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Key Employee Compensation Laws Affecting Restaurants

March 2, 2016

Tips, Please: Key Employee Compensation Laws Affecting Restaurants

By Wendy Fischman, Potomac Law Group

You know that paying and treating your employees well is essential to keeping them happy and loyal. But, are you paying them correctly under federal and state law? Read these five tips to see if your restaurant’s payment practices measure up.

  1. ​ Are you paying at least the minimum wage?

The federal minimum wage is $7.25 per hour. In the District of Columbia, the minimum wage is now $10.50 per hour and will go up to $11.50 per hour starting July 1, 2016. In Maryland, the current minimum wage is $8.25 per hour, set to increase to $8.75 on July 1, 2016, $9.25 on July 1, 2017, and $10.10 on July 1, 2018.

Keep in mind that in DC, an employer may not dock an employee’s pay for breakages, walkouts, mistakes on customer checks, or other charges if the deduction would bring the employee’s wages below the minimum wage. If an employee makes at least the minimum wage, you may deduct the cost of employee meals, depending on the number of hours the employee works.

You might be able to pay some workers less than minimum wage. Check to see whether your state allows lower wages for employees enrolled in certain programs or meeting other requirements. Your state also may exempt employees who are minors.  However, if you employ youth workers, make sure that you are also complying with your state’s child labor laws.

  1. Are you properly crediting your employees’ tips?

Employees who “customarily and regularly” receive more than $30 per month in tips are considered “tipped employees.” You may apply a tipped employee’s tips to satisfy part of that employee’s minimum wage requirement, if the sum total of the employee’s hourly wage plus tips equals or exceeds the minimum wage. The amount of the employee’s tips used to satisfy a portion of the minimum wage obligation is called a “tip credit.” The amount of the allowable tip credit varies by state. Keep in mind that you must tell each tipped employee how much cash the restaurant receives and how much you are crediting toward the employee’s pay. Be prepared to make up any difference between expected tip amounts and the minimum wage.

  1. Are you pooling tips correctly?

If your restaurant requires employees to pool tips, tips entered into the pool will only count as valid tip credits if you follow these rules:

  • Provide employees with advance notice of the tip pooling arrangement and any amount that they are required to contribute to the pool.
  • Ensure that the net wages of each employee participating in the tip pool equal or exceed minimum wage after that employee’s contribution to the tip pool.
  • Distribute the entire tip pool to your employees. If the restaurant (or any owner, manager, supervisor, or other person who could be considered an “employer”) keeps a portion of the tips paid into the pool, you will not be able to take a tip credit against the minimum wage.
  • Exclude employees that are not ordinarily tipped from the tip pool.  The law is unclear whether employees such as janitors, dishwashers, chefs, cooks, and other “back of the house” staff may be included in a tip pool.  Therefore, the safest approach is to exclude these employees from your tip pool.
  1. Are you treating service charges as tips?

You shouldn’t. If your restaurant charges a set amount or percentage of a bill for large parties, or if you otherwise have a compulsory service charge, you may not count that amount as a tip. Because customers have no say in whether to pay a service charge, these payments belong to the restaurant, not the employees. Although you may offset minimum wage and overtime requirements by distributing services charges to employees, these amounts do not count toward the $30 a month in tips required for an employee to be considered a “tipped employee.”

  1. Are you respecting employees’ rights to discuss their wages?

The District of Columbia recently passed a law protecting all employees’ rights to discuss wages with one another, regardless of whether the employees are supervisors or line employees. Now, employers in DC may not prohibit any employees from talking about their own wages or the wages of other employees. Federal law protects the right of non-management employees in all states to discuss the terms and conditions of their employment (including wages).

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Violations of these wage and hour laws can lead to criminal, civil, and administrative penalties.  Defending against such actions could be extremely costly.  Therefore, it is important to comply with these wage laws. Conduct regular self-audits of your restaurant’s payment practices and consult with an experienced labor and employment attorney to ensure proper compliance.

Potomac Law Group attorneys in our Restaurant, Wine, Craft Beer, and Spirits Practice are available to help you. To learn more, contact Steve Kabler at or 202-294-8716, or visit us at