Do you know all of the restaurant labor laws in your state? And when I say all of them, I mean all of them.
You know very well that running a successful restaurant is no cakewalk; it requires both good taste and business acumen. Restaurant labor laws and their complexity don't do much to ease this task, do they?
Equally, with tax credits & tip outs, the industry is regulated unlike any other. As such, restaurateurs must pay careful attention to restaurant labor laws, which are specific and vary state-by-state.
Here are some rules-of-thumb for compensating servers and an overview of the waiter and waitress laws you should be adhering to.
1) First Things First: Waitstaff Deserve Fair & Equal Treatment
(Not so) fun fact: Restaurants are among the most frequent defendants in employment discrimination lawsuits.
“Restaurant owners should be aware of the federal, state, and local laws surrounding minimum wage and overtime pay for workers,” says Shira Forman, employment attorney at Sheppard Mullin Richter and Hampton, LLP in New York City. “Among the most important laws to be aware of is the Fair Labor Standards Act, which governs these and other important issues concerning employees.”
“Owners should be very familiar — and familiarize their staff — with the federal, state, and local laws that forbid discrimination in the workplace,” she cautions.
"Restaurants are among the most frequent defendants in employment discrimination lawsuits."
Forman encourages restaurants to distribute an employee handbook that sets out its anti-discrimination and anti-harassment policies. “Restaurants should also provide periodic training to employees regarding discrimination and harassment and the importance of reporting discriminatory activity to supervisors.”
But all businesses deal with these issues. It’s the restaurant-specific issues — especially those surrounding the all-important tips — that present truly significant challenges for restaurant owners.
2) Tips Belong to the Workers, Not the Restaurant
It’s not at all uncommon for restaurant servers and bartenders to earn more money in tips than hourly wages. While those tips do belong to employees, there are some complexities involved.
Consider that a restaurant patron tips her waiter $10. The tip belongs to that server, busser, etc.
However, the total tip does not always equal $10.
Perhaps the customer paid by credit card, which means the restaurant must pay a processing fee for that transaction. Does that money come out of your pocket, or your server's pocket?
This law varies by state, so if you currently deduct processing fees from your servers' tips, it would be worthwhile to look into your state's law on the subject.
Some states, like Illinois and New York, permit owners to put a portion of the tip toward that fee. Other states, like California and Colorado, require the restaurant to pay the processing fee so the employee can get the full tip indicated by the customer on the credit card receipt.
There's also an ethical debate on this issue: even if it is legal to reduce your servers' tip amounts, do you want to take more away from those making less than minimum wage?
No matter the restaurant labor laws in your state or your own policy, you should be up front with your staff on this issue so they can come to understand what they should expect.
3) Automatic Gratuities & Service Fees Might Not Get to the Staff
Does your restaurant have a automatic gratuity/service fee for parties that split checks or have a group larger than six people?
When a restaurant adds a that mandatory service charge to a bill (which is not uncommon for large dining groups, private parties, and catered events), the customer typically perceives it as the tip.
In fact, under federal law (and in most states), it is not a tip.
Whether or not the customer intends for that mandatory charge to go to the server, the restaurant has the right to keep it. The law views this service charge as a contract between the business and its patrons. The wait staff has no legal right to that money.
It is, however, considered good business to give such gratuities to the wait staff.
Some states are making sure customers understand that the restaurant has the right to keep the money for itself. Other states, such as Washington, require businesses to print on menus or receipts how much, if any, of a mandatory service charge goes to the server.
We're all for full disclosure - if your patrons knew about the restaurant labor laws and that this service fee did not fully go to their server, they may adjust their tip amount accordingly.
4) Tip Credits Lower the Minimum Wage
You know the tip credit debate very well - either you love it or you hate it. (If you don't know about this topic, check out our blog post here).
Under federal law, restaurant owners may pay tipped employees less than the minimum wage if the employees receive enough in tips to make up the difference.
The employer subtracts this tip credit from the minimum wage (as indicated by federal or state law). If the employee does not earn enough in tips to bring his or her adjusted wage to at least the minimum, then the employer must pay the difference.
As usual, this restaurant labor law varies based on your state. Not all states permit restaurants to take a tip credit.
A restaurant owner should never pay a lower minimum wage without first investigating what’s allowed in their state.
5) Server Tip Pooling
Many states permit employers to establish an appropriate “tip pooling” arrangement, whereby all employees subject to the pool must chip in a portion of their tips. The pool is then divided among its participants. An employee can be required to contribute to the pool but cannot be required to pay any part of his tips that the employer is counting toward minimum wage.
As the employer, you cannot collect money from this tip pool — the tips may be divided only among certain employees (servers and bartenders, for example).
Tip pools are not permitted everywhere, which is why, when setting up your business, it’s important to consult with an attorney or legal expert who knows your state and local restaurant labor laws.
Waiter and Waitress Laws to Follow
With all the licenses, permits, regulations, rules, and codes, it's safe to say that restaurant labor laws don't make the job of running a restaurant much easier.
But it's important to follow these rules - not just because you're legally required to, but because a productive and satisfied staff can enhance your business, define your guest experience, and keep your restaurant afloat.