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Costly HR payroll mistakes restaurants make

hr payroll classification

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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