The most successful restaurants operate like finely tuned revenue machines. They calculate, evaluate and control everything — from portion size, to ingredient sourcing, to kitchen waste — to earn a consistent profit.
Perhaps the biggest factor affecting a restaurant’s profitability is employee pay. According to a study by Baker Tilly, a major accounting firm, employee-related costs make up between 25 and 35 percent of a restaurant’s overhead. (The lower end of that range represents limited-service restaurants and the higher end is for full-service establishments.)
That’s why unplanned overtime is a major issue for restaurants. Employees who unexpectedly put in overtime hours (at time-and-a-half) can wreak havoc on your cost projections and significantly impact your bottom line.
Understand restaurant overtime requirements
Most restaurants must comply with the federal Fair Labor Standards Act (FLSA), which applies to any establishment with more than $500,000 in gross sales. In addition, the minimum wage and overtime rules under the FLSA cover any employee conducting business across state lines.
Believe it or not, it’s very likely that your employees are conducting business across state lines even when they’re working in your kitchen or dining room. Why? If they handle credit or debit card transactions – and your bank or credit card processing service is in another state – they’re engaging in interstate business.
Only the employees of very small restaurants that don’t accept credit or debit card transactions – or that are restricted from handling these transactions (almost impossible to do and prove) – are exempt from the FLSA’s minimum wage and overtime pay rules.
Here are some specifics on these FLSA requirements for restaurant service workers:
- They must be paid a minimum of $7.25 an hour for the first 40 hours they work each week. State minimum wages apply if they’re higher. (Workers under age 20 can be paid a minimum wage of $4.25 for their first 90 days of employment in a restaurant. There are tight regulations around this, which you can learn about here.)
- Tips can be considered a part of minimum wages for employees that earn $30 or more a month in tip income, but a tip deferral cannot reduce the minimum wage paid below $2.13 an hour.
- You can make deductions for meals employees eat at the restaurant, uniforms and certain other things, but there are complex rules around these deductions. Find out more from the Department of Labor.
- Overtime must be paid at a rate of one-and-a-half times the regular hourly rate for any hours over 40 in a work week. In addition, certain deductions don’t apply once the employee goes into overtime. More on that here.
Remember, too, that restaurant employees who do administrative or managerial work and earn less than $455 a week must be paid overtime. This is likely to be expanded in the future to include non-exempt employees who earn up to $921 a week. Everyone needs to keep an eye on this in 2016, as it would mean you have to pay overtime to more of your restaurant employees.
Get a better handle on time tracking
If you own or run a restaurant, you should do everything you can to comply with these regulations. Neglecting to do so could result in an investigation, lawsuit and fines.
So how can you keep employee hours in-check and avoid unexpected overtime? An online time and attendance software system could be the solution you’re looking for.
A service such as TrackSmart makes it easier to:
- Manage employee scheduling so you’re fully staffed during peak periods and not paying employees to work during down hours.
- Set alerts for when employees are getting close to the 40- hour mark. You can use this information to warn them not to work more than 40 hours without your permission.
- Establish limits on how many hours employees can work each week. If you set this at well below 30 hours, it’s less likely employees will unintentionally work overtime.
- Allow employees to request time off. You’ll be aware of employee absences ahead of time and can fill in the gaps with employees who aren’t near the 40-hour limit.
You’re already taking steps to maximize your restaurant’s profits, so why not explore a time and attendance software solution such as TrackSmart? It can help you gain control over employee hours and, more important, eliminate unexpected overtime pay that can cut into your bottom line.