness or disability, a full day’s salary may be deducted from the employee’s paycheck. If an exempt employee misses a full day due to sickness or disability a full day’s pay may be deducted but only in conjunction with a bona fide sick pay policy. However, in either case, you cannot dock any pay if the employee is there for even the smallest portion of the day.

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 (for more information on exempt vs. non-exempt employees contact the WRA Hotline at 800-589-3211). Just saying that your cook is salaried doesn’t mean that he 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.

Q: One week my line cook worked overtime, the next week he worked less than 40 hours. Can I average out an employee’s hours over our two week pay period?

A: Absolutely not. The law requires employers to pay overtime when more than 40 hours in a week are worked by a non-exempt employee. It just takes one complaint to trigger a wage and hour audit. If you are found to owe unpaid overtime, you will have to pay back wages for every employee who worked more than 40 hours in a week during the last two years (while facing additional penalties). Employees cannot waive their rights to overtime! Any agreement to waive overtime pay is not legally valid.

Here’s more about overtime: Employees must be paid one and one-half times their regular hourly wage for all hours over 40 worked in a designated work week. Employers must determine overtime owed for each seven day period, regardless of the length of the pay period used by the individual business. It is up to the employer to determine what the designated work week is (i.e. Sunday through Saturday; Wednesday through Tuesday). But the employer must use that designation consistently. Hours worked in separate weeks may not be averaged. If an employee worked 35 hours in the first week and 45 hours in the second week of the pay period, the employee would be due 5 hours of overtime pay for that pay period. Please note that paid leave time does not count for the 40 hours threshold.

WRA can help you by sharing the formula to properly calculate overtime for tipped employees. Contact the Hotline Team.
If an employee puts in unauthorized overtime you may discipline the employee for breaking your policy, but you cannot deny the overtime pay. To help avoid this problem you can use the “Employee Overtime Authorization” form in your HERO manual (it’s also available on the Member’s Only section of the WRA website www.wirestaurant.org).

Q: My employee said I don’t have to pay him overtime; he just wants to work extra hours. Can I do this?

A: No way! The law requires employers to pay overtime when extra hours are worked. He might be content to work without overtime now, but what happens in the future when he gets mad at you, perhaps for a totally unrelated matter and decides to make a report to the federal or state labor agencies? Remember, any agreement to waive overtime pay is not legally valid.

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Wisconsin Restaurant Association • 2801 Fish Hatchery Rd. • Madison, WI 53713 • Tel: 608.270.9950 • Toll Free: 800.589.3211 • FAX: 608.270.9960