Restaurant owners and managers, beware: The U.S. government has stepped up its enforcement efforts around federal minimum wage and overtime rules—and the penalties can be steep.
Several El Azteca Mexican restaurants in Wisconsin were recently forced to pay $725,000 after the U.S. district court determined that the establishments did not pay 129 kitchen workers at least the federal minimum wage as well as overtime pay for hours worked beyond 40 per workweek. The $725,000 included $350,000 in back pay, $350,000 in liquidated damages, and $25,000 in civil penalties.
The fines came after the U.S. Department of Labor filed a lawsuit against the chain in early 2015.
"We see far too many violations like these in the restaurant industry, where low-wage workers are particularly vulnerable," U.S. Labor Secretary Thomas Perez said in a news release. "This consent judgment should serve as a wake-up call to restaurant owners and the industry that the U.S. Department of Labor takes these violations very seriously and will continue to use every tool at our disposal to ensure workers get the money they have earned."
Though El Azteca's penalty was large, it's only one among many wage and overtime-related penalties levied against eating establishments over the past couple years. The Labor Department reports that its Wage and Hour Division collected $38 million in back wages owed to nearly 47,000 restaurant workers in fiscal year 2015.
More restaurants could be facing violations in the coming months if the current injunction on new federal overtime rule is lifted and the rule go into effect. As they are currently proposed the new overtime rules may expand overtime pay to millions of American workers. Under the federal Fair Labor Standards Act (FLSA), employees who are classified as nonexempt—which are typically paid hourly and non-managerial—must be paid at least $7.25 an hour and be paid time-and-one-half their regular rate of pay for all hours worked beyond 40 per workweek. State laws may dictate more generous wages.
Also under federal wage and hour law, tipped workers must be paid at least $2.13 an hour directly by the employer and their total wages must total at least the $7.25 federal minimum wage. If their wage does not add up to that federal minimum wage, the employer is required to pay them the difference. State laws may require tipped employees earn a higher wage.
Restaurants can violate the FLSA and specific state labor department rules in many ways. Common violations include:
- Paying nonexempt employees, such as kitchen and wait staff, a weekly salary and failing to pay appropriate overtime wages;
- Failing to ensure that tipped servers earn the applicable direct wages and that total wages equal at least $7.25/hour;
- Not keeping accurate or complete records of hours employees have worked;
- Requiring employees to surrender a portion of their tips to an illegal "tip pool";
- Incorrectly calculating overtime for tipped employees;
- Deducting the cost of uniforms, or other deductions such as broken dishes from workers' pay, reducing their hourly wage below the federal minimum wage; and
- Paying the standard hourly wage for overtime hours rather than time-and-a-half the employee’s regular rate of pay.
Labor Department officials say that restaurants often rely on students, temporary, and foreign workers who are often unfamiliar with wage and hour laws, and are thus more "vulnerable to exploitation."
Restaurant owners and managers who want to prevent scrutiny over their wage and hour practices should make sure to fully familiarize themselves with the federal laws, as well as the applicable minimum wage laws for both tipped and non-tipped employees in their state. Local laws may also apply, with coverage that may be beyond the federal or state rule. It's imperative that employers keep detailed records in compliance with the Fair Labor Standards Act (FLSA), along with state and local laws that include records of all hours worked by each employee —and how much they have been paid.
Are you a restaurant owner who is uncertain about how to stay in compliance? Read this guide on addressing restaurant payroll challenges.