April Fool’s Day will take on a new meaning for New York City’s businesses this year, when a paid sick leave law goes into effect. NYC is following the lead of other American cities like San Francisco, Seattle, and Washington DC by making it mandatory to pay employees for sick days. A bill was passed by the City Council last year requiring NYC employers with 20 or more employees to provide at least 40 hours of paid sick leave annually. However, after Mayor de Blasio took office this year, he proposed, and the city council passed, legislation changing the law to apply to all employers with 5 or more employees being required to give paid leave.
When the new law takes effect, employers will be required to accrue 1 hour of sick leave for every 30 hours of work with a maximum annual amount of 40 hours. At the end of each year, an employer can either pay out all accrued sick pay or permit an employee to carry it over to the following year. For those employees who receive some of their compensation in the form of tips, it appears that the sick pay they receive will only consist of the wage portion.
I appreciate the obvious benefits of this law which certainly promotes public health. However, I have several problems with it. First of all, it was passed last year and was supposed to impact only employers with 20 or more employees. The de Blasio administration is forcing these new changes on small establishments with no time for them to prepare. In addition, this new law undermines businesses that already give paid sick days to their employees. This law may make sense for some types of businesses that don’t have to replace a worker who does not show up for work on a given day. However, in a business like a restaurant you normally have to replace a worker who calls in sick. This results in the establishment paying one employee to work and one to stay home, increasing labor costs. Because, for the most part, there is no requirement for an employee to verify that he was sick, this law is really not a sick pay law, but rather a paid time off law. There seems to be a lot of debate about whether this law will have a negative impact on the city’s economy. No one knows for sure but we should be realistic and accept the fact that if labor costs increase, that added cost will be passed on to consumers!
A major investigation tipped of employees by the Department of Labor has Philadelphia sports bar and restaurant chain, Chickie’s & Pete’s, looking at a whopping $6.8 million in back wages and damages.
Chickie’s & Pete’s was found to have improperly taken tips from servers and to have violated federal overtime, minimum wage, and record-keeping requirements. Investigators from the Department of Labor’s Wage and Hour Division determined that Chickie’s & Pete’s required servers to contribute between 2 and 4 percent of their daily table sales to an illegal “tip pool.” Sixty percent of that money went directly into the pockets of Chickie’s & Pete’s sole owner, Peter Ciarrocchi, Jr. The illegally pooled tips – known to Chickie’s & Pete’s employees as “Pete’s Tax” – were paid directly to management in cash at the end of each shift.
In addition to confiscating tips, Chickie’s & Pete’s paid servers and bartenders a shift rate that often did not cover hourly minimum cash wage requirements for tipped employees. Other violations included: insufficient overtime pay for employees working more than 40 hours a week, unpaid mandatory meetings and training, and requiring employees to pay for uniforms.
“Restaurant servers are among the lowest paid workers in this country,” said U.S. Secretary of Labor Thomas E. Perez. “Tipped workers deserve better and this action shows that the Department of Labor is ready to stand up for them.”
The $6.8 million dollar consent judgment will be divided between 1,159 employees at nine Chickie’s & Pete’s locations. Additional penalties and requirements include: a $50,000 civil money penalty, enhanced external and internal compliance monitoring, education for employees regarding their rights under the FLSA, and mandatory statements disclosing the details of all company tip pools.
Across the country, Labor unions are organizing workers to increase the minimum wage for fast-food and other employees. Meanwhile, business owners and lobbying groups such as the National Restaurant Association (NRA) argue that an increased minimum wage cold wreak havoc on the economy and lead to an increase in the country’s unemployment rate.
Don Fox, CEO of Firehouse Subs and a vocal opponent of an increased minimum wage, stated the following: “I don’t support raising the national minimum wage. The average restaurant company can’t do that without some very serious price-raising. It… has a ripple effect throughout the entire economy,”
The NRA agrees with Mr. Fox. According to Scott DeFife, executive vice president of policy and government affairs for the NRA, raising the federal minimum wage could cripple the job market. In the words of DeFife, “Labor costs are estimated to be about a third of a typical restaurant’s operating budget. If the minimum wage doubles, that is going to have a significant impact on the price of dining out and food costs, and a decrease in jobs.”
On the other side of the issue, you find pay raise advocates such as Saru Jayaraman, the co¬director of the Restaurant Opportunities Centers United and director of the Food Labor Research Center at the University of California. According to Ms. Jayaraman, “all restaurant workers should receive a stable base wage that allows them to feed themselves and their families… With over 10 million workers,” she continues, “the restaurant industry is one of the largest- and fastest-growing sectors of the United States economy. But it also provides the lowest paying jobs. This is largely because the federal minimum wage for all workers is $7.25, and $2.13 for tipped workers.”
