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What Restaurant Workers Need To Know About Wage Theft

April 17, 2022

Restaurant workers lose millions each year because of wage theft – but they can recover lost wages with the help of an employment lawyer.

Genevieve Carlton, Ph.D

What tops the list of illegal things restaurants do to employees? Wage theft.

Wage theft costs workers an estimated $50 billion a year according to the Economic Policy Institute. The restaurant industry withholds millions of dollars in wages from servers, bussers, hosts, bartenders, and other restaurant workers every year.

But many forms of wage theft are difficult to identify or even detect. What can restaurant workers do about wage theft? The first step is understanding the many different forms of wage theft that affect restaurant workers.

In the restaurant industry, wage theft takes several forms. For example, wage theft can include paying less than minimum wage, not paying overtime, and withholding tips. In fact, a U.S. Department of Labor investigation of over 9,000 restaurants found that 84% of those restaurants violated wage and hour laws.

The Billion-Dollar Tip Skimming Crisis

Underpaying tips, also known as tip skimming, is one of the most common illegal things restaurants do to employees. Tip skimming can cost restaurant workers millions in lost wages.

What’s tip skimming, and how does it affect restaurant workers? Tip skimming happens when restaurants withhold tips from front-of-the-house staff and give the money to managers or other back-of-the-house staff who do not qualify for tips.

Restaurants can legally pool tips to distribute them to eligible employees. But managers cannot receive those tips. When restaurants give tips to managers, servers lose money.

Tip skimming is a significant problem in restaurants. If restaurants skim money from servers’ tips, servers lose a significant portion of their earnings. The Economic Policy Institute estimates that tipped workers receive $36.4 billion in tips each year, so even skimming a small percentage of those tips means millions in lost wages.

Fortunately, laws protect restaurant workers from tip skimming. In several high-profile cases, restaurateurs have repaid lost tips to servers. For example, in 2012, Mario Batali paid out $5.25 million after illegally withholding tips from waiters and other restaurant workers.

Other Forms of Restaurant Wage Theft

Tip skimming is just one form of wage theft that harms restaurant workers. Other forms of wage theft, from illegal deductions to unpaid work time, can mean less money in restaurant workers’ paychecks.

Restaurants violate wage theft laws, for example, if they don’t pay mandatory service charges to servers. Customers assume that these service charges cover the tip, but in some cases, restaurants withhold the gratuity.

However, recent rulings in New York protect restaurant workers from this form of tip theft. If restaurants, event venues, or catering companies include a mandatory service charge on the bill, they must clearly state whether the charge is a tip. The money must go to servers and other tipped employees unless the restaurant clearly states the mandatory service fee covers administrative costs and is not a gratuity for servers.

Minimum Wage and Overtime Laws for Restaurant Workers

Minimum wage and overtime violations also affect restaurant workers. And the complicated laws for tipped employees make it even more likely for restaurant workers to lose wages.

Many restaurant workers, including those in New York State, receive a lower hourly rate than the minimum wage. Tips are supposed to make up the difference between the tipped minimum wage and the minimum wage. If you don’t earn enough in tips to raise your hourly rate to the minimum, your employer must pay the difference.

This complicated system can easily result in wage theft. For example, restaurant workers lose money if their employer intentionally or unintentionally miscalculates their tips.

When restaurant workers pool their tips, miscalculation can mean lost wages. Consider, for instance, a server who puts $100 into the tip pool during a shift, but only receives $80 in tips back from the pool. The employer can only consider the $80 as part of the server’s wages. If the employer calculates the minimum wage based on $100 in tips, the server may earn less than the minimum wage.

Restaurant workers are also eligible for overtime pay. But the lower tipped minimum wage can complicate overtime calculations. All tipped employees must receive time-and-a-half for any hours worked over 40 hours. However, the time-and-a-half calculation must be based on the full minimum wage, not the lower tipped minimum wage.

Restaurant workers can sue for unpaid overtime. In 2016, McDonalds paid $3.75 million to Bay Area workers after they were denied overtime.

The McDonalds employees also never received compensation for having to clean their uniforms – another form of wage theft. Under New York law, for example, employers have to pay for an employee’s uniform and pay laundering costs. Restaurant workers only have to pay for their uniform if the clothes cannot be worn as part of their ordinary wardrobe, and they only have to pay laundering costs if the uniform is “wash and ware,” meaning it needs no special cleaning or ironing.

Illegal Deductions in the Restaurant Industry

In the restaurant industry, employers cannot take certain deductions from employee paychecks. For instance, employers cannot deduct the cost of broken dishes or spoiled food from paychecks. They also can’t deduct wages from a server’s paycheck if a customer doesn’t pay their bill. If the cash register comes up short, restaurant owners cannot deduct the difference from employees’ paychecks.

Underpayment for hours worked also costs restaurant workers money. In some restaurants, employees conduct work before they clock in or after they clock out. Restaurant workers who open or close the restaurant must be paid for all hours worked, even if they have to officially clock out before opening or closing. Similarly, if restaurant workers perform any work during a meal break, they must be paid for that time.

Restaurant workers lose millions in wages because their employers illegally withhold tips, take illegal deductions, or underpay their employees. Employment laws protect restaurant workers from lost wages because of wage theft. When a restaurant owner violates these laws, their employees may be owed back pay plus damages and fines. The first step is to know the laws in your area. Then, reach out to an employment lawyer to help protect your rights.

Learn more about wage theft for restaurant workers, New York tipped employee laws, and minimum wage protections in New York.

You can also contact an employment lawyer for a free consultation to learn whether you have a case.

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