The restaurant industry is often the target of wage and hour lawsuits, particularly, ethnic restaurants, which find themselves on the defense side of a wage claim or lawsuit filed by a server or cook who was recently terminated. For ease of administration, many smaller restaurant owners and their staff agree on wages in the form of a fixed daily rate that is paid regardless of the number of hours the employee works.
Unfortunately, many of these restaurant owners believe that because there’s an agreement between them and the employee and because a close personal relationship that this type of arrangement is fine. However, this mistaken understanding will cost many hard-working small business owners tens of thousands of dollars if not ultimately force them to close down the business. Here is information that could keep you and your restaurant business out of trouble.
Can I pay employees a flat daily rate instead of hourly?
Technically, yes because neither federal nor California law requires that you pay employees on an hourly or any other basis. BUT paying employees a flat daily rate regardless of how many hours they work exposes you to a wage theft claim if your non-exempt employee isn’t paid minimum wage and/or works overtime.
What’s the problem with paying a fixed daily rate?
Failure to Pay Minimum Wage
If the daily rate divided by the number of hours that an employee works falls below the minimum wage, an employer would be liable for additional unpaid wages, liquidated damages, and most likely waiting time penalties and attorney’s fees. That difference of a few dollars a day will add up to thousands of dollars in damages.
Failure to Pay Overtime
An employee’s daily rate is considered straight time wages and is meant to compensate an employee for their regular hours of work only. So when an employee works overtime, s/he is entitled to additional overtime premium pay.
Example: Let’s take a hypothetical cook who is paid a daily rate of $100 per day. On Monday she worked 9 hours. This is 8 regular hours plus 1 hour of overtime. Thus, her regular rate of pay is $100/9 = $11.11. Her overtime rate is $16.67. Therefore, on Monday, instead of her normal $100 per day payment, Jane should have been paid $116.67.
Many restaurant owners run into trouble because of the misunderstanding that the daily rate fully compensates the employee for all hours worked.
Contact me at (949) 529-0007 if you are paying employees a flat daily rate you should consider an audit of your employment practices liability to minimize your risk of liability.
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