During the last ten years, various types of pay violations have become commonplace among the restaurant industry. Even major players like B&B Hospitality Group and the Altamarea Group failed to shake off these costly lawsuits.

Unfortunately for restaurateurs, such infractions come with potentially devastating consequences. And, yes, in many instances, houses are lost, and personal assets are liquidated. That is the harsh reality for many unsuspecting restaurateurs when violating these laws.

Here at the NYC Restaurant Adviser, we strive to spread awareness of the importance of following these critical wage and hour laws.

While this post delves into some relevant aspects of the law, it is not intended to be exhaustive, but instead intended to give a high-level overview of some common issues of which restaurateurs should be aware.

The Relevant Laws

The wage and hour requirements come from both state and federal laws, which have been on the books for decades. Under the national regime, the US Department of Labor enforces the Fair Labor Standards Act (FLSA), which regulates minimum wage and overtime pay. Likewise, the New York State Department of Labor oversees enforcement of the New York Labor Law (NYLL) across the state, including New York City. Also, the relatively new Hospitality Wage Order sets out a bunch of regulations directed solely at workers within the hospitality industry.

Though the FLSA and the NYLL might overlap, specific claims and/or requirements within the statutes differ.

Here is a list of the most common wage and hour pitfalls that should be avoided at all costs:

Straight salaries should be really, really rare in the hospitality industry

Okay, so you know that sous-chef who’s working for you on an $80,000 a year salary, well, that person should not be a salaried employee, based on the law. According to the Hospitality Industry Wage Order, there is a specific exemption, carved out for salaried employees, from minimum wage, overtime, and spread-of-hours requirements. However, the waiver only applies when particular prongs are met to prove those employees are working in executive, administrative, or professional capacities. As the Wage Order spells out, such individuals must have the managerial or executive responsibilities to hire and fire employees. In addition to having such powers, the individuals in question must meet minimum salary standards, which are updated annually and dependent upon the location and size of the employer. If you’re unsure whether this exemption applies, consult a good employment lawyer and also ask yourself that age-old question: does it quack like a duck?

Not every employee can share tips

Tip pooling is perfectly fine except when managers and non-service employees dip their toes in. Tips are for regular employees, the kind covered by the wage order. Moreover, the kitchen staff, including food-runners, should not share in tips with the waitstaff. The penalties for skimming tips are severe, as the restaurant may have to pay back the tips, pay penalties, and lose the “tip credit.”

You must pay accurate Minimum Wage, Overtime and Spread-of-Hours pay

Unless we’re talking about those rare managers (see above), the vast majority of your employees must be paid on an hourly basis. In turn, they must be paid at least the prevailing minimum wage. Additionally, those employees are also entitled to overtime pay, which is their regular rate for all hours worked up through 40 in one week and 1 ½ times their regular rate for hours over 40. In addition, you must also be mindful of spread-of-hours pay, which applies to any non-exempt employee whose workday is longer than ten hours. Under the law, such employees working over ten hours in a day must receive one hour’s pay at the prevailing minimum hourly wage rate. That extra time is essential to track as New York courts have routinely held that plaintiffs can recover spread-of-hours wages on top of their federal or state minimum wage and overtime claims. Of equal importance, an employer that is taking the “tip credit” must notify tipped employees of its intention to do so when calculating wages paid out.

Uniform Maintenance

Many restaurateurs are surprised that they cannot require their employees to purchase and/or launder their uniforms unless reimbursed for those costs. Under the Hospitality Wage Order, employers must purchase or reimburse employees for required uniforms, and employers must also pay for the maintenance of those uniforms. New York law defines a “required uniform” as “clothing worn by an employee, at the request of the employer, while performing job-related duties or to comply with any State, city or local law, rule or regulation. It does not, however, include clothing that may be worn as part of an employee’s ordinary wardrobe.” Restaurateurs should appreciate this requirement and understand that aggregate violations could become extremely costly.

Off-the-Clock Work

Always ensure your employees are “punched in” before they perform any work. Owners and/or managers must always be aware of the time spent performing tasks while not punched in as this is referred to as “off-the-clock” work and should be avoided like the plague. Besides, make sure to invest in a reliable time clocking system. Of course, digital options are usually the best and most accurate.

Individual Liability, Liquidated Damages and Attorneys fees

If you’re facing a wage and hour lawsuit, you should keep a “good faith” defense in your back pocket. Both the NYLL and FLSA entitle an employee to recover liquidated damages, meaning the amount equal to the principal amount due in unpaid wages unless the employer can show that it did its best to comply with the law and acted in good faith. To meet this burden, the employer must prove that it actively undertook steps to comply with payroll requirements. The troubling news, however, is that the imposition of liquidated damages is still the norm, while a finding of good faith is the exception.