Joy Einstein May 7, 2021 5:07:15 PM 31 min read

6 Restaurant Payroll Mistakes to Avoid in 2021

Restaurants are really being dealt a double whammy this year. Just as you're starting your rebuild and your rebrand and trying to survive, you get hit with all new kinds of regulations and laws that are going into effect to deal both with COVID and with the normal set of laws that seem to always go into effect at the start of a new year.

So, we thought, “Hey, what can we do to try to make the lives of these restaurant owners easier? Why don't we just quickly go through the top six mistakes that restaurants make so that we can check legal entanglements off of your to-do list?”

Today we're going to really focus on the challenges that the restaurants are facing both at the national and local level and some of the changes that have happened and are scheduled to happen. Joy Einstein of Shulman Rogers and Kathy Ogilvie of Restaurant People Cloud team up to deliver their advice to restaurant owners. Read the full post below, or contact us at Restaurant People Cloud for restaurant payroll and HR services.

1. Not Keeping Up With DMV Area Laws

Specific to the D.C., Maryland, and Virginia area, one of the biggest mistakes we see food and beverage operators making is not keeping up to speed with local DMV area laws. Legislators like to legislate around the restaurant industry because it employs so many people, so there are virtually always new laws going into effect. There are many DMV area laws that local restaurants must understand.

Minimum Wage Updates

There are always minimum wage increases being thrown around. As of January 1, 2021, Maryland's state-wide minimum wage went from $11 to $11.75 for employers with 15 or more employees. For employers with fewer than 15 employees, the new rate is $11.60 an hour. The tipped rate stays the same.

In Virginia, Virginia's minimum wage has been $7.25 an hour for years and years and years. That's the federal minimum wage. Not a whole lot of states use it but Virginia does. That's assuming you can find employees to actually work for $7.25 an hour, but that's another story. Virginia, I think, in its wisdom said, "No, maybe the middle of a pandemic is not the right time to substantially raise the minimum wage." And so it's holding off on raising the minimum wage until May, but at that point, it's going to be raised to $9.50 an hour.

Non-Compete Updates

Another big topic is D.C.'s ban on non-competes. So, just as a refresher, Virginia bans non-competes for people who make less than around $60,000 a year. It changes by statute. Maryland bans non-competes for employees who make less than $31,200 a year. And both of those laws affect a lot of people in the food and beverage industry because salaries generally aren't that high in the industry.

Now, D.C. has gone totally rogue and put into place a very broad non-compete ban. So, D.C. says non-competes are banned for nearly all employees. There are a few small narrow exceptions that won't really apply to the food and beverage industry. But the new D.C. law has no salary threshold, so non-competes are now banned, regardless of how much an employee makes.

D.C.'s new law is exceptionally broad because it bans non-competes even for employees working for another employer simultaneously. What we mean by that is a lot of employers will have their chefs sign an agreement that says, "You can't be a chef in our restaurant and simultaneously work for another restaurant on the side." 

And this actually does come up in my practice a fair amount. Let's say that you are a chef at Roses Luxury or Pineapple & Pearls and other D.C. restaurants are going to want you and some of them will approach and say, "Hey, can you be our creative consultant? Can you just help us come up with a couple of restaurant item menus?" 

Under D.C.'s new law, an employer could not prevent their chef from doing that. So, it's kind of shocking in the breadth and depth of D.C.'s new non-compete ban. Though it is not likely to go into effect until fall 2021, there is a grandfather provision in the law that says that pre-existing non-competes are grandfathered in. So they will continue to be in effect. Our piece of advice for all of the D.C. food and beverage operators out there is that get your non-competes in order now. Get your chefs and whoever else you want to sign them, sign them now because pre-existing non-competes will continue to be honored.

D.C. Workers Protection Act

This is another of those things that D.C. restaurant operators need to keep on their radar. D.C. just recently passed this emergency Displaced Workers Protection Act. For any food and beverage workers who were let go as a result of the pandemic, they have to be offered reinstatement before you can go out and hire new employees. This is actually a very burdensome requirement on restaurants because restaurants use the pandemic to try to get rid of their problem employees. 

But now the D.C. legislature is saying, "Hey, you've got to offer these people employment back before you can make any new hires."

There's an exception for employees who resigned and an exception for some of your employees who are salaried. But other than that, if your employees were let go between the start of the pandemic and the end of the state of emergency, the D.C. state of emergency, they have to be offered reinstatement again before you can make new hires.

Many restaurants before they actually made layoffs cut hours significantly. So, if you had somebody who was a full-time server in the restaurant, maybe you cut their hours by 50%, potentially making the employee resign because there wasn't enough work to keep them afloat. So, the question is do you have to offer reemployment to this person since they technically resigned, even though they resigned because there weren’t enough hours for them?

It's a dicey situation and we are advising employers to go ahead and offer those types of employees reemployment as well. 

D.C. Harassment Law

D.C. has a new harassment law on the books. Basically, all employers are now going to have to be giving sexual harassment training to their employees within 90 days of hire. Current employees have to receive in-person or online training within two years after this new training program has been approved by the D.C. Department of Employment Services. 

