Wage Laws Require Both Proper Payment and Good Record Keeping

When it comes to paying employees their wages, being practical sometimes is not quite good enough. So learned a group of restaurant owners who insisted their workers received all the wages due to them under federal law, but lost a $129,000 judgment on the issue nonetheless. The case offers two important lessons for employers: First, be sure to comply with both the technical and practical requirements of wage payment laws; and second, don’t  pick legal fights with federal wage and hour auditors unless absolutely necessary.

In the case, which dealt with minimum wage requirements under the U.S.’s Fair Labor Standards Act, the employer restaurant sought to apply the tip credit to its wait staff employees. The credit allows employers to pay a reduced hourly rate to employees who regularly receive tips as part of their jobs. In all cases, the credit must meet a minimum rate and the employees’ total wages, when tips are included, must satisfy the minimum wage rate in effect. Employers are required to keep records of hourly payments and tips for each employee, and those records must be available for state and federal auditors on request. Employers are also required to give notice to their employees that the tip credit system is being applied to them. The employers in this case did not do so. Though they claimed that their employees earned far more than the minimum wage when tips were considered – a claim that might well have been true – they did not keep records of those tips. Still, they challenged a federal audit result in court. The result was the large judgment, which will increase substantially when interest is added.

In Massachusetts, tip credits are governed by a state statute. Employees must be notified the credit is being applied and records of wages paid must be properly maintained. Massachusetts employers are, of course, governed by federal law as well. As a result, employees in restaurants, who are exempted from overtime requirements by state law, must receive overtime for hours above 40 each week. The effect on the tip credit is to increase both the hourly rate that must be paid for hours above 40 weekly and the gross wages that must be earned once tips are included. Massachusetts law currently requires that tipped employees receive $2.63/hour, and the rate will increase to $3.75 over the next several years. The state’s minimum wage, now at $8/hour, will also increase, to $11 by 2017. Violators can be punished with triple damages and legal fee awards.