Why You Shouldn’t Ignore Payroll Compliance & How To Make It Painless!

Payroll is one of the most critical aspects of any business. Properly paying your team creates trust, employment longevity, and helps operators avoid costly payroll compliance issues. This post reviews the current industry landscape regarding labor and payroll compliance. Continue reading to learn why it’s crucial that operators work with integrated point solutions to ensure they’re compliant, no matter what region they’re in!

The Background on Payroll Compliance – What are some Current Issues?

Issue #1) Meal & Rest Period Requirements

Federal versus State Laws are entirely different regarding Meal & Rest Period Requirements. The variances in legislation confuse operators as they’re unsure which laws they need to follow. The penalties are hefty, and fines can range upwards of $1,000 per instance if an operator is not compliant. The penalties can add up quickly and cripple a business. California restaurants are at high risk of Meal & Rest Break compliance penalties because the state makes it easy for an employee to take action against an employer. Below we’ll review a few differences between Federal and State Laws within Meal & Rest Breaks.

Federal Law: Meal & Rest Compliance — Federal Law, does not require rest or meal periods

• • However, when employers offer short breaks (usually lasting about 5 to 20 minutes), federal law considers the breaks as compensable work hours. These hours should be included in the sum of hours worked during the workweek and considered in determining if overtime was worked
  • Meal periods (typically lasting at least 30 minutes) serve a different purpose than coffee or snack breaks and, thus, are not work time and are not compensable

State Law: Meal & Rest Compliance — Most states have Meal and Rest Period requirements for employees working shifts of certain lengths (AZ, ID, KS are a few of the only states that do not have Meal and Rest Period requirements)

• • A meal period is typically 30-minutes
    • A meal is usually due to employees after working 5-6 hours in a shift
    • If an employee is relieved from all duties, the 30-minute meal period can be unpaid
    • If an employee is not relieved from all duties, the entire break must be paid
    • An unpaid meal period does not count towards identifying whether an employee has worked enough hours to trigger overtime pay
      • This is because meal periods are generally uncompensated and do not count as time worked
    • When the nature of the business or other circumstances make an uninterrupted meal period impractical, employees are to be allowed to consume an on-duty meal while performing duties and be fully compensated for the on-duty meal period
      • Employees must be fully compensated for any on-duty meal period
  • A rest period is typically 10-minutes
    • A break is usually due to employees after working 2-3 hours in a shift
    • During the break, employees must be relieved from all duties
    • The rest period is paid whether relieved of all duties or not
    • Required rest periods are time worked for purposes of calculating minimum wage and overtime requirements

Issue #2)  Predictive Scheduling Laws

Predictive Scheduling Laws are popping up across the nation. They’re incredibly complex and have created mass amounts of confusion around the legalese used in regulations. Like Meal & Rest Break compliance, California restaurants are especially at risk regarding Predictive Scheduling Laws. Below are examples of specific legislation around scheduling requirements.

California “scheduling laws” that are not referred to as “scheduling laws” (but fall under the premium pay requirements for not complying with the law)

• • California requires Additional Premium Pay
    • An additional hour at minimum wage is due to employees when working a split shift
    • The requirement is that an employee earns at least minimum wage for all hours worked when there is a split shift, plus 1 hour of pay at minimum wage
  • Second shifts must be at least 2 hours in duration
    • If a second shift in one day is less than 2 hours in duration, the employee is due the difference between 2 hours and the actual shift length in hourly pay at the employee’s regular rate of pay
  • When an employee is scheduled to work and does report but is furnished less than half said employee’s scheduled day’s work, the employee is due half of the scheduled day’s work, but in no event for less than 2 hours nor more than 4 hours of pay, at the employee’s regular rate of pay
  • It is necessary to have records showing when the employee begins and ends each work period
    • Operators must record Meal periods, split shift intervals, and total daily hours worked

Predictive Scheduling Laws

• • At a high level, predictive scheduling requires employers to post work schedules in advance, generally 14 days
  • Some laws are more restrictive than others, with additional obligations for employers, including:
    • Communicating an estimate of how many hours a new hire can expect to work each week
    • Notifying employees of potential on-call shifts
    • Provide the opportunity to existing employees for more shifts before an employer hires a new worker
    • Payments to employees for schedule changes
  • Each jurisdiction handles predictive scheduling laws a bit differently
    • Cities that have predictive scheduling laws in place: Emeryville, CA; San Francisco; Seattle; New York City; Philly; Chicago
      • Example — Oregon Scheduling Laws:
        • Employers must give new employees a written good-faith estimate of their work schedule at the time of hire
        • A written work schedule is to be provided to employees at least 14 calendar days before the first day of the schedule
        • Employers and employees can request scheduling changes under certain conditions; however, employers must provide additional compensation for certain changes they request
        • Employers can’t schedule or require employees to work the first 10 hours following the end of the previous calendar day’s work shift or on-call shift
        • Employers must provide Additional compensation for schedule changes

Additional Payroll-Related Compliance Issues:

• Operators not paying overtime when an employee works over 40 hours in a week, or in some cases 8 and 12 hours in a day
• Not including service charges, commissions, or non-discretionary bonuses in the regular rate of pay
• Including BOH in tip-pool while at the same time taking a tip-credit on tipped employee’s wages
• Classifying an employee as a tipped employee because they receive a small amount of tips for a small portion of their job

RELATED: How to Record Tips in Accounting

The Solution – How To Make it Painless:

Working with a purpose-built restaurant compliance solution enables operators peace of mind that they’re always compliant with the law. RASI offers clients the security of knowing that proper rate of pay, overtime, meal, shift, and break compliance are properly and accurately tracked and reported!