Safeguard Your Restaurant Against Costly Wage & Hour Claims with Preventative Measures

March 12, 2020

Last year, the Wage and Hour Division of the U.S. Department of Labor (DOL) recovered a record $322 million in back wages¹.

Wage and hour claims can be triggered by any number of complaints, including pay discrepancies and employee misclassifications. Workers can file a lawsuit when they are just a minute late for a meal or rest break, or if their overtime was miscalculated even slightly. And, more and more hospitality employers are being investigated for Fair Labor Standards Act (FLSA) compliance.

Common Exposures & Preventative Measures

In recent times, Employment Practices Liability (EPL) insurance is often associated with protection against the financial ramifications of the dramatic uptick in sexual harassment claims in the workplace. This vital coverage can be utilized for a multitude of risks and exposures, especially for the hospitality industry (and particularly restaurants), given the right endorsement. However, when it comes to costly wage and hour related claims, EPL can only be used for is defense costs, putting an emphasis on the importance of preventative measures.

The first step of prevention is understanding the most common pain points for exposure. There are certain factors that make employers the restaurant industry uniquely at risk for wage and hour violations:

Since restaurant employees mainly rely on tipping, this makes minimum wage compliance matters more complicated for this industry. The minimum wage for tipped workers is lower than the regular minimum wage, but if an employee’s hourly wage plus tips does not equal the regular minimum wage, then the employer must make up the difference, known as the “tip credit.” Restaurant employers who pay their tipped employees the tipped minimum wage without ensuring that the standard minimum wage is met when adding in the tip credit, may find themselves subject to a claim and violation.
Restaurant employees rarely work the standard 9-5 working hours, so the irregular scheduling structure can lead to unauthorized overtime violations.
Having multiple restaurant locations can make it difficult for management to accurately track employee hours or ensure employees are taking their required breaks.

Document your company’s wage and hour policies/procedures, train your managers to thoroughly understand them and ensure that they are implementing them on the ground. They should have a very thorough understanding of how the rules work and be able to explain it to workers to avoid any misunderstanding or potential violations. It’s advisable to always consult with outside counsel specializing in employment law in your state. Even a quick consultation to discuss the company’s policies and practices could avoid a future claim.

As a leading global insurance brokerage specializing in food service and hospitality businesses, we can provide a complimentary expert analysis of your wage and hour risk prevention practices and review of your current insurance portfolio to ensure you have the financial protection in place against costly defense costs associated with these claims. Contact me directly today to get started!