Copyright © 2008 by John Wiley & Sons, Inc. All rights reserved CHAPTER 3 Wage and Hour Laws Affecting Salaried, Hourly, and Tipped Employees

Copyright © 2008 by John Wiley & Sons, Inc. All rights reserved INTRODUCTION A server who continues to prove himself or herself will qualify for a higher wage. Instead of $50,000 per year, it could be $60,000 per year. - Charlie Trotter, chef/owner, Charlie Trotter’s, Chicago - Charlie Trotter, chef/owner, Charlie Trotter’s, Chicago

Copyright © 2008 by John Wiley & Sons, Inc. All rights reserved TALES FROM THE FIELD Servers make bank at Charlie Trotter’s…  Why would Trotter pay his waitstaff such high wages?  Does he attempt to attract veteran servers or does he look for different skills and abilities when hiring?  How can “cash-and-carry” restaurants compete for quality staff  Should tipped wages be eliminated?

Copyright © 2008 by John Wiley & Sons, Inc. All rights reserved CHAPTER OVERVIEW  Evolution of hourly wage laws and workers’ rights  Impact of wages on employee morale  Exempt and non-exempt positions  Federal tip guidelines  Effect of labor costs on profits  Important job satisfiers

Copyright © 2008 by John Wiley & Sons, Inc. All rights reserved EVOLUTION OF WAGE LAWS  Minimum wage laws  Child labor laws  Workers’ rights These have only been in existence since 1938, less than 70 years ago!

Copyright © 2008 by John Wiley & Sons, Inc. All rights reserved CHILD LABOR AND MINIMUM WAGE  Children as young as 7 years of age worked 14 hours per day  The first minimum wage was 25 ¢ per hour! During the Industrial Revolution,

Copyright © 2008 by John Wiley & Sons, Inc. All rights reserved FAIR LABOR STANDARDS ACT  Sets current minimum wage at $5.15 per hour  Regulates child labor laws  Regulates overtime rules In some states and communities, the minimum wage is higher than the federal minimum. In some states and communities, the minimum wage is higher than the federal minimum. In these cases, the higher wage is the prevailing wage. In these cases, the higher wage is the prevailing wage.

Copyright © 2008 by John Wiley & Sons, Inc. All rights reserved STATE AND FEDERAL COMPARISON

Copyright © 2008 by John Wiley & Sons, Inc. All rights reserved WHERE DO EMPLOYEES RANK WAGES? 1.Open communication with management 2.Feeling of being in on things 3.Wages and salaries 4.Feeling that what they do matters 5.Flexibility in scheduling

Copyright © 2008 by John Wiley & Sons, Inc. All rights reserved WAGES AND SALARIES AS A JOB SATISFIER 1.Feeling that what they do matters 2.Feeling of being in on things 3.Open communication with management 4.Wages and salaries 5.Flexible scheduling Most employees do not rank wages and salaries as the most important job satisfier…

Copyright © 2008 by John Wiley & Sons, Inc. All rights reserved COMPETITION MATTERS Salaries and wages must be competitive and in line with what other hospitality businesses in the area are providing… Salaries and wages must be competitive and in line with what other hospitality businesses in the area are providing…

Copyright © 2008 by John Wiley & Sons, Inc. All rights reserved EXEMPT AND NON-EXEMPT Exempt Employees - Salaried employees who are not eligible to receive time-and-one-half pay for hours worked beyond 40 - Salaried employees who are not eligible to receive time-and-one-half pay for hours worked beyond 40 Non-Exempt Employees - Hourly employees who must be paid at least time- and-one-half their regular hourly wage for each hour worked beyond 40 - Hourly employees who must be paid at least time- and-one-half their regular hourly wage for each hour worked beyond 40 Who gets overtime pay, and who does not?

Copyright © 2008 by John Wiley & Sons, Inc. All rights reserved CHANGES IN OVERTIME LAW  TEST 1: Salary-basis test  TEST 2: Salary-level test  TEST 3: Duties test August, 2004, saw the first changes in over fifty years to the overtime laws, particularly with respect to guidelines businesses must follow when classifying exempt and non-exempt employees.

Copyright © 2008 by John Wiley & Sons, Inc. All rights reserved TIPS AND GRATUITIES  Tips and gratuities belong to the server who received them  Service charges are fees charged by management and they belong to the establishment

Copyright © 2008 by John Wiley & Sons, Inc. All rights reserved PAYING TAXES  Tips and gratuities are considered taxable wages by the IRS and must be claimed as such by the individual receiving them  Service charges belong to the establishment and should be considered a part of the gross receipts and considered as income to the business

Copyright © 2008 by John Wiley & Sons, Inc. All rights reserved TAKING A TIP CREDIT Tipped minimum wage = $2.13 per hour Establishment tip credit = $3.02 per hour* $5.15 per hour *Tipped employee must receive $3.02 per hour in tips, or management may not take the tip credit. Federal wage and hour laws allow management to take a tip credit as do most states, but in some states, this is illegal.

Copyright © 2008 by John Wiley & Sons, Inc. All rights reserved TIP POOLS Voluntary Voluntary Employees may share their tips with whomever they please Employees may share their tips with whomever they please Mandatory Mandatory Management requires participation, but sharing must be limited to only those employees who are customarily tipped Management requires participation, but sharing must be limited to only those employees who are customarily tipped When tipped employees share their tips with other employees, either on a voluntary or a mandatory basis* *Some state laws prohibit any version of a tip pool

Copyright © 2008 by John Wiley & Sons, Inc. All rights reserved LABOR COSTS AND PROFITS  Labor costs, profits, and employee morale are closely related  Wages and salaries are mostly dictated by law and by the market, but must be competitive

Copyright © 2008 by John Wiley & Sons, Inc. All rights reserved SUMMARY  Hospitality industry is labor intensive  Workers protected by federal, state, and local wage and hour laws  New overtime laws in effect in August, 2004  Tip credits, tip pools  Wages not #1 job satisfier, but must be competitive  Wages affect profits and employee morale