Costly HR payroll mistakes restaurants make

Restaurants in general continue to make costly HR payroll mistakes that leave them exposed to claims by plaintiffs’ lawyers, and increasingly U.S. Immigration and Customs Enforcement (otherwise knows as ICE). These mistakes are easily avoidable by making some easy to implement policies and procedures.

hr payroll classificationFirst of these costly mistakes is the misclassification of employees as exempt, mainly to avoid paying overtime. Cooks, wait staff, and even assistant managers rarely meet the legal requirement required by the IRS to exempt them from overtime laws. Yet, due to the long hours required of these jobs and the temptation to skirt overtime pay an owner will simply misclassify one of these positions as exempt.

We’ve even come across restaurant owners who tell us- My Executive Chef is an artist, and therefore qualifies under the “creative professional exemption”. To this we point out that the Executive Chef must (1) possess a four-year specialized academic degree in a culinary arts program; (2) regularly design unique dishes and menu items (using invention, imagination, originality or talent); (3) be paid on a salary basis of at least $455 per week; and (4) they cannot primarily perform routine mental, manual, or physical work (e.g., routine cooking and food preparation) to qualify. When analyzed closely with this criteria, many Executive Chefs simply fail to meet one or more of the requirements for the exemption.

You cannot simply rely on job titles like “Executive Chef” to determine a classification. To see the full list of exemptions, and the requirements for each- you should visit here and get your information straight from the Department of Labor.

Overtime Pay

Secondly, let’s talk about overtime- always the elephant in the room. Whenever hourly (non-exempt) employees work over 40 hours in a given week, you must pay them time and a half. Sounds simple enough right? What if you are a restaurant in Florida where your tipped employees $5.23 an hour in cash wages, do you pay overtime at $7.85 ($5.23 X 1.5)? This is where many restaurant owners get tripped up.

To properly calculate the overtime for a tipped employee in Florida, you must do the following:

  1. Break out Florida’s combined minimum wage. So, you have $5.23 in cash wages, and $3.02 which is Florida’s maximum tip credit for 2018. Combined, these two add up to Florida’s minim wage of $8.25.
  2. Multiply the time and a half by Florida’s combined minimum wage, so 1.5 X $8.25 = $12.38
  3. Now subtract the tip credit of $3.02 from this overtime calculated rate of $12.38 to get the tipped credit overtime rate of $9.36- and there you have it.

Every hour your tipped Florida employees work in a given week over 40 should be paid at $9.36. Of course, paying your tipped employees more than the $5.23 minimum would impact your tip credit and thus the entire calculation. You’d end up paying your employee more than the $9.36 calculated above.

Lastly, incomplete or incorrect hiring paperwork can come back to bite you in the rear as a restaurant owner. You should have job descriptions, employment applications, a completed and signed W-4 form from the IRS, and a completed and signed I-9 form and verified identification for all of your employees. We also recommend using the government’s E-verify system to verify that your employees can legally work in the U.S.- you can sign your business up to use the system by clicking here.

As always, should you have any questions or need any help in changing your HR payroll policies or procedures to avoid any of these costly mistakes- don’t hesitate to pick up the phone and call our HR team at (305) 273-4066. Thanks!

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Hiring an Intern: What you need to know

The role of the intern is not what it used to be. Internships these days require more than making a Starbucks run or picking up the boss’ dry cleaning.

Establishing an internship program is a great way for your company to build a pipeline of talent. However, things are not what they used to be. There are several considerations when creating your internship program.

Under the Fair Labor Standards Act (FLSA), most interns are considered employees subject to the FLSA’s minimum wage and overtime requirements. However, if an intern is not an employee within the meaning of the FLSA, then the FLSA’s minimum wage and overtime requirements do not apply. The Department of Labor uses a Six-Factor Test for Unpaid Interns.

The DOL’s Six-Factor Test for Unpaid Interns

Under the DOL’s test, an employment relationship does not exist under the FLSA if all the following factors are met:

  1. The internship must be like training that would be given in an educational environment;
  2. The internship must be for the benefit of the intern;
  3. The intern does not displace regular employees, but works under close supervision of existing staff;
  4. The employer derives no immediate advantage from the intern, and on occasion, its operations may be impeded;
  5. The intern is not necessarily entitled to a job at the end of the internship; and
  6. The employer and intern understand that the intern is not entitled to wages for the time spent in the internship.

If you’re considering an internship program, consult with legal counsel to ensure compliance with all applicable laws and regulations.

When in doubt, it’s best to classify interns as employees and pay them as required under applicable federal, state, and local law. These days, it pays to be cautious.

If you’re a Miami Payroll Center client, we can provide guidance and best practices with respect to internships. Contact our HR Team at (305) 273-4066.

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Classifying Restaurant Staff

FLSA_logoRestaurant operators already have a dizzying amount to manage without getting bogged down by payroll or wage and hour issues. The Fair Labor Standards Act (FLSA) provides state-specific guidelines for things like minimum wage and employee classification that can make even a seasoned HR professional’s head spin. However, considering that failure to comply can result in substantial fines and penalties (and let’s not forget legal fees!), this is one area you can’t afford to neglect.

According to the Restaurant HR Group, one of the most common wage and hour mistakes in the restaurant industry is misclassification of employees. When you hire or contract with a new worker the FLSA requires that the worker be classified as an employee or independent contractor. The mistake most often made is to classify an employee as a contractor when they are not.

The classification process can be confusing and requires employers to determine whether or not an “employer – employee” relationship exists. But how do you know? Thankfully the IRS provides factors to consider when making this determination based on the ideas of control and independence in the relationship.

