Our good friend Compliance (once only a large restaurant group issue), has invited himself to dinner at our independent operators’ party and taken a permanent seat at the head table. Aggressively starting 24 months ago we’ve been witnessing a plethora of wage and hour as well as benefit laws coming into effect each year. Every restaurant is tasked with the challenge of acquiescing to the latest legislation. Legislation I might add, with standards that vary widely between State, Department of Labor and Federal sectors. The new laws have created layers of confusion and uncertainty on several fronts: First, trying to first understand if you are subject to the law or regulation. Second, finding someone to interpret the law or regulation. Finally, how to do it so that the experience for your guest, your team and of course your profit, isn’t compromised.

With this in mind, we’ve taken the top 3 issues that have hit our Compliance Department’s desk and broken them down. The following issues are all industry topics we’ve discussed before; however, in this post, we’re going to address them from a compliance-based management standpoint.

 

1. MINIMUM WAGE & TIP CREDIT

 

There are numerous states currently trying to push the minimum wage up to a certain standard – generally about $15.00. Unfortunately, many of these states do not have a Tip Credit as well. So what does this mean? In other words, paying a cook and a server the same wage without taking into consideration that the server brings home tips in addition to their minimum wage. Frustrated Operators are left trying to level out the disparity and redistribute wages to ensure team members who are not customarily tipped are properly compensated (enter the service charge and tip pool that we’ll hash out later).

Let’s talk about the enormous benefits of servers claiming all of their tips. There are MANY reasons your servers should claim ALL tips taken home. We’ve discussed this as a Best Practice for years, especially with the proportion of credit card tips to cash tips. As an Owner/Operator it’s necessary to place the charge tips on checks. This will directly assist with any issues of under claiming from your team members. When an individual isn’t claiming enough, their minimum wage will get bumped up to meet the Federal Standards, also known as admin wages – a hurdle you simply don’t want to face. It’s more than keeping your eye on the ball as an Owner; it’s an opportunity to educate your employees on the benefits of claiming their tips. We see it time and time again. Servers wrongfully assume “I’m not going to claim a portion of my tips because my paycheck is going to be smaller.” Here’s the problem with that assumption. Just because they have higher cash on hand at the moment doesn’t mean it won’t come back to haunt them when they’re going to try to get a car or a home, or basically anything that requires a FICO score. Say for example, you’re a server who didn’t claim all of your tips and you want to buy a house. When you go to secure a loan at the bank they’ll review your payroll histories to see how much money you’ve made over a certain period of time. Uh oh… it’s not going to look like you make as much money as you’re actually taking home. There goes that loan. Hence, one of the many reasons it’s extremely important for Operators to step in and watch the amount of claimed tips to ensure it’s being credited appropriately.

 

2. SERVICE CHARGES

 

“An enigma wrapped in special sauce.” That’s how our Director of Compliance, Brian Smith, likes to describe a Service Charge. It’s not a tip so it can’t bring your employees up to minimum wage. Rather, it’s part of the bill (most states charge sales tax on it) and it’s exactly how Operators are trying to collect the funds to redistribute to those non-tipped employees. We’ve spoken about these Service Charges (the guest perception etc.) in depth in our previous Podcasts. From a compliance standpoint, the biggest issue with a service charge is that it’s part of the overtime calculation and it will increase that overtime rate dramatically if a team member has logged any overtime hours. The impact that the service charge has on the overtime rate is astronomical because the calculations have gotten so convoluted. We’ve witnessed this first-hand. Let’s say you have someone who’s working two job codes where one is tipped, and the other is non-tipped and they hit Over Time with that non-tipped job code. We’ve seen it, based on the calculation and the added service charge, where the overtime calculated rate can be LESS than the non-tipped based wage. Overtime is calculated at 1.5 x regular rate, and Regular Rate is calculated by all payments to the employee then divided by the number of hours worked. With employees working any combination of tipped versus non-tipped job codes, the point of sale system isn’t even coming close to accurately measuring what’s happening in these complicated situations.

At this point I’m sure you’re scratching your head thinking, “How do I even begin to manage those situations?” Here it is folks, my shameless plug: Find a restaurant accounting system, RSI, where the payroll system has been specifically built to accept those corrections. This ensures that from a compliance perspective, both you (the Operator) as well as your staff are constantly in compliance. More important you’re notified when situations arise that have caused you to fall out of compliance. It is mind boggling and quite frankly stupid to try and slide the timetable back at the end of each period and review each employee’s payroll with the intent that you will validate that their tips brought them up to minimum wage. It’s 100% reactionary. It also opens you up for adjusting someone’s claimed tips or hours. A practice in today’s world where everyone has a cousin who is a wage and hour attorney looking to file a class action lawsuit on your restaurant. Remember this is yet another non-revenue producing activity that should be left to the technology and industry experts that can handle it for you.

 

3. TIP POOLING

 

Keeping in style with the rest of compliance legislation, tip pooling, is unfortunately not as straightforward as one would think. No surprise there. It has become a raging hot topic especially in the states that do not allow a Tip Credit. You may recall that the Ninth Circuit got involved and stated that an operation can’t pool and then include non-customarily tipped employees as part of the pool (that’s back of the house for those of you playing the home game). Let’s dig a little deeper into this, what then, does the DOL describe as a “non-customarily tipped” employee? Here’s where it gets fun ladies and gents. Brian, our Director of Compliance came across a client a few weeks back inquiring about the position of their Expeditor. He did a little research and reviewed the DOL’s Field Handbook (a little light, fun reading for his weekend) and here’s what he found: The DOL does not say that an Expeditor is a customarily tipped employee; however, they also do not say that an Expeditor isn’t a customarily tipped employee. Yep. It’s all grey area and in more cases than not, that’s exactly what Brian’s been finding across the board. It could be that certain positions, such as an Expeditor, may have a different function from one restaurant to another – leaving the door open for interpretation within certain job codes. This isn’t as simple as Googling something, reading it and complying with the law. It’s both your job title AND function within the restaurant. It would behoove Owner/Operators to align themselves with experts who can dissect the law and provide knowledgeable, educational explanations and feedback from their research.

Attempting to navigate through the myriad of compliance related laws and regulations is mind-numbing and ultimately places you at risk of losing your business. Utilize the resources that are available to you and make sure that your strategies for managing your organizations’ compliance are: 1. Well researched by someone other than yourself and Google 2. Continuously reviewed between what you’re trying to do and what you’re actually doing by someone other than yourself and Google. To learn more about compliance and a special bonus topic on PTO (Paid time off) with the no “one size fits all rule” that comes along with it, check out our most recent Operating a Profitable Restaurant Podcast episode.