Ms. Jayaraman is not the only pay raise advocate to point out the disparity between quick-service chain profits and corresponding wage increases. According to Tsedeye Gebreselassie, an attorney with the National Employment Law Project, “…the line that they (quick-service restaurants) cannot afford to pay higher wages does not hold water, when you look at the profits they are making…. McDonald’s posted $5.5 billion in profits last year and Yum! Brands had $1.6 billion in profits.” She points to limited-service restaurant chains that pay higher than the national minimum wage and says, “they are doing just fine.”
At the very least, The Great Restaurant Pay Debate has led us to question more deeply how to best determine the ‘sweet spot’ for restaurant pay. As it stands, store operators are largely opposed to minimum wage hikes, believing that they themselves are best suited to determine how much they can pay workers while remaining profitable. On the other side of the debate, labor unions and pay raise advocates argue that the private sector should not be wholly responsible for determining worker compensation, and that state and federal governments have a significant role to play.
Where do you stand on the The Great Restaurant Pay Debate?
1. Wage and Hour Lawsuits Have Restaurant Owners Thinking Outside the Tip Box
Wage and hour lawsuits are currently the largest type of workplace class action lawsuit in the industry. Restaurant owners are being sued for failure to pay tipped employees for overtime, spread-of-hours-pay, “off-the-clock” work, and more.” In light of these lawsuits and government audits, some owners have started eliminating tipping altogether in favor of paying a straight salary to servers.
2. New Local Laws Affect Sick Leave and Pregnancy Accommodations
Beginning April 1, 2014, NYC will be required to cover sick leave. The new law – which passed over the veto of Mayor Michael Bloomberg – will be enforced by New York’s Dept. of Consumer Affairs.
On September 24, 2013, the Pregnant Workers Fairness Act was passed by the NYC Council. The law requires employers with four or more employees to provide accommodation for pregnancy, childbirth and related medical conditions.
3. The Crackdown Begins on Hiring Illegal Workers
According the Wall Street Journal, U.S. Immigration and Customs Enforcement (ICE) has stepped up its audits of companies hiring
undocumented workers – most notably in the restaurant industry.
4. Supervisors Can Share Tips. Sometimes.
The New York State Court of Appeals recently determined that Starbucks’ shift supervisors are entitled to share in baristas’ tip pools. Assistant managers, on the other hand, are not.
5. ObamaCare Making An Impact
The Affordable Care Act (ACA) is now the law and employers must notify employees about healthcare exchanges and federal subsidies for private health plans. In addition, by 2015, employers with 50 “full time employees” must offer health coverage to employees and their dependent children.
Labor and Employment Developments are making this a very busy season for the Restaurant Industry! Stay informed by reading the full report.
Most diners have learned to check their bill closely when it comes time to pay. That’s partly because automatic gratuities are the norm in many restaurants, especially for larger parties. The idea of an automatic gratuity can be problematic for diners – shouldn’t we decide how much to tip our server based on the quality of their service? Now, it’s going to get even more complicated for both servers and restaurant owners.
A new IRS ruling will treat automatic gratuities as service charges, rather than as tips. Servers will no longer have to report these tips as income, as they will show up instead as part of a server’s wages. The money will be subject to payroll tax withholding and it will show up on servers’ subsequent paychecks, rather than be distributed as cash on the day they were received.
For restaurant owners, the new rules present added challenges, most notably in the form of additional accounting hours required to properly keep track of every server’s tips and wages. Larger restaurant groups and those with more sophisticated accounting departments may be able to incorporate the changes with few hiccups, but single operators are certain to rue the day the IRS decided to institute the rule change.
Some restaurants have already begun looking at new ways to handle automatic gratuities in order to avoid accounting headaches. Darden Restaurants, the mega group who owns Red Lobster, Olive Garden, Capital Grille and four more dining concepts, is experimenting with “tip suggestions” in 100 of its restaurants across the country. They intend to make a decision by the end of the year, as the new rule goes into effect on January 1, 2014.
How the restaurant industry reacts to the new ruling remains to be seen. It could potentially be a dramatic change to the profitability of restaurants and leave them open to more legal and staffing challenges. It’s already very clear that the issue of automatic gratuities is a taxing one for servers and restaurant owners alike.
