The Ultimate Guide to Wage & Hour Compliance for Restaurants

Understanding the Compliance Risk for Restaurants

In the past decade, the restaurant industry has become the #1 target for federal wage and hour investigations,
class-action lawsuits, and wage theft claims.

Since 2016, the U.S. Department of Labor’s Wage and Hour Division (WHD) has:

• Conducted 25,000+ investigations into food service establishments.
• Recovered hundreds of millions of dollars in back wages for employees.
• Handled thousands of restaurant wage and hour claims per year.
• Announced plans to hire 100 additional investigators to expand enforcement.

Restaurants now face more compliance risk than any other industry. This guide explains:

• Why restaurants are being targeted.
• The most common violations investigators find.
• Real case examples and patterns.
• What WHD investigators look for during an audit.
• The financial and legal consequences of non-compliance.
• How to proactively protect your restaurant and reduce risk.

Why Restaurants Are the #1 Target for Wage & Hour Enforcement

Food service establishments are uniquely exposed to wage and hour risk. Even well-intentioned owners
often find themselves out of compliance due to the complexity of the law and the realities of day-to-day operations.

1. Complex Tip and Wage Rules

Tipped wage rules, tip credit requirements, dual job duties, and tip pooling laws are
complicated and frequently misunderstood. A small mistake in how tips are pooled or how the tip credit is applied can
create a large violation.

2. High Turnover and Documentation Gaps

Restaurants experience constant staff changes, multiple locations, and rotating schedules. This makes it easy to miss:

• Onboarding documentation.
• Signed notices for tip credit.
• Accurate timekeeping for each role.

3. Heavy Use of Tipped Workers

Tipped employees are at the center of many wage and hour rules. Because their pay structure is more complex, they are
also more likely to be the focus of employee complaints and legal actions.

4. Limited Manager Training on Wage Laws

Many managers are strong operators but have never received formal training in federal and state wage and hour laws.
Simple decisions made “to help the business” can unintentionally break the law.

5. Aggressive Legal and Regulatory Activity

Law firms and serial plaintiffs increasingly target restaurants for wage theft, tip violations, and overtime cases,
while WHD continues to prioritize food service as a key enforcement area.

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The 10 Most Common Wage & Hour Violations in Restaurants

Across thousands of investigations and lawsuits, the same violations appear again and again. Understanding these
patterns is the first step to preventing them in your restaurant.

1. Improper Tip Pools

Common illegal practices include:

• Allowing kitchen staff or dishwashers to share in the tip pool.
• Including managers, supervisors, or shift leaders in the pool.
• Having the employer control or benefit from the pooled tips.

If even one ineligible employee receives tips from the pool, the entire tip pool can be invalid, and the tip credit
may be lost.

2. Misuse of the Tip Credit

The tip credit can only be used legally if:

• The employer provides proper, clear written notice to tipped employees.
• The tip pool includes only employees who customarily and regularly receive tips.
• The employer does not keep any portion of employees’ tips.
• The employee always makes at least the full minimum wage when tips are included.

If any requirement is not met, the tip credit may be invalid, and the employer may owe full minimum wage for all
affected hours.

3. Overtime Violations

Frequent overtime issues include:

• Calculating overtime based only on the tipped cash wage instead of the full minimum wage rate.
• Failing to pay overtime when employees work more than 40 hours in a workweek.
• Not counting “off-the-clock” work toward total hours.

4. Paying “Salary” to Non-Exempt Kitchen Employees

Back-of-house employees such as line cooks, prep cooks, dishwashers, and most supervisors are typically non-exempt.
Paying them a flat salary without overtime is usually illegal unless they meet strict exemption criteria.

5. Violations of the 80/20 Rule for Tipped Workers

Under federal guidance, when tipped employees spend more than a limited percentage of their time on non-tip-producing
work (such as cleaning, prep, or side work), employers may be required to pay them the full minimum wage for that
time instead of the lower tipped wage.

