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5 Most Common Wage Violations in Hospitality

Managing compliance is a big job for HR in any industry. In hospitality, it can be especially challenging. Minimum wage, tax and tip credit requirements vary, depending on the state in which you’re located.  Even employees working in the same location are paid differently and are subject to different laws based on the duties they perform. Tipped employees’ pay rates can change from week to week, depending on how busy business is…or isn’t.

With such a complicated regulatory environment, it’s no wonder that of the nine industries investigated by the Department of Labor’s Wage and Hour Division (WHD) in 2014, the hospitality industry made up 51 percent of cases in which the WHD recovered back wages.

Problem areas for hospitality companies

So which specific HR and payroll issues triggered compliance violations for hospitality businesses? The Labor department lists the following as “typical problems” found during industry investigations:

  1. Minimum wage violations, typically resulting from inaccurately calculated tip credit or tip pooling
  2. Problems with overtime, including erroneously averaged hours over two weeks and improperly calculated overtime for tipped employees
  3. Misclassification of contract workers: If you can control what will be done and how it will be done, the person you’re directing to do it is probably not considered a contractor. More specific criteria apply; you can check them out here.
  4. Meeting criteria for exempt employees: For an employee to be legally exempt, the nature of his/her work and pay must meet certain criteria, including a minimum weekly wage.
  5. Poor recordkeeping: Some documents must be kept for two years, some for three years and others for six or more. Not only is bad recordkeeping an offense in and of itself, but it leaves organizations practically unable to defend their businesses against any of the above violations.

Possible Solutions

How can your company overcome the challenge of complex laws and proactively remain compliant? Some companies perform self-audits to identify problem areas and improve processes before the Department of Labor comes knocking. Others use HR and payroll software that raises the alert on problematic issues during the payroll and scheduling process, effectively preventing circumstances that can trigger new regulations.

Whatever solution is right for your business, understanding these common problems can help you proactively manage HR and payroll, mitigate risk and avoid penalties in the hospitality industry’s ever-complex compliance landscape.