Restaurants, more than any other industry, are targets for Federal and New York State Department of Labor audits, as well as private wage and hour lawsuits.  Failing to properly pay workers or keep appropriate payroll records can lead to significant financial exposure for employers. The biggest danger areas that result in liability for restaurants include the following:

  1. Failure to Pay Overtime

The single greatest mistake an employer can make is to ignore the obligation to pay its workers overtime.  Non-exempt employees that work over 40 hours in any given work week are entitled to “time and a half” or 1.5 times their regular hourly wage.  The employer and employee cannot make agreements to avoid this payment, and there are no exceptions for non-exempt employees.  If an employee makes a claim for overtime and the employer has failed to pay same, the employer is liable for the wage owed, plus liquidated damages, plus attorney’s fees.  Notably, the employer has little to no defense to this type of claim.

  1. Failure to Pay Minimum Wage/Tip Credits

Similar to the obligation to pay appropriate overtime compensation, the employer is obligated to pay each employee minimum wage for each hour worked. If the employee is a waiter or bartender, they may be entitled to a reduced minimum wage, but wages remain owed.  In addition, there are very specific criteria regarding how the tip credit is applied, and if the employer fails to meet these criteria, it will likely lose the benefit of the tip credit.  Like overtime, the employee would be entitled to the wage owed, plus liquidated damages, plus attorney’s fees.

  1. Time Records/Payroll Statements

In some instances, the failure to maintain proper records and to issue appropriate payroll is as damaging to the employer as the actual failure to pay wages.  All non-exempt employees are to be paid hourly.  The employer must track employee time through some timekeeping device, and the employee’s wage statement must reflect his/her hourly rate and the hours that he/she worked on a weekly basis.  If the employer fails to keep appropriate time records, it leaves the door open for disgruntled employees to claim they worked more hours than actually worked.  This creates litigation, and absent significant proof to the contrary, makes the employer susceptible to substantial liability.  No employer wants to face a wage claim that is based on an employee’s false statement regarding his/her hours, which the employer cannot adequately defend.

  1. Cash Payments

Everyone understands that cash is the business of restaurants.  For decades, employees were paid in cash rather than by check.  Cash payments in and of themselves are not unlawful.  Tax issues aside, the failure to properly document the cash payments is where the inherent risk lies for the employer.  Absent an employee acknowledged document indicating the cash payments, there is no way for an employer in a contested litigation to be able to prove the wages were actually made. Thus, even if the employer elects to pay the employee in cash, the employer must still properly document the payment of these wages to protect itself from litigation.

These are only a few of the danger areas facing employers in the restaurant industry.  There are countless other New York City, New York State and Federal laws and regulations that negatively impact the employer and could lead to potential liability if not followed.

To learn more about these and other regulations, read Important Changes to New York Labor Laws for 2017 That Employers Need to Know.

Concerned about how labor laws may impact your restaurant? Please contact partner, Jeffrey Ettenger at 631-777-2401.