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Restaurant Industry Distraught With New Ruling

The United States Department of Labor (DOL) announced new amendments to the Fair Labor Standards Act (FLSA) regulations on tip credits last April, with the changes taking effect last May 5, 2011.  Caught off-guard, the National Restaurant Association and the Council of State Restaurant Associations requested for a 90-day delay in the implementation of the final rule, as it believes that the federal regulations were finalized without giving the industry the benefit of a notice-and-comment period.

But as it turned out, the DOL refused to grant a postponement and proceeded with the implementation of the new rules last May.  The two trade groups, along with the National Federation of Independent Business, were then compelled to sue the US. Labor Department for not allowing them to comment on the new laws that now governs the way restaurants pay wages to their employees.

Numerous restaurants in the U.S. claim tip credits, governed by the FLSA regulations, to allow them to compute tip credits as part of their tipped employees’ wages.  In the past, they only had to inform their workers that tips shall be used to complete their minimum wage.

The new rules changed that, requiring restaurant operators to explain to each employee, in writing and in detail, the precise breakdown of the tip credit arrangement.  If the employer fails to notify the worker of the tip credit arrangement, the tip credit claim could not be applied to that particular employee, thus making the employer liable to pay the full federal mandated minimum wage.  On top of that, the restaurant also faces civil penalties of $1,100 for noncompliance.

The DOL maintains that they have already given industry organizations the opportunity to publicly comment on the ruling three years ago, prior to the publishing of the regulations in 2008. Restaurant associations, however, argue that the Labor Department’s amended rules significantly impacts the current position of the industry and needs at least a 90-day public comment period.

The position of the restaurant industry is adamant — they believe that such adjustments to the regulation come at a rather grueling time in the industry.  Among the many issues presented by the trade groups is the sluggish economy that restaurants have to contend with.  Lesser people are dining out, and customers keep a tight rein on their wallets when they visit restaurants.

The rising cost of commodities puts a large dent on food establishments’ profits, and the new federal ruling which requires restaurants to post calorie counts on their menu boards also entail additional expenses. There’s also a new health care law that requires restaurant employers to grant health insurance to employees who work in excess of 30 hours per week.

Restaurant operators feel that that they are “now confronted with an unexpected, amplified and an uncalled-for regulatory burden and expenditures in trying to comply with the latest tip credit notification requirements.”

“Laying out precisely how much of a worker’s wages is paid out of his tips is arduous because the amount varies for each employee and the total tips an employee receives change every week,” said Angelo Amador, NRA’s vice-president for labor and work-force policy.  “The new regulation is so detailed and specific, and we realize that one small slip-up can result in significant liability and a whole lot of trouble for us.”