Article by Amanda Fugazy and Stephania C. Sanon, Ellenoff Grossman & Schole LLP
Today, more than ever, restaurant owners must be vigilant with their compliance obligations. Given the exorbitant number of laws, mandates, and requirements being imposed on restaurant, restaurant owners and managers must be proactive and current regarding operational regulations and requirements. Pay stub compliance is one area that is having a tremendous impact on New York State’s restaurant industry. What may appear as small errors can lead to significant exposure, so it is imperative that restaurants carefully review their pay stubs.
There is a lot of information restaurant owners should be aware of regarding pay stub compliance. Under the New York Wage Theft Prevention Act (WTPA) and the Hospitality Wage Order, pay stubs must contain the following information: hours the employee worked – both regular and overtime, rates of pay, any allowances taken against wages (for example, tip credit, meal allowance, etc.), dates of work covered by the payment of wages, name of employee, name of employer, address and phone number of employer, gross wages, deductions and net wages.
The pay stub must reflect the proper formula for rate of pay. For tipped employees, the rate must be reflected as at least minimum wage and the amount of the tip credit must be itemized and claimed as an allowance. This is where we see the most errors— Employers and payroll companies routinely fail to itemize the tip credit as an allowance. Specifically, the tip credit should appear as a negative number and be shown as the tip credit amount per hour, and show the numbers of hours the credit is being applied to for that pay period, as well as the total tip allowance for that pay period and year to date.
Many employees are being paid the right amount, but the employers are in violation simply because the pay stub does not properly list the tip credit. Employers usually believe that they are in compliance, by default, because they have a payroll company. However, all too frequently, payroll companies don’t have an updated understanding of the regulations or simply don’t pay attention to the requirement’s unique application to restaurants.
For example, pay stubs that do not contain the requisite information, in particular, the tip credit, may subject restaurants to stiff penalties. Under the WTPA, penalties in the amount of $250 for each work day that the violation occurred, up to a maximum of $5000 per employee can be imposed. In addition, several courts have held that a restaurant’s failure to itemize the tip credit on the pay stub results in loss of the tip credit. Because liability for pay violations runs for six years, this means a restaurant could potentially be liable for the difference between the tip credit minimum wage and the regular minimum wage for six years for each employee whose pay stub does not reflect the tip credit.
It is also imperative that employers keep copies of each employee’s pay stub for at least six years. The paystub copy can be paper or electronic, but it must be compliant and accessible. Employers assume their payroll companies have and maintain these records, but we often find that the payroll company does not maintain the copies. Considering that payroll is run electronically and many employees are paid by direct deposit, maintaining copies of the pay stubs is not a difficult requirement– but it is incumbent upon the employer to make sure it is actually done. Employers should not assume that their payroll company is maintaining their required records unless they have a specific agreement for these services with the payroll company.
There are a variety of steps an employer can take to ensure that it is in compliance with pay stub requirements. The NYS Department of Labor maintains a relatively comprehensive website with information readily available for employers. Employers should also communicate with their payroll company to get assurance regarding the payroll company’s level of compliance and to fully understand their payroll company’s commitment to maintain the employer’s records. In addition, restaurant owners should reach out to a qualified employment lawyer for a consultation, and together we can assess whether or not they are in compliance. If a restaurant owner finds that he or she is in violation, we can make the necessary adjustments to bring them into compliance.
While there may be an affirmative defense available to employers for the pay stub penalties if they can show they made “complete and timely payment of all wages due”, courts have routinely held that whether an employer can take advantage of this defense is an issue to be raised at trial. In other words, restaurants attempting to make use of this defense will likely have to first incur significant litigation expense. Therefore, at this point, the best defense against pay stub violation is a good offense- working with qualified counsel, double-checking the compliance of your payroll company, and maintaining an up to date understanding of the requirements.
Stephania C. Sanon is an Associate in the Labor and Employment group. Stephania represents and advises clients in a variety of labor and employment matters. In addition to handling a broad range of cases in federal and state court and before administrate agencies, she routinely assists restaurant clients in complying with federal, state and local wage and hour regulations.