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Restaurant Owners, These are Your Biggest HR Issues Right Now

May 31, 2019

Getting into the restaurant industry isn’t for the faint of heart. Producing great food and satisfying customers is just one part of running a successful eatery. Hiring, managing and compensating the staff is just as important. Poor labor practices have gotten plenty of restaurant industry juggernauts involved in expensive lawsuits, and in the social media age, mishandling HR can also ruin a restaurant’s reputation in a single day. Your restaurant’s HR policies have to be stronger than ever because missteps are costlier than ever.

Overtime Compliance

Several major restaurant chains have recently been hit with huge lawsuits resulting from overtime violations. The Department of Labor’s wage and hour division is clear about overtime requirements for the restaurant/fast food industry, but this is still one of the payroll issues that restaurants most often handle incorrectly. That might be because overtime can be miscalculated at both the restaurant level and at the payroll level.

DOL requires restaurant employees to be paid 1.5 times their regular rate of pay for any hours that exceed 40 per week. Some restaurants get around this requirement by having employees do extra work outside of their scheduled shifts; for example, a manager might tell an employee to clock out when the last patron leaves but require the employee to do another 30 minutes of cleaning.

A common issue at the HR level is confusion around how the overtime rate is calculated for tipped employees. The DOL requires that all components of an employee’s wages be included in the time-and-a-half calculation, including the tip credit. Some restaurants calculate the minimum wage for tipped workers (currently $2.13 on a federal level) by 1.5, then multiply that amount by the number of overtime hours worked. The correct way to calculate the overtime rate is to multiply the full minimum wage (currently $7.25) by 1.5, then subtracting the tip credit and multiplying the number of overtime hours worked.

Staff Turnover

High staff turnover isn’t a new problem in restaurants, but it’s still a significant one. The separation rate for the hotel and food services industry was about 75% in 2018, according to Bureau of Labor Statistics data. Think about it this way: if the average restaurant had 100 employees on January 1st, 75 of them would have left by the next January 1st. Meanwhile, the restaurant would have gone through the hiring process for 75 new employees.

High turnover creates a domino effect of problems, but having to frequently onboard new hires is one of the costliest. Having an inefficient or dated onboarding process wastes time for the person who handles the restaurant’s HR and costs the company money. Requiring new hires to fill out and return physical paperwork is especially cumbersome in the restaurant industry, where restaurant staff and the person who handles HR may not work in the same location or at the same time.

Payroll Complications

Like high turnover, a complex payroll system is one of the constant headaches for the average restaurant. Different servers and managers earn different wages. Employees’ hours are inconsistent from week to week. Overtime fluctuates too, depending on how busy the restaurant is.  Factor in cash tips, tax requirements and maybe even multiple locations – it’s obvious that payroll is more complicated in this industry than in most.

None of which will get you off the hook for making mistakes in employee payroll. Here in Massachusetts, the Attorney General’s Fair Labor Division investigates payroll complaints, which employees can make anonymously. Keeping paper time cards won’t cut it any longer. Restaurants must have consistent and efficient payroll systems in order to pay their workers fairly, and to stay compliant with the law.

Sexual Harassment

Restaurants are breeding grounds for harassment of all types, but with the rise of the #MeToo movement, sexual harassment is an especially hot-button issue right now.

According to Buzzfeed’s analysis of EEOC data, workers at full-service restaurant filed the most sexual harassment claims of any industry between 1995 and 2016 – by a huge margin. More than 10,000 claims were filed by restaurant staffers during that period. For comparison, workers in the industry with the second-highest number of claims (hotels and motels) filed fewer than 2,000 claims. And those reporting numbers don’t tell the full story. The vast majority of sexual harassment incidents aren’t reported.

It’s the restaurant’s responsibility to protect staff from harassment. Servers, especially female servers, bear the brunt of sexual harassment in restaurants. That their livelihood is tied to pleasing their customers puts these workers in a tenuous position, especially if they fear being disciplined for shutting down an inappropriate customer. Steps to consider include establishing clear policies that forbid retaliation related to sexual harassment claims, and providing comprehensive training that teaches workers how to recognize and respond to sexual harassment.

The restaurant industry is no piece of cake. From complicated payroll requirements to various HR issues, restaurant owners and managers face many unique challenges. At Commonwealth Payroll, our team can help with your restaurant’s needs. Contact us today. You can also join our free webinar: Trending Topics for Restaurant Owners, Monday, June 10 at 2:00 PM.

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