According to the IRS, factors that provide evidence of the degree of control and independence fall into three categories:

  1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
  2. Financial: Are the business aspects of the worker’s job controlled by the payer? (These may include things like how the worker is paid, whether expenses are reimbursed, who provides tools/supplies).
  3. Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?[1]

While there may be some indicators that lean toward an employee determination, and others that lean toward a contractor determination, the entire relationship must be considered. One final and often overlooked step in this process is making sure that you document how you arrived at the conclusion.

Another common wage and hour mistake in the restaurant industry happens when classifying employees as either exempt or non-exempt. With new overtime laws effective December 2016, it is important to review current employee classifications to prepare.

According to Eater.com, the average U.S. wage for chefs, head cooks, and pastry chefs is $45,920. For bakers, that number is $26,270. Based on the new Overtime Law, these workers, often salaried and working 50 or more hours per week, will qualify for time-and-a-half pay for their extra hours if employers do not consider options such as adjusting wages or cutting hours.[2]

Based on the new law and the national increase in employee lawsuits related to exempt status, now is the perfect time to review employee classifications. Need some help? Don’t hesitate to reach out- we’re here for you.

 


 

[1] https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee

[2] http://www.eater.com/2016/5/18/11696664/obama-overtime-labor-laws

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Do your managers qualify for their exempt status?

Small business owners without any HR expertise and without seeking outside counsel tend to classify their employees on a whim, believing that granting someone “exempt” status will save the business on overtime expenses. Little thought is given to whether their “exempt” employees actually qualify for their exempt status. This is a problem that unfortunately, many of them don’t realize the severity of until there’s a claim of overtime that allows for them to learn about the qualifications for the exemption. By then, its usually too late and they are well on their way to losing a case.

Salary Test

Generally, an employee is paid on a salary basis if s/he has a “guaranteed minimum” amount of money s/he can count on receiving for any work week in which s/he performs “any” work. To qualify as exempt, employees must generally be paid a predetermined amount over $455 per week each pay period not-dependent on the quality or quantity of the work performed. Starting December 1st, 2016, the salary threshold of $455 a week will rise to $913 ($47,476 per year) making an additional 4.2 million workers eligible for overtime pay.

The Duties Tests

An employee who meets the salary level tests and also the salary basis tests is exempt only if s/he also performs exempt job duties.

There are three typical categories of exempt job duties, called “executive,” “professional,” and “administrative.”

Exempt executive job duties.

Job duties are exempt executive job duties if the employee

  1. regularly supervises two or more other employees, and also,
  2. has management as the primary duty of the position, and also,
  3. has some genuine input into the job status of other employees (such as hiring, firing, promotions, or assignments).

“Mere supervision” is not sufficient. In addition, the supervisory employee must have “management” as the “primary duty” of the job.

Business owners should remember to look at the job duties of the position, not the job title of an employee to determine whether an exempt status applies. The Fair Labor Standards Act (FLSA) also provides certain exemptions for outside sales personnel, certain specialized computer personnel, certain highly compensated employees, certain retail sales employees, and employees covered by the Motor Carrier Act (MCA); Qualifying for these and documenting your rationale can get a little technical, and business owners should consult with an HR or Labor Attorney to ensure the exemption will hold up if ever challenged.

With the new salary threshold becoming effective in a few months, the time is perfect for employers to reevaluate their exempt/nonexempt classifications. If you are concerned that some of your exempt workers may be misclassified, the new regulations will give you another reason to revise their classification without necessarily creating liability for past wages.

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Uber will pay up to $100 million to settle labor suits

Uber has agreed to pay millions of dollars to settle two class-action lawsuits that would have defined the relationship between the company and its drivers.

Uber has survived a major threat to its business model, settling two legal suits brought by drivers who sought to be classified as employees instead of independent contractors.
The ride-hailing firm will pay up to $100 million to the 385,000 drivers, but their employment status will not change.

The class actions were brought in California and Massachusetts. Uber, which is valued at up to $70 billion, is on the hook for a $84 million initial payment, and another $16 million if it goes public.

Source: Uber will pay up to $100 million to settle labor suits

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Misclassifying employees: An expensive proposition

Many small businesses believe they are getting a bargain on expenses and payroll taxes by classifying their employees as independent contractors. Some employers classify independent contractors as such in order to avoid paying overtime. They arbitrarily bring them on-board and figure they can simply provide them a 1099 at the end of the year and be done with it, completely oblivious to the perils to their business down the line.

Classifying employees and determining who is and is not an independent contractor isn’t a choice you are free to make in order to suit your business goals independent of the rules involved. If a hire is misclassified, a company can face hefty financial penalties and even lawsuits.

A number of factors must be taken into consideration in determining whether an individual should be hired as an independent contractor or an employee. It is also important to remember that no single factor is conclusive on its own- it’s sometimes very difficult for the hiring organization to make the correct determination on their own.

FEMA_EmployeesTo determine whether an individual is an employee or an independent contractor under common law, the relationship of the worker and the business must be examined carefully. Generally speaking, an employee is subject to an employer’s control over what work gets done, how it is performed, with what tools and resources, and when the work gets performed. If on the other hand an individual is an independent contractor, the employer has the right to control or direct only the result of the work- and not the means and methods of accomplishing the result.

At Miami Payroll Center, we want to help you ensure you have properly classified your employees and/ or independent contractors. To this end, we’ve created a simple two-page job aid which can help you make the determination. To get this free tool, simply click here and fill out the short form. You will receive an email with a link to download the free job aid.

For more information on the proper classification of your employees, contact us or visit the IRS’s web site here.

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