6. Credit Card Tip Retention

Restaurants must pass along all credit card tips to employees, minus only the exact processing fee if applicable.
Keeping any portion of credit card tips for business use is considered wage theft.

7. Timecard Manipulation and Rounding

Typical violations include:

• Recording “40 hours” even when employees work more than 40.
• Rounding weekly totals down in a way that consistently benefits the employer.
• Adjusting timecards without accurate records or employee confirmation.

8. Misclassification of Employees

Misclassifying employees as “exempt,” “salaried,” or “independent contractors” does not remove the requirement to pay
proper overtime if they do not meet strict legal criteria.

9. Recordkeeping Failures

Missing or incomplete documentation is itself a violation. WHD expects employers to maintain accurate records of:

• Hours worked.
• Wages paid.
• Tips received and distributed.
• Job duties and classifications.
• Onboarding and eligibility documentation.

10. Off-the-Clock Work

Employees must be paid for all hours they are suffered or permitted to work, including work performed before clock-in
or after clock-out such as opening, cleaning, or closing duties.

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Real Case Studies and Enforcement Examples

The following case summaries illustrate how wage and hour violations become expensive problems for restaurants.
Each case links to a more detailed breakdown.

• $154,033 for Tip and Overtime Violations – South Carolina Restaurant
  WHD found the restaurant withheld employee tips and failed to pay overtime. The employer must now pay back wages
  and liquidated damages to affected workers.
  Read the full case study
• $41,560 in Improper Tip Pooling – Pittsburgh Restaurant
  WHD found the restaurant required tipped employees to share tips with managers and non-tipped staff, leading to
  back wage recovery for affected workers.
  Read the full case study
• $697,295 in Back Wages – Chicago Restaurant
  Employees often worked for tips only, without proper hourly wages or overtime. WHD recovered nearly $700,000
  in back wages for 60 employees.
  Read the full case study
• $178,000 in Damages – New York Pizzeria
  Violations included paying kitchen staff a flat salary, miscalculating overtime for tipped workers, rounding
  wages, and operating an invalid tip pool.
  Read the full case study
• $179,000 in Back Wages – Tennessee Restaurant
  Servers were forced to pay into a tip pool that was then used to pay non-tipped employees. The employer also
  retained some credit card tips earned by hosts and hostesses.
  Read the full case study
• $1.03 Million Wage Theft Settlement – Hospitality Group
  Lawsuits alleged tip theft, wage theft, use of tip funds for uniforms, and excessive non-tipped duties for
  tipped staff.
  Read the full case study

• 25,000+ Investigations of Food Service Establishments
  Since 2016, WHD has conducted more than 25,000 investigations of food service businesses, recovering more than
  $195 million in back wages.
  Read the full enforcement summary
• DOL to Hire 100 New Investigators
  The Department of Labor announced plans to add 100 investigators to its Wage and Hour Division, increasing
  enforcement capacity nationwide.
  Read the full enforcement update
• Law Firms and Serial Plaintiffs Targeting Restaurants
  Lawsuits have doubled in the last decade as law firms and serial plaintiffs focus on wage and hour claims in
  the restaurant industry.
  Read the legal trend analysis
• Employee and Ex-Employee Lawsuits Increasing
  Claims from current and former employees are rising as awareness of rights grows and wage and hour laws
  become more complex.
  Read the litigation trend summary
• $483 Million in Hospitality Wage & Hour Recoveries
  Hospitality businesses, including restaurants and bars, have paid hundreds of millions in back wages for
  wage and hour violations.
  Read the litigation trend summary

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What Wage & Hour Investigators Look For

When the Wage and Hour Division investigates a restaurant, investigators typically request documentation and
conduct interviews to understand how employees are paid and how tips are managed.

Key Documents Investigators Request

• Timecards and timekeeping records.
• Payroll records and wage statements.
• Tip pool policies and distribution logs.
• Job descriptions and role classifications.
• Onboarding and I-9 documentation.
• Schedules and staffing records.
• Written notices related to the tip credit.

