Four wage-and-hour mistakes cost a company well over $100K. Here’s how you can avoid them.


Earlier this month, the U.S. Department of Labor announced that an investigation into a Japanese restaurant had uncovered violations of federal wage and hour laws, resulting in 75 servers, sushi, and hibachi chefs not receiving all of their legally earned wages.

The final bill was $171,834.

That’s a lot of toro and high-end sake.

The investigators concluded that the restaurant made four mistakes. I’ll identify each one below and suggest how the employer could have avoided them.

(Note: There may be additional issues under state law. So, your mileage may vary there too.)

1. Improper deductions for uniforms.

The Fair Labor Standards Act does not allow uniforms to serve as a surrogate for wages. While the FLSA does not prohibit an employer from requiring employees to pay for uniforms, an employer may not take credit for such items in meeting their obligations toward paying the minimum wage or overtime.

If the employer requires the employee to bear the cost, it may not reduce the employee’s wage below $7.25/hour. The cost cannot reduce overtime compensation either.

The restaurant deducted the cost of uniform aprons and name tags from workers’ cash wages, which sometimes caused their hourly wages to fall below the federal minimum wage.

The Department offers two examples of wage deductions for uniforms.

Suppose a minimum-wage earner receives $7.25/hr. In that case, the employer may not deduct the uniform cost, nor may the employer require the employee to purchase it. However, if the employee were paid $7.75 per hour and worked 30 hours in the workweek, the employer could legally deduct up to $15 ($.50 X 30 hours) from the employee’s wages to pay for the uniform.

2. Not observing the salary-level test for exemptions.

There are several duties-based exemptions from the minimum wage and overtime requirements of the FLSA. Most have at least one thing in common: the employee must receive at least $684 in salary each week.

The Department’s investigation concluded that the employer failed to pay sushi chefs overtime when their salaries did not meet the minimum salary-level requirement.

(There were also issues with the sushi chefs performing the requisite duties to qualify for an exemption. I’m assuming the executive exemption.)

Ensure you are paying your exempt workers at least $684 per week to comply with the FLSA.

3. Not paying OT properly

The FLSA allows employers to take a tip credit toward the employee’s wages to meet minimum wage requirements.  The tip credit is an amount the employer can count from tips received by the tipped employee and credit.

The tip credit claimed — never more than $5.12 per hour — cannot exceed the amount of tips received, even if the employee earns more than $5.12 per hour in tips. That’s easy. Here’s the kicker: the tip credit claimed during overtime hours may not differ from the credit claimed for straight-time hours.

The Department concluded that the restaurant calculated the overtime rate on the cash wage of tipped employees rather than the federal minimum wage as required under the FLSA.

Check out these examples if you want to calculate OT for tipped employees correctly.

4. Invalid tip pool.

The FLSA contains some persnickety rules about tip pools. Tip pooling is basically where tipped employees share their tips. Employers cannot take a cut. Managers and supervisors can never participate in tip pools either. Back-of-the-house folks like cooks and dishwashers can be in the tip pool. However, employers must pay tipped employees the full minimum wage and not take a tip credit.

The Department found that the restaurant collected 20 percent of server tips and distributed them to sushi and hibachi chefs, bussers, and to-go hosts who did not directly interact with customers. The result was an invalid tip pool, presumably because the employer took tip credits.

Depending on the nature of your business and the state(s) in which you operate, there may be different wage-and-hour requirements. So, I intend this post (as always) for information purposes only. If you have specific questions, call a lawyer.

Or pay the Department of Labor after they audit you. The choice is yours.

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