Brewery compensation series part 3: Paying front-of-house staff

front of house compensation

This article is the third and last piece in the Brewery Compensation series (part 1 and part 2), which is intended to provide guidance on the variety of compensation structures for common positions in the brewing industry. The series has been focused only on highlighting common issues with employee compensation and is not designed to serve as a comprehensive summary of specific federal and state laws that govern payment of employees and independent contractors. As always, we encourage you to consult a legal professional regarding your specific compensation questions or issues.

The first article in the series dealt with compensation for employees working on the brewing side of operations – head brewers or brewmasters, assistant brewers, and other related positions. Our second article focused on compensation for the sales team. In this final piece, we will look at issues specific to the front-of-house staff – beertenders, servers, and front-of-house managers.

The front-of-house team plays a critical role in the branding and identity of your company to the public. These individuals create the atmosphere and experience that brings back repeat customers and results in positive reviews of your location and your beer. At the same time, front-of-house staff also have higher turnover rates than other positions, and are often in the best position to cause long-term financial damage in the form of free drinks, trading drinks for favors at other restaurants or bars, or outright theft from the cash register. As you hire your front-of-house team, you want to focus on bringing in individuals who are able to work well with others, willing to perform duties that may fall outside of the norm, and committed to being on time, in uniform and ready for anything.

Independent Contractor or Employee?

As we have emphasized in our prior articles, the first step in bringing on a new worker is to determine whether the individual will be an employee or an independent contractor. The factors for this test are covered heavily in the first article in the Brewery Compensation series. As with most individuals at your brewery or tasting room, front-of-house staff are probably going to be employees. While these individuals may also work in front-of-house positions for other restaurants or bars, the level of control the company has over the method and means of work renders these individuals as employees and not independent contractors.

Exempt or Non-Exempt?

Assuming the new front-of-house worker is an employee, the next question is whether the position is non-exempt or exempt. Non-exempt employees are generally paid hourly and are entitled to overtime and meal and rest breaks. Exempt employees, on the other hand, are paid a flat rate salary regardless of the number of hours worked.

The default classification under federal and state law is non-exempt status. Beertenders and servers will almost always be non-exempt staff, as they are not engaged in the kinds of job duties that are associated with exempt status.

Front-of-house managers, however, may qualify for the “executive” exemption category. Under the federal Fair Labor Standards Act (FLSA), this is an individual who:

(a) has the primary duty of managing the business or a customarily recognized department or subdivision of the business;
(b) customarily and regularly directs the work of two or more full-time employees; and
(c) has the authority to hire, fire or make other personnel recommendations.

If this person is classified as an executive, they are not subject to overtime or designated meal and rest breaks. Job duties that are typically performed by exempt executives include:

interviewing, hiring and training new front-of-house employees; conducting performance evaluations;
disciplining and/or terminating employees (or making recommendations for discipline or termination);
making budget and purchase decisions;
creating techniques and processes for customer complaints, customer accidents, or customer service issues;
handling employee grievances and complaints; and
planning, directing and scheduling work assignments.

In addition to performing the required job duties, the front-of-house manager must also be paid a minimum salary level in order to be considered exempt employees. As of the date of this article, the federal FLSA minimum salary required for an exempt executive is $455 per week – it is widely expected that this minimum salary rate will be revised sometime in 2016 to a salary rate that could be as high as $900 per week. Depending on your location, the state minimum salary required for an exempt executive may be higher than the FLSA minimum. As always, you must abide by the highest salary rate required.

Before classifying a front-of-house role as non-exempt or exempt, review your state laws and state wage orders to determine the job duties and minimum salary requirements for various exempt roles. Misclassification of employees as exempt can have significant wage and hour consequences, so good planning and good decision making is important.

Click next page for info covering tips, handling breakage costs, uniforms and more.

Tips

Front-of-house employees generally receive tips for service as part of their overall compensation. Tips or gratuities that are provided voluntarily by the customer are the property of the employee, and employers are legally barred from keeping any portion of those funds. It is important to have a clear and definite tip policy in place for front-of-house staff before opening, as this area can result in a lot of liability.