Typical Interviews Conducted

• Servers, bartenders, and other tipped workers.
• Hosts, hostesses, bussers, and support staff.
• Line cooks, prep cooks, and dishwashers.
• Shift leaders, supervisors, and managers.
• Former employees when available.

Investigators may also visit during operating hours to observe workflow, staffing levels, and how tips are
collected and distributed in real time.

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The Real Cost of Non-Compliance

Wage and hour violations carry serious financial, legal, and reputational consequences. Even small,
unintentional mistakes can lead to large liabilities once multiplied across many employees and pay periods.

Potential Consequences Include:

• Back Wages: Payment of all unpaid wages, tips, or overtime.
• Liquidated Damages: Often an amount equal to the back wages owed, effectively doubling the cost.
• Civil Money Penalties: Additional fines, especially for repeat or willful violations.
• Attorney Fees: In private lawsuits, employers may be required to pay plaintiffs’ legal fees.
• Class-Action Exposure: A single issue can expand into a collective or class action involving many employees.
• Monitoring and Reporting: Court orders or settlements may require ongoing reporting and compliance oversight.
• Reputational Damage: Public news releases and online coverage may affect hiring and customer perception.

Typical settlement ranges can go from tens of thousands of dollars for small restaurants to hundreds of
thousands or even millions for larger groups or class actions.

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How to Protect Your Restaurant: Compliance Checklist

The most effective way to reduce risk is to identify and correct issues before an investigation or lawsuit occurs.
Use this checklist as a starting point.

Tip Pool and Tip Credit Compliance

• Only employees who customarily and regularly receive tips are included in the tip pool.
• No managers, supervisors, or non-tipped employees receive tips from the pool.
• Employees receive clear, written notice of any use of the tip credit.
• No portion of tips is kept by the employer or used for business expenses.

Overtime and Timekeeping

• Overtime is calculated properly for all non-exempt employees.
• Overtime for tipped employees is based on the full minimum wage, not just the cash wage.
• All hours worked, including pre- and post-shift duties, are recorded and paid.
• Time rounding practices, if used, are neutral and well-documented.

Non-Tipped Duties (80/20 and Related Rules)

• Tipped employees spend limited time on non-tip-producing tasks.
• Side work, cleaning, and prep duties are monitored and managed.
• When non-tipped work is substantial, employees are paid full minimum wage for that time.

Job Classification and Documentation

• Roles are correctly classified as exempt or non-exempt under applicable law.
• Independent contractors are used only when appropriate and legally justified.
• Onboarding, I-9, and payroll records are complete and organized.
• Tip distribution and wage policies are written, clear, and consistently applied.

Manager and Supervisor Training

• Managers understand basic wage and hour requirements for tipped and non-tipped workers.
• Supervisors know what they can and cannot do with employee tips.
• All leaders know how to respond to employee concerns about pay or tips.

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How MyHRCD Helps Restaurants Stay Compliant

MyHRCD specializes in helping restaurant owners and operators reduce wage and hour risk through a combination of
technology, processes, and expert support.

Our solutions for restaurants can include:

• Wage & Hour Compliance Audits to uncover hidden risks before regulators or lawyers do.
• Tip Pool and Tip Credit Reviews to validate that your structures meet current legal standards.
• Onboarding and Documentation Systems to make sure each employee’s file is complete.
• Manager Training on wage, hour, and tip rules that affect day-to-day decisions.
• Ongoing HR and Compliance Support tailored to multi-location restaurant operations.

Whether you operate a single location or a multi-unit concept, proactive compliance can dramatically reduce your risk
of costly investigations and lawsuits.

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Compliance Is No Longer Optional

With thousands of investigations, hundreds of millions in back wages, and a growing number of lawsuits targeting the
restaurant industry, wage and hour compliance is no longer just a legal requirement — it is a strategic necessity.

The good news: many of the most common violations can be prevented with the right systems, training, and support.