This new law also makes clear that managers, owners, and operators also have to attend in-person sexual harassment training at least once every two years. So, the D.C. legislature is sending a clear message that no one is above the law.

And for the training that managers, owners, and operators have to attend, they've got to also attend training on D.C.'s Minimum Wage Act. D.C. is very serious about making sure its owners and operators don't violate its wage laws, so that is going to have to be an important component of the training.

D.C. restaurants also have to create sexual harassment policies. Hopefully, all of you have them in place already because that's an important thing. But they're now going to have to submit copies of the policies to D.C.'s Department of Employment Services.

Montgomery County Ban-the-Box Law

Montgomery County just recently passed a new Ban-the-Box Law. As of February 19, employers can't inquire into an applicant’s criminal record until a conditional offer of employment has been made. Montgomery County's former Ban-the-Box law used to say that you could look into their criminal record history after a first-round interview. Now, you can't look at their criminal record until a conditional offer of employment has been made.

A lot of employers in the business community were not a fan of this law because you get virtually to the end of your hiring process, which takes a lot of time and attention, and only once you get to the point where you've made a conditional offer can you look into their criminal records. So, it’s a little bit burdensome in your hiring process.

Montgomery County's new Ban-the-Box law also says that employers can never inquire into arrests, first convictions for trespass or disturbance of the peace, misdemeanors that are at least three years old, juvenile records, and expunged criminal records. 

2. Not Keeping Up With Federal Laws

When former president Donald Trump repealed the 80/20 rule in office, many restaurant owners were pleased. The 80/20 rule said that you could take the tip credit for all hours that your tipped workers spent working your establishment, so long as they didn't spend more than 20% of their time on non-tip-generating activities.

For example, you could pay your servers the tip credit even for the time they spent rolling silverware, so long as the time they spent on that didn't exceed 20% of their workday. And restaurants hate this rule because it's practically impossible to keep track of how much time a server is spending rolling silverware or brewing coffee, etc. There are a ton of just non-tip-generating things that your servers have to do as part of their workday. And restaurants get sued over this all the time because you can lose your ability to take the tip credit if servers are spending too much time on other tasks.

President Joe Biden’s legislation recently put a regulatory freeze on all pending rule changes, putting the status of the 80/20 rule revocation up in the air. This is crucial for restaurant owners to pay attention to so they can understand when tip pool regulations go into effect.

3. Minimum Wage and Overtime Violations

One of the other top six mistakes that I see food and beverage owners and operators making is minimum wage and overtime violations. The first big mistake I see restaurants making in terms of minimum wage and overtime violations is not paying attention to what I call hyper-local laws. 

Each area has its own particularities and they will put small laws into effect that the unwary overlook. D.C. has a split shift law, so D.C.'s minimum wage law says an employer must pay an employee for an additional hour’s worth of work if they are required to work a split shift. We see D.C. restaurants running afoul of this all the time. If you're not paying attention to the hyper-local laws, you could walk into minimum wage violations.

D.C. also has a four-hour minimum reporting time law. Unless you regularly work a shift that's less than four hours long, restaurants must pay you for at least four hours of work for each day that you report. If you require a server to come in and the restaurant is slow and you cut them after two hours, it doesn't matter, you've still got to pay them for four hours’ worth of work in D.C.

4. Uniform and Tool Issues

One of the most common minimum wage violations I see restaurants making are issues involving uniforms. Where an employer requires an employee to wear a uniform, if the cost of the uniform would cause the employee’s wages to fall below minimum wage, the cost can't be imposed on an employee. So, if you have a worker making the tipped minimum wage, that means that any deduction for uniform is going to cause their wages to fall below the minimum wage, and then you've walked into a minimum wage violation.

A uniform, according to the Department of Labor, doesn't exist if the employer only prescribes a general type of basic street clothing to be worn in the restaurant. General items like black pants or white shirts are basic streetwear, so those aren't going to be considered uniforms. 

Now, the problem comes in that restaurants like to impose a lot of other requirements because it's part of their brand. So, if you have an Italian restaurant and you want to make sure that employees are wearing red and white checkered shirts because those look like the table cloths that are in Italian restaurants, now we're getting into a gray area here because is this red and white checkered shirt basic streetwear? There's been a ton of lawsuits saying, "No, that isn't basic streetwear, that's actually a very specific item of clothing that comprises a uniform." And so employers are supposed to be paying employees for those types of clothing items.

Going back to this hyper-local law issue. D.C. actually has its own uniform law and it says that if employers want their employees to buy and maintain their own uniforms, then you're supposed to be paying them 15 cents more an hour, up to $6 a week. If restaurants will buy the uniforms for employees, but they're supposed to clean and maintain them on their own, then you're supposed to be paying 10 more cents an hour. If you are going to be responsible for cleaning and maintaining them, but the employees have to purchase them, then you're supposed to pay them eight more cents an hour.

Restaurants in D.C. walk into these uniform violations all the time. It's the same sort of analysis with tools. So, there's also a requirement that employers pay for 'tools of the trade.' And there's a lot of uncertainty as to what is classified as a tool of the trade. When these regulations went into effect, everybody was clear that this applied to the kind of things like miners’ hats or fluorescent safety vests. Those were tools of the trade that employers were expected to pay for.