One of the first issues to address is what kind of employees are eligible to receive tips. Tips can either be given directly to the server or beertender or can be pooled together into a common fund that is then distributed evenly to designated positions. The FLSA permits back-of-house individuals – dishwashers, cooks, chefs, and janitors – to participate in a valid tip pool, but numerous state laws only permit individuals who are directly involved in table service to participate in a tip pool. Oregon, Massachusetts and California are among the states with specific laws about tip pooling and tip sharing. Exempt managers should almost never be part of the tip pool – if they are providing direct table service as a primary job duty, they likely should not be designated as exempt.

Restaurants and bars are also eliminating tips in some instances, as a way to manage rising labor costs that come with higher minimum wage levels. Many establishments are raising menu prices or imposing a mandatory customer service fee in lieu of individual, voluntary customer tips. Mandatory service fees are considered to be the property of the employer, rather than the employee. Employers are therefore able to use the increased revenue from increased sales or mandatory service fees as bonus amounts, available to all staff (including back-of-house employees and managers), or as additional revenue for the business itself. While these policies have been controversial, they are generally legal under federal and state laws and are gaining popularity with many restauranteurs and food/beverage establishments.

Whatever tip policy you adopt, keep in mind that tip monies that belong to the employees must be timely paid. This is not an issue with cash tips, but can be a significant issue with credit card tip payments. State laws generally require tips to be paid no later than the end of the designated pay period, so proactively address how you will manage your cash flow to ensure large credit card tips are timely and properly paid.

Minimum Wage for Tipped Employees

In some instances, bars and restaurants are able to use tip compensation as part of the minimum hourly wage to be paid to non-exempt employees (this is called a “tip credit”).

The FLSA permits employers to pay non-exempt, tipped employees only a portion of the minimum wage – at the time of this article, $2.13 per hour – so long as the employee retains all tips and customarily and regularly receive more than $30 per month in tips. For pay periods where the tips plus the $2.13 direct wage do not meet the federally required minimum wage, employers must make up the difference through a higher direct wage.

Some states – Utah, Texas and New Jersey among them – have adopted this same model, but other states – for example, California, Oregon, Washington and Minnesota – require payment of a full minimum wage with tip credit permitted. Check your state laws carefully to determine if you are permitted to reduce the hourly wage for non-exempt tipped employees.

Employers should also keep in mind the 80/20 rule – if a tipped employee spends more than 20 percent of their time doing work that does not generate tips, he or she should receive the full minimum wage for that time, even if a tip credit system is legally permissible and in place.

Walk-Outs/Breakage/Shortages

Front-of-house employees often deal with issues related to cash and profit loss – customers walking out without paying, breakage of glasses and dishware; and cash register shortages.

The FLSA does not permit an employer to deduct the cost of a walk-out, breakage or shortage from employee wages, if such deduction would make the wage fall below the required minimum wage for a non-exempt employee. Also keep in mind that employers are never permitted to retain any portion of a tipped employee’s voluntarily-given gratuity. If the deduction is going to be taken primarily from the employee’s tips for that day, that deduction is by its very nature illegal, even if the employee is still walking away making more than the minimum hourly wage for all hours worked.

State laws have been surprisingly silent on deducting employer losses from front-of-house employee wages, but several states – California, New York, and Massachusetts – consider these kinds of losses to be an ordinary employer expense and permit no deductions of this kind whatsoever.

Uniforms

Front-of-house staff almost always are required to wear branded gear or a common uniform during their work shifts. This makes it easy for customers to identify employees and also reinforces the branding and marketing of your business.

The FLSA treats deductions from employee pay for the cost of uniforms and/or cleaning of uniforms under the same rule as customer walk-outs, breakage and cash shortages. If the cost would result in the employee making less than the required hourly minimum wage, it is not permitted. State laws are generally stricter. For example, in New Jersey employers cannot charge or require an employee to buy a uniform with a company logo, and in California, employers cannot charge employees for any apparel or accessories of distinctive design and color. It is generally a best practice, and a good motivating technique, to provide at least 1 to 2 pieces of branded gear to front-of-house employees free of charge.

Front-of-house employees can be some of the most rewarding, and challenging, staff members in your brewery. Having clear and established job duties and roles, tip policies and policies on acceptable and prohibited deductions will make compensation of these critical employees easier and less subject to costly wage and hour violation claims. Always consult an attorney about your own state laws when developing front-of-house compensation strategies.

This in-depth feature was contributed by the super smart attorneys with The Original Craft Beer Attorneys. If you haven’t yet, check out their new book.