The hospitality industry continues to be hard hit by wage-and-hour class actions. Because both federal and state wage and hour laws are filled with exacting requirements, here are some of the most common claims made in wage and hour class actions against the hospitality industry and some of the actions an employer can take to avoid potential litigation.

1. Make Sure All Employees Are Being Paid At Least Minimum Wage.

While at first glance this bit of advice seems like a no-brainer, there are several pitfalls that continue to trap even the most sophisticated employers. First, make sure you are using the highest minimum wage rate applicable to your employees. For example, if your state minimum wage rate is $9.00 and the federal rate is only $7.25, you must apply the higher rate. Further, many city and county legislatures have increased local minimum wage rates.  Most recently, the Los Angeles City Council made headlines after voting 14-1 to increase the minimum wage rate in Los Angeles from $9.00 an hour to $15.00 an hour by 2020.  Several other cities, including San Francisco, CA ($15.00), Chicago, IL ($13.00) Seattle, WA ($15.00), and Louisville, KY ($9.00) have all enacted legislation increasing the local minimum wage rate in the coming years for at least some employees to a rate higher than the federal and their state minimums. Portland, Maine, New York City and Washington D.C. are also considering proposed increases to the local minimum wage. Check whether the states and municipalities in which your company does business is implementing any similar law.

2. Make Sure Your Employees Have Received Proper Notice Of Their Rights Under Applicable Wage And Hour Laws

Every covered employer under the FLSA must conspicuously post a notice explaining the FLSA. The content of the notice is mandated by the Wage and Hour Division of the United States Department of Labor. Many states have their own requirements for notice under their wage and hour laws. For example, under its Wage Theft Prevention Act, New York requires employees be given written notice in English and in the employee’s primary language (if the New York Department of Labor offers a translation), of their rate(s) of pay, regular pay day, information concerning allowances taken as a part of the minimum wage (such as tip credit) and certain information about the employer. Providing improper notice can lead to invalidation of the tip credit, as well as hefty statutory penalties.

3. Make Sure Tipped Employees’ Wages Are Properly Calculated And Distributed.

A considerable percentage of recent wage-and-hour class actions relate to tip practices. Under the FLSA, a “tipped employee” is defined as any employee engaged in an occupation in which he or she customarily and regularly receives more than $30 a month in tips. In calculating a tipped employee’s wage rate, first, an employer must consider whether a tip credit is allowed under applicable local, state and federal laws for each of their establishments’ tipped employees. While an employer under the FLSA may take a tip credit for its tipped employees if certain requirements are met, many local and state governments have more stringent rules. States such as California, Alaska, Oregon and Washington require employers to pay at least the full state minimum wage in addition to tips. Other states, while allowing employers to take a tip credit, utilize different tip credit rates than the FLSA. Once an employer has determined the appropriate tip credit rate to apply and provided the employee with the appropriate notice of his or her wage rate, the employer must apply the tip credit correctly. A common miscalculation is to use the tip credit rate to determine the overtime rate for an employee, rather than taking the tip credit after the overtime rate is calculated based off regular minimum wage. For example, if an employee’s regular rate (i.e. the employee’s hourly rate without any credits or allowances taken) is $10.00 and the employer is allowed a legal tip credit of $3.00, the employee’s overtime rate would be $12.00 (($10.00 x 1.5) -$3.00). There are many other discrete requirements for calculating tipped employees’ overtime compensation, so if you have tipped employees, make sure you are paying them in accordance with the FLSA and all other applicable laws.

The lesson here for employers in the hospitality industry – as well as employers in many other industries – is to know your local, state and federal rules and regulations. What may be an appropriate action under one may not be enough to make an employer compliant under another.