Now, we don't really have a lot of miners in the area who need mining hats, but we do have a ton of servers in the area. And what are the tools of the trade for a server? So now we've seen a whole bunch of litigation over whether restaurants have to pay for bottle openers or lighters or little booklets that you put the checks in. Those are, allegedly, the tools of the trade for servers. 

The general rule is that, again, if they are just basic items that employees would have anyways — pens, in specific — then maybe that's okay. But if you require a certain type of corkscrew or a certain type of pen and you're getting a little bit more specific and maybe they're not just basic items, then maybe the restaurant would have the obligation to pay for them so that they don't walk into a minimum wage violation.

5. Tip Credit and Tip Pooling Issues

If you are accused of having an invalid tip pool, that can invalidate your ability to take the tip credit, which would mean that servers can sue you for the regular minimum wage that they should have been paid for all hours worked, plus triple damages potentially. It's extremely important that the tip pool is created appropriately.

The big-ticket items are that owners and managers cannot be participating in the tip pool. Only those people who customarily and regularly earn tips can be in the tip pool. So, no back-of-the-house employees can be participating in the tip pool because they don't regularly earn tips. It's a gray area as to other people as to whether they can participate. People like hosts or bussers or different restaurants have different staff and so it's always an open question as to whether those people can participate in the tip pool.

Common Mistakes With the Tip Pool 

    • Bussers — If a busser is not participating in the tip pool and you've got a tip pool in place, how would that busser otherwise receive their compensation? In this case, they should be getting the regular tip.
    • Sick Leave — In the DMV area, Maryland has its own sick leave law, Montgomery County has its own more specific and more generous sick leave law, and then D.C. has a sick leave law that applies. These sick leave laws are often misapplied in this industry because if a server is sick, they'll just swap shifts or they'll get on the schedule for later to make up the loss. But they actually do have an entitlement to sick leave for the time that they take off, so all managers need to be trained on responding to employee requests for sick leave
    • COVID Responses — As a result of the pandemic, we also had new federal legislation that says that employees can get 10 days worth of additional sick leave to respond to the coronavirus. And then if your employees need leave to deal with a variety of child care issues — like if your child's daycare is closed as a result of the pandemic — you can be eligible for 12 weeks of daycare-related leave. Again, they're optional but you get tax credits if you do grant this kind of leave to your employees.

If you have a question about your tip pool and whether somebody is validly participating in it, feel free to reach out to our team of payroll and HR experts. It's a pretty detailed analysis.

6. Discrimination and Harassment

The final of the big six topics that we wanted to cover today is discrimination and harassment concerns. There is a misconception in the food and beverage industry that employers don't have a responsibility to correct customer sexual harassment and that is 100% untrue. So, restaurants can't just turn a blind eye if their customers are harassing their servers or their kitchen staff or their bartenders or what have you. 

There was actually an interesting case in Las Vegas that demonstrated this point. Caesar's Casino hired their gladiators to stand out in front of the casino and draw people into the casino, but there were a ton of drunk tourists out there on the strip who would harass these gladiators, both male and female. 

And the casino just said, "What do you want us to do about it? We can't control the population, what people on the street are doing to our gladiators." But they were actually on the hook for a lot of damages because the court ruled, "Yes, you do have an obligation to address customer harassment. You can create a roped-off area so people aren't touching them. You can assign a bodyguard to each of your gladiators but you can't just turn a blind eye and leave these people out as sitting ducks to be harassed."

It sends a clear message for restaurant operators as well. All managers should be trained on dealing with customer harassment so they can step in and say, "Hey, I'm going to take over this table for you because they're being inappropriate." Managers can be trained to escort them out of the restaurant, to ban them from the restaurant, but you can't just leave your servers as sitting ducks to deal with them.

There's also this misconception that your server should grin and bear it in terms of harassment because they're tipped employees and they want to make their tips. So there's just this mentality out there that they are going to let the discrimination happen so it doesn't affect their tip. Restaurants need to be trained on that as well because that is not a good culture to have at your restaurant.

All servers need to know that if they are being harassed, they don't need to take it. That the restaurant will give you 20% of whatever you would have made on that table so that you don't have to deal with it. There needs to be a clear message sent to servers that that's not appropriate behavior.

Lastly, restaurants are typically an informal environment. A lot of your staff are young and a lot of people in the industry all hang out with each other, so they do have close relationships and they blur the lines there. Sometimes restaurants don’t take harassment as seriously as they should because they say, "Hey, these people are friends, it's all very informal.” 

This is far from the truth, though, as every harassment claim has to be taken very seriously.

Get Restaurant Payroll and HR Expertise

Legislation is an ever-evolving environment, especially within the restaurant industry. There are so many things to keep up with that make it difficult to stay on top of restaurant payroll compliance. Restaurant People Cloud offers payroll and HR solutions built specifically for the restaurant industry. Get the expertise you need today by scheduling a conversation with our team.

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