In two recent federal court decisions, restaurants were compelled to pay a total of $2.7 million in back wages and damages after it was ruled that they had violated the Fair Labor Standards Act.
According to the U.S. Justice Department, a Wage and Hour Division investigation found that Qing Xing Inc. had violated the Fair Labor Standards Act’s minimum wage, overtime and recordkeeping provisions during a three-year period. It was found that the restaurant owed 44 employees a total $430,824 in back wages and $524,706 in overtime pay. In a second review it was determined that Super Buffet will be required to pay $259,286 in back wages to 16 workers and $156,975 in overtime to 14 workers.
The court ordered damages are equivalent to the total amount of unpaid wages and overtime pay, demonstrating once again that the best way to avoid the wrath of labor law is to follow it to the letter!
It appears that California is very, very close to raising its minimum wage to $10 per hour. According to California’s Governor. Jerry Brown, the $10 rate is “overdue.”
If the legislation passes, millions would see their hourly pay go from $8 to $9 in July of 2014, and then to $10 in January of 2016.
Though the increase would certainly be significant, it would still leave minimum wage workers far below the poverty level for a family of four. Roughly 2.5 million children in California live in a home with a minimum wage earning parent.
The nation’s federal minimum wage is 7.25 hourly and the state of Washington currently boasts the highest minimum wage in the nation, at $9.19 hourly.
The pay raise follows a nation-wide wave of protests by minimum wage workers and pay raise advocates. Advocates of the pay raise believe it will stimulate the economy, as low income workers spread the wealth due to their increased purchasing power. Business groups, on the other hand, argue that the increases will stall economic growth because it will drain the bank accounts of job creators.
Employers relying on the services of minimum wage employees need to prepare for increases in their costs of doing business. For example, large-scale restaurants like Papa John’s, have already begun to cut hours. Others are considering passing the cost along to the customer. With minimum wage rising, this becomes a slippery slope.
While the ultimate effects of the new legislation remain to be seen, it will be welcome news to the millions of minimum wage pay earners across the nation. And since many of the new jobs being created in today’s economy are minimum wage jobs, it will also undoubtedly have an effect on the nation’s economic recovery.
Ask yourself, would it be fair to have to pay a fee in order to collect your paycheck? While most people would undoubtedly answer “no” to this question, a growing number of American workers claim they have no choice but to do so. These workers receive their pay loaded onto payroll debit cards – a form of payment that offers many advantages, but also some significant pitfalls.
Payroll debit cards are a great solution for unbanked employees. They are secure, convenient, and often less expensive than check cashing services. In addition, they serve as a reliable form of payment in times of crisis (think Hurricane Sandy!) when power outages can hold up both the printing and delivery of traditional paychecks. On the down side, they often involve usage fees for withdrawing cash, viewing printed statements, and for replacing lost or stolen cards.
A recent lawsuit and some critical reports by government regulators contend that those paying the highest fees are also the least able to defend themselves. These workers tend to be paid hourly. Some do not have bank accounts and therefore cannot receive direct deposit checks. Others simply have no choice, as their employers have replaced paper paychecks and even direct deposit with prepaid debit cards. While some companies using payroll debit card programs offer other optional forms of payment, employees may be automatically enrolled in the program and required to fill out a great deal of paperwork in order to opt out.
“Helping workers access their hard-earned paychecks in a quick and reliable way is a good idea,” says Jason Gold, a financial services policy expert at the Progressive Policy Institute, “…But when workers are forced to accept their wages loaded onto debit cards and get dinged for big fees, we have a problem.”
A few of the well-known companies that offer prepaid cards to their workers include: Walgreens, Wal-Mart and Taco Bell.
Card issuers such as Bank of America, Wells Fargo and Citigroup claim the cards are cheaper and more efficient than other forms of payment and their websites boast statistics to support the view.
A calculator on Visa’s Web site estimates that a company with 500 workers could save $21,000 a year by switching from checks to payroll cards. On its web site, Citigroup claims the cards “guarantee pay on time to all employees.”
But, for 27-year old Natalie Gunshannon, a former McDonald’s worker, the process is anything but fair. She claims the franchise owners she worked for refused to deposit her wages into her checking account at a local credit union, requiring her to pay transaction fees that her credit union would not have charged. She has since taken her former employers to court, as have other employees who were enrolled in prepaid debit card programs.
While the benefits of payroll debit cards are difficult to ignore, the potential pitfalls are also quite glaring. For the benefit of workers and business owners alike, those who choose to issue payroll debit cards as a form of payment should be mindful of their fee structures.