Halloween is quickly approaching, and new statutory and regulatory requirements have created a matrix of spooky wage and hour compliance demands on QSRs. If you attended last month’s QSR Evolution Conference in Atlanta, you may have heard some of the warnings in our panel, but for those of you who missed it, please take a few minutes to put these wage and hour compliance issues on your radar so your business can avoid a scary encounter with some of the federal and state agencies stepping up enforcement efforts in the hospitality industry. 

Hiring Minors: Lurking Child Labor Violations

The Department of Labor (DOL) Wage and Hour Division is focusing enforcement efforts on child labor law compliance, and this is something for QSR employers to watch out for in an industry which often relies heavily on workers under the age of 18. 

When hiring minors, there are some high-level things to keep in mind:

  • Under 14:
    • Do not employ UNLESS the employment fits under a prescribed exception.
  • 14 – and 15-year-olds:
    • Can be hired to perform certain tasks, including cashiering, table service, busing, clean-up, and food and beverage preparation. However, they MAY NOT operate broilers, rotisseries, pressure cookers, high-speed ovens, or rapid toasters. Moreover, you must restrict their work to the following limits:
      • Must be outside school hours;
      • No more than three hours on a school day;
      • No more than eight hours on a non-school day;
      • No more than 18 hours a week when school is in session;
      • No more than 40 hours a week when school is not in session; and
      • Between 7 a.m. and 7 p.m., except from June 1 through Labor Day, when nighttime work hours are extended to 9 p.m.
  • 16 – and 17-year-olds:
    • Children in this age range may be employed for unlimited hours in any occupation other than those declared hazardous by the Secretary of Labor (i.e., meat slicers, saws, commercial mixers, etc.). Moreover, they cannot operate motor vehicles involving time sensitive deliveries (i.e. pizza deliveries).

Beware: Strict State and Locality Laws

Some states and localities, however, provide more expansive coverage for minors and limit hours and time frames that 16- and 17-year old minors can work. Several states also require employment certification or permits when employing minors.

A key step toward ensuring compliance is maintaining a clear policy relating to your employment of minors, including detailed managerial training and regular internal auditing. Catching non-compliance before the Department of Labor knocks at your door may save your business from some unintended attention and unwelcome expense.

For a more in-depth discussion of hiring minors, please refer back to our previous column on the subject.

Boo! Don’t Let Your Tip Pool Haunt You.

Many quick-service-restaurant businesses are changing their compensation models to include tip pooling, which is the practice of collecting all or part of the tips into a pool and then redistributing them among tipped employees.  But if not done the right way, an unlawful tip pool can get employers into trouble in the form of drawn-out wage and hour audits, assessment of civil money penalties or a potential lawsuit. In the last few years, there has been a significant uptick in federal and state government agencies’ enforcement of wage and hour laws relating to tip pools and class and collective lawsuits are on the rise.

Here’s the most important tip for QSRs to avoid getting caught in a tip pool mess: managers, supervisors and owners are strictly prohibited from receiving distributions from the tip pool. Unlawful supervisor and manager participation in tip pools has recently been one of the most litigated and enforced rules relating to tip pools.

Beware: The Mixed-Tip- Pool

If you have a mixed tip pool (with back-of-house and front-of-house), make sure everyone is paid at least minimum wage. Otherwise, limit the tip pool to only tipped employees (front-of-house). You should also check the applicable state law, as some states have stricter rules and very specific requirements for tip pooling. And of course, if you have any questions, please consult with your trusted legal counsel.

For a more in-depth discussion on tip pooling, please refer back to our previous column on the topic.

Tip Credit: Fear of the Unknown

On August 26, 2024, the Fifth Circuit Court of Appeals gave hospitality employers some sweet relief from the ongoing compliance headache that was known as the 80/20/30 Rule. But in its wake, employers especially outside of the Fifth Circuit are left to wonder what they can and should do with their tipped employees.

The Fair Labor Standards Act (FLSA) still very much allows employers to take a so-called “tip credit” and pay employees who traditionally receive tips as little as $2.13 an hour, so long as they make at least the standard minimum wage ($7.25 an hour) when tips are factored in. The idea behind this practice is that these employees generally make the majority of their income through gratuities.

The bottom line is that you can still claim a tip credit, but the laws and rules are constantly changing, so here are some things you can do now to reduce your risk and remain in compliance:

  • Pay Minimum Wage: Although there are no perfect solutions, and the law does not require this, paying the full minimum wage reduces your potential risk and can simplify your compliance strategy particularly in a counter service environment where employees may not always be performing “tip producing work.” 
  • Evaluate Your Business: For those employers who rely heavily on the tip credit, management of the process is key to avoiding compliance issues. Evaluate your business and consider the best practices and potential problem areas and put a process in to automatically manage the potential issue.
  • Conduct Regular Training: Train managers on evolving rules relating to tipped employees.
  • Review State Law: Many states have minimum wage rates that are higher than the federal level. Additionally, some states have different requirements relating specifically to tips – with some prohibiting use of the tip credit altogether – so always check state law before doing anything else.

Beware: Failure to Provide Proper Notice

The FLSA requires you to provide notice to your tipped employees before you take the tip credit, and the FLSA has created “Fact Sheet #15” detailing the specific information required for proper notice. And while this notice can be provided orally, we recommend it be given in writing and have each tipped employee acknowledge the notice so you have a record that it was given.

For a more in-depth discussion of the tip credit, please refer back to our previous column on the topic.

If you have any questions about these potential paranormal pitfalls, especially if you operate in multiple states, don’t consult Cousin It; go to your friendly employment lawyer for advice on how to best proceed. 

Courtney Leyes and Emily Litzinger are employment lawyers at Fisher Phillips where they regularly partner with restaurant industry clients to minimize liability and reduce risk with preventative strategies focused on compliance, training, and the implementation of best practices. Having both worked in the industry, they understand the delicate balance restaurant employers face when managing a diverse and ever-changing workforce in today’s complex legal landscape.

Employee Management, Legal, Outside Insights, Story