The U.S. Department of Labor’s Wage and Hour Division has agreed to a settlement with two Mexican restaurants in Tennessee. As part of the agreement, the two La Campina Mexican Grill restaurants will pay nearly $40,000 in minimum and overtime back wages to 23 workers after DoL investigations revealed “willful and repeated violations of the Fair Labor Standards Act.” The department also assessed more than $4,000 in civil penalties against the restaurants. The Wage and Hour Division investigations revealed that the restaurants failed to record and compensate employees for all hours of their work, in violation of the FLSA’s minimum wage, overtime and record-keeping provisions.

Investigators conducted employee interviews and reviewed payroll documents, leading them to conclude that restaurant workers were often made to work more than 40 hours per week without receiving overtime compensation. Also, workers were paid a flat salary that did not result in them earning at least the minimum wage of $7.25 for all the hours they worked. Investigators also determined that La Campina “created and maintained inaccurate records of its employees’ work hours, rates of pay, and wages actually paid.”

La Campina owner Ricardo Sanchez has agreed to comply with the FLSA going forward and will implement new business procedures to accurately record and compensate employees for all hours worked, in accordance with the law.

The FLSA requires that covered, nonexempt employees be paid at least the federal minimum wage of $7.25 per hour for all hours worked, plus time and one-half their regular rates of pay, including commissions, bonuses and incentive pay, for hours worked beyond 40 per week. Employers are required to keep accurate records of all hours worked by covered employees. The FLSA permits an employer to take a tip credit toward its minimum wage obligation for tipped employees that is equal to the difference between the required cash wage, which must be at least $2.13 per hour ($5.00 in New York), and the federal minimum wage. Employers may create a tip-pooling or sharing arrangement among employees who customarily and regularly receive tips, but a valid tip pool may not include employees who do not customarily and regularly receive tips, such as dishwashers, cooks, chefs and janitors.

According to waiterpay.com, Fresco by Scotto Restaurant will face trial on the issue of whether floor captains, stockers, and expediters improperly participated in the tip pool at the restaurant.

The Fair Labor Standards Act (FLSA) states that the pooling of tips among employees who are “engaged in an occupation in which they customarily and regularly receive more than $30 a month in tips” is permissible.

Continue Reading…

When you generate your payroll, you have two primary classifications of workers: employees and independent contractors. But who fits into which category? And if you misclassify someone, how can you avoid sanctions?

Thanks to a new program from the IRS, it is now easier to properly classify all of your employees and independent contractors.

According to an article by economic and statistical consultant Stephanie R. Thomas, the misclassification of employees is at the top of the Department of Labor’s agenda for 2012. The Agency, she says, has promised to redouble its efforts to combat worker misclassification, and is in the process of signing a Memorandum of Understanding with the IRS. Under the agreement, the agencies would work together and share information to reduce misclassification of employees, reduce the tax gap, and to improve compliance with federal labor laws.

But, Thomas writes, the two agencies seem to be taking different approaches to remedying misclassification. While the DOL is focusing on increased enforcement and audit activities, the IRS is taking a proactive approach with its new Voluntary Classification Settlement Program. The VCSP is part of the larger “Fresh Start” Initiative from the IRS aimed at giving businesses and individuals a fresh start with their tax obligations.

The program allows those employers who are concerned that they have misclassified employees in the past to voluntarily come forward, rather than wait for an IRS examination.

If you think you may have misclassified employees as independent contractors, the VCSP offers some significant advantages. Companies can reclassify individuals as employees for future tax periods and only pay 10 percent of the employment tax liability as a result of the reclassification for the most recent tax year. There are no penalties or interest on the employment tax liability. The IRS also agrees not to audit the employer on the classification of these workers for prior years.

In exchange for this deal, employers agree to extend the limitations period for assessment of employment taxes for an additional three years for the first three years after reclassification. This means that rather than the standard three-year look-back window, the IRS now has a six-year window to go back and review your tax returns to see if additional tax monies are owed.

In order to take advantage of the VCSP, employers have to apply to the program by completing Form 8952, Application for Voluntary Classification Settlement Program, at least 60 days before they want to begin treating the workers as employees. Employers also have to satisfy some basic eligibility criteria:

It’s important to be aware that the IRS is not obligated to accept your application and allow participation in the VCSP. So what happens if your application is rejected by the IRS? Because this program is so new, there’s not a lot of real-world experience yet. But the IRS has stated that rejection of the employer’s application will not automatically trigger an investigation, and employers can re-apply to the program in the future.

Thomas concludes, “If you think you have misclassified employees in the past, the Voluntary Classification Settlement Program may be a great way to proactively address the issue, rather than waiting for an IRS investigation, and save some money in the process. But before signing up, think about what reclassification may mean beyond your federal tax liability. There are implications for payroll, employer-sponsored benefits programs, unemployment and workers compensation insurance, etc. – not to mention the possibility of penalties from the DOL and state agencies.”

Tax liabilities, penalties and other implications aside, properly classifying your employees is essential. If you have improperly classified individuals as independent contractors, correct that mistake now and start the New Year off on the right foot.

If you’d like more information about employee classification, contact Jeff DiDomenico at Valiant.

According to a report on waiterpay.com, waiters at six Haru restaurants owned by Benihana, Inc., claim that they were not paid an overtime premium or the “spread of hours” pay required under the law.

Waiterpay goes on to say the complaint was filed in the United States District Court of the Southern District of New York. The Fair Labor Standards Act and the New York Labor Law require overtime pay of time and one-half after forty hours worked in a week. New York Labor Law also requires that restaurant workers receive an extra hour of minimum wage pay on days in which their “spread of hours” exceeds ten hours. Attorneys for the workers seek back wages, liquidated damages, and other remedies for the servers.

For more information about overtime and spread of hours compliance, contact Jeff DiDomenico