Wage and Hour Prosecutions Have Cost the Hospitality Industry $280 Million — Here's How to Avoid Getting Hit
Thirty years, 30,000 wage and hour prosecutions within the hospitality industry. That's around 1,000 per year, 20 per week, and 3 per day.
Yep, you read that correctly. Each day, approximately 30 hotels, restaurants, and bars across America are hit with an FLSA prosecution by the U.S. Department of Labor's wage and hour division.
And these numbers only reflect successful government prosecutions brought on by the DOL. Hundreds, possibly thousands, of other cases are also filed privately by attorneys every year. In fact, the number of private prosecutions has risen more than 450 percent within the last 20 years — and experts predict that those numbers will only continue to climb.
Today, the hospitality industry ranks #1 in volume of FLSA wage and hour prosecutions. Nearly a quarter of the 120,000+ cases pursued by the DOL since 1985 have been within the accommodation and food services industry, and, over the past 30 years, thousands of hotels, restaurants, and bars have been required to pay nearly $280 million in total fines and back wages, with an average payout of $9.5k — excluding legal fees.
In short, the hospitality industry has a huge target on its back when it comes to the Fair Labor Standards Act — and it's a target that's only growing bigger by the day.
The data alone might suggest that business owners within the hospitality industry are prone to non-compliance or "shady" practices — but employment law specialist Daniel Abrahams claims that these numbers, rather than representing bad business, are purely evidence of the complicated nature of the FLSA.
"Other than the IRS," he says, "the FLSA is about the most regulated area of American jurisprudence. A dispute with the DOL or a group of employees doesn't mean you're a bad employer. It just means that you ran afoul of some very complicated rules. There's no shame to be had in not knowing all the rules offhand, or running into trouble with these requirements."
In fact, even the DOL (the department responsible for enforcing the FLSA) has been accused of violating the complicated statute. "If the DOL can't get this right," says attorney Paul DeCamp, "what chance do other employers have?"
Unfortunately, due to the nature of the industry, businesses within the hospitality realm tend to have a lower chance than most. Here's why.
Having employees in multiple locations significantly decreases your ability to accurately track employee hours, curb overtime, or ensure your employees are taking their required breaks — three seemingly minor violations that can lead to major problems with the FLSA. After all, science has yet to invent a way for business owners to be in two (or more) places at once.
Employees who work within the hospitality industry rarely fall within the 9 to 5 category. Unfortunately, working irregular hours, trading shifts, or picking up extra hours can lead to unauthorized overtime or off-the-clock work violations. A shocking 80 percent of wage and hour lawsuits brought on by the DOL involve overtime violations, and off-the-clock work (also known as "wage theft") is one of the top reasons employees choose to sue.
More than 65 percent of employees within the hospitality industry still use paper timesheets or spreadsheets to track their hours. Unfortunately, these archaic paper processes often lead to sloppy records, inaccurate payroll hours, and, at times, serious FLSA violations. According to the FLSA, employers are required to keep employee time records for at least two years — and they must be able to produce those records within 72 hours of the DOL's request. With that in mind, accurate and organized records that prove exactly how many hours your employees have worked can be a business owner's #1 defense when it comes to getting hit with a wage and hour lawsuit.
The majority of employees within the accommodation and food services industry are low to minimum wage workers. Others are considered "tipped employees," which carries a slew of additional minimum wage law challenges. In fact, according to the DOL, minimum wage violations have been "concentrated in the leisure and hospitality industry" and are "most prevalent in the service occupations." Because of this, they plan to step up their vigilance in prosecuting such violations. U.S. Secretary of Labor Thomas Perez said, "To address the scale of this problem, we will redouble our enforcement efforts and partnerships to ensure workers take home the wages they earned and deserve."
The DOL's new overtime rule will officially go into effect on December 1, 2016. The rule will raise the overtime exemption threshold from $23,600 to $47,467. In other words, millions of employees (some experts estimate that this number could spike as high as 12 million) who were once considered exempt will suddenly qualify for overtime pay. And because such a high percentage of employees within the hospitality industry earn between $10 and $20 per hour, there's a good chance accommodation and food services will feel the hardest hit. Employers who find themselves between the old cutoff and the new cutoff are the most likely to pursue (and win) a wage and hour lawsuit.
So, what's the solution? How can business owners within the hospitality industry avoid getting hit with a lawsuit when the target seems so impossibly hard to miss?
1. Start tracking employee time — even for salaried employees.
Employment attorney Maria O. Hart says, "From a legal perspective, all I look for is that the business has a consistent way to track and record hours."
Automated time tracking gives employers valuable business insight that allows them to accurately classify employees, regulate overtime hours, and consistently track breaks or after-hours work.
Business owners within the hospitality industry — specifically those with employees in multiple locations — should look for a time tracking system that utilizes GPS location technology. This will allow them to see, at a glance, where their employees are working and what they're working on.
Additionally, using a cloud-based time tracking solution ensures that accurate employee time records are just a click away. "And employees need to track their hours so they know what they're entitled to," Hart adds.
2. Create and enforce a company policy.
More specifically, create and enforce a company policy that complies with both the federal and state regulations of each state your employees work in. "Everything comes back to having a rock-solid policy," says Hart, "I can't emphasize that enough."
When it comes to wage and hour lawsuits, having an official, written policy is a necessity to defense. It should detail exactly when employees are authorized to work overtime, how they're expected to track their time, when they're expected to take breaks, etc. "If the policy is super complicated, it might be worth it to invest in an attorney to help you craft it," says Hart.
Then, enforce it uniformly throughout your company. A written policy, not matter how clear, "does not protect the business if the business does not implement the policy uniformly — if they only apply to certain employees or only when it's convenient," says Hart.
3. Stay up-to-date on federal and state regulations.
"The federal law is one thing," says Hart, "but it's the minimum. Each state is well within their authority to create a more robust or stronger law. Business owners need to be aware and up-to-date on both."
However, it's a task that's easier said than done. "The FLSA's wage and hours provisions are a complicated, shifting target," says Abrahams — a fact made evident by the DOL's failure to comply with them. "The law is being reinterpreted in new ways all the time through court rulings, making it very difficult to stay on top of every nuance in real time." He suggests asking your HR team to "keep an ear to the ground when it comes to pivotal court cases in your industry, and enlist legal counsel to help you stay abreast of changes that may impact you."
Employment attorney Lee Schreter adds, "Make sure [you] have the mandatory posters up" in each of your locations — and make sure those posters are up to date. "It's one of the easiest things to do to stay up-to-date with DOL regulations and avoid wage and hour lawsuits," she says.
There may be a target on the hospitality industry's back — but by accurately tracking employee time, enforcing your company's overtime policies, and staying current on DOL and FLSA regulations, you might just avoid getting hit.
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