Labor costs are a major expense and a complex challenge for the hospitality industry, as compliance is regulated by a shifting landscape of federal, state, and local laws. Successfully navigating this requires diligent adherence to the Fair Labor Standards Act (FLSA) baseline rules, covering minimum wage, overtime, and mandatory poster display, while simultaneously managing stricter state-level requirements for meal breaks, predictive scheduling, and nuanced tip pooling rules. The ultimate defense against costly audits and litigation lies in proactive compliance supported by meticulous documentation, including time-and-attendance records, accurate wage statements, and proper I-9 form retention, all of which must follow the longest record-keeping period mandated by any relevant jurisdiction.
Federal Employment Laws
The U.S. department of labor outlines some parameters for restaurant employers. One of the main pillars of this institution is the Fair Labor Standards Act (FLSA). Under this law, most restaurant workers are protected/covered by a set of minimum wage and overtime pay requirements. Effective July 24th, 2009, the federal minimum wage is $7.25 per hour, with many states setting their own requirements. For example, the New York state minimum wage in 2025 is $15.50, up $0.50 from 2024. Cost of living is up across the board, and states with considerably high prices like California, New York, and Washington state all have a minimum wage of over $15.
Additionally, under FLSA, employees must receive overtime pay for more than 40 hours worked. This pay cannot be less than one-half of regular pay. For employees over 16, there is no limit on the number of overtime hours they can take, but the FLSA does not require overtime pay for work on weekends or holidays.
An easy way to stay compliant is through the maintained posting of workplace posters. Examples of these could be:
- Job Safety and Health: It’s the Law” Poster (Occupational Safety and Health Act/OSHA)
- Employee Rights and Responsibilities Under The Family and Medical Leave Act” (FMLA)
- Employee Rights for Workers with Disabilities Paid at Special Minimum Wages” Poster (FLSA Section 14(c))
- Your Rights Under USERRA” Notice/Poster
Although it differs by poster, failure to display these materials can result in civil penalties and fines. For more information about the specific materials needed for posting in your business visit https://www.dol.gov/general/topics/posters. An additional service offered by the U.S. Department of Labor is a regular newsletter and current events bulletin, designed to keep business owners up to date with happening and new regulations, health and safety, work hours, days off, and other regulations.
The Importance of State and Local Compliance
While the FLSA sets up a baseline, individual states or cities have their own unique regulations that hospitality businesses must follow. These frequently exceed federal standards:
- Meal and Rest Breaks: Federal law does not mandate meal or rest breaks, but many states (e.g., California, Washington, New York) have strict requirements for the length and timing of these breaks. Failure to provide them can lead to significant penalties.
- “Predictive Scheduling” Laws: Cities like New York and Seattle have adopted “Fair Workweek” or “Predictive Scheduling” laws for certain quick-service or retail industries. These laws require employers to provide schedules for a set number of days in advance and may require “predictability pay” (or penalty pay) for last-minute changes to an employee’s shift.
- Tip Pooling vs. Tip Sharing: State laws vary widely on who can be included in a mandatory tip pool (e.g., whether back-of-house staff can participate). Understanding these rules is vital to avoid wage theft claims. In cities like New York, restauranteurs are allowed to engage in tip pooling, but they are not required to enforce it. Also in New York, only staff members who are considered front-of-house can participate in a tip pool. In most cases, the amount contributed to a tip pool
Documentation: The Defense Against Non-Compliance
Proper documentation is the first line of defense in any labor dispute or audit. To stay fully compliant, employers must maintain records for every employee. Key documentation requirements include:
- Time-and-Attendance Records: Meticulous records of the exact time an employee begins and ends each work period, including the start and end of any meal period. These records must be kept for at least three years under the FLSA.
- Accurate Wage Statements: Pay stubs must clearly detail the regular rate of pay, overtime hours, gross and net wages, and all deductions.
- Signed Documentation: Every employee file should contain signed documents, including an acknowledgment of the employee handbook, job description, and any agreements regarding tip credit or tip pooling.
- I-9 Forms: Proof of employee eligibility to work in the U.S. must be completed and stored correctly. The government can audit these forms separately from wage and hour records.
Record Keeping
Beyond the initial documentation requirements, the regular maintenance of detailed records is essential for proving compliance in the event of an audit or dispute. This includes ensuring employees are paid with the correct Pay Frequency, on a regularly established payday that adheres to all state requirements (such as weekly, bi-weekly, or semi-monthly schedules). While the FLSA sets a three-year Record Retention period for most payroll records, many states mandate a longer period (e.g., four or six years), making it best practice to retain records for the longest required duration. Finally, careful attention must be paid to Handling Deductions; all payroll deductions must be legal, properly authorized by the employee, and clearly detailed on the wage statement, as illegal deductions can lead to serious wage theft claims.
Paperchase’s Localized Expertise and Prioritizing Proactive Compliance
When searching for a restaurant’s financial solution, operators may want to partner with an accountant who is local to their business. Many of the leading accounting services rely on automated processes or account managers who are continents away. Paperchase has headquarters globally, with offices in 3 major US hubs. With us, you get a wide network of support with a dedicated account manager that understands nuanced local regulations. Labor compliance is not a set-it-and-forget-it task; it requires constant vigilance and detailed record-keeping. The hospitality industry’s high turnover, reliance on tipped wages, and use of both adult and minor workers create a unique minefield of regulations. By prioritizing accurate timekeeping, meticulous documentation, and adherence to state-specific nuances like meal breaks, predictive scheduling, and tip pooling rules, hospitality businesses can significantly reduce their risk of costly litigation and government audits. Proactive management of these areas is the best defense against non-compliance and is crucial for the long-term financial health and stability of the business.
