The Wage & Hour Division’s Crackdown on the Hospitality Industry

It is not necessarily “breaking news” that the Wage and Hour Division (WHD) of the U.S. Department of Labor (DOL) has “reinvigorated” its enforcement activities. Late last year, staffing was increased by more than a third and WHD has expressed its intent to devote a substantial amount of its enforcement activities and assets to the hospitality industry. More recently, the DOL confirmed its commitment to wage and hour enforcement both generally and specifically in the hospitality industry. The recently announced “Plan/Prevent/Protect” initiative places the burden on employers to “self-regulate” by conforming to DOL standards via an established compliance plan. Furthermore, the DOL reconfirmed a focus on hospitality employers in discussions relating to the temporary employment of foreign nationals in H-2B status. It is likely that WHD officials will be looking for other violations as well.

In July 2008, the DOL telecasted its interest in more heavily regulating hotels and motels when it issued Fact Sheet #45 addressing issues affecting “hotel and motel establishments.” The fact sheet identified the following as “Typical Problems Causing Non-Compliance”:

• Failure to record and pay employees for all hours suffered or permitted to be worked.
• Illegal deductions from pay for items like cash register shortages, uniforms, errors, bad checks, etc.
• Failure to pay the correct overtime rate to tipped employees or failure to pay the correct overtime rate that includes all service charges, commissions, bonuses and all other remuneration.
• Tips not sufficient to make up the difference between the employer’s direct wage obligation and the minimum wage; employees receiving tips only; and sharing a portion of tipped employees’ tips with employees who are not eligible because they do not normally receive tips.
• Paying straight time for hours worked beyond 40 per week instead of required overtime pay, or averaging the number of hours worked over two or more weeks to avoid overtime pay.
• Failure to pay minimum wage/overtime to temporary help or employee leasing firm workers who are jointly employed by the hotel.

In the past, DOL audits in hotels focused on classification issues with sales managers, catering sales managers, meeting and conference services managers, chefs other than the executive chef, and assistant department managers. Audits also examined pay practices, which included performance and bonus payments that were not being included in the regular rate of pay for purposes of overtime, such as housekeeping room bonuses and other incentive programs. Moreover, employers who took advantage of the 7(i) exemption for banquet servers faced scrutiny, as did those who used tip pools. The DOL’s fact sheet identifies additional areas of concern where WHD will most likely focus its investigations.

Significantly, the DOL is not limited to conducting audits of those hospitality employers about whom a current or former employee has complained of wage and hour violations. For many years, WHD has had a low-wage initiative, through which the agency self-directs audits of, among others, hospitality employers even though there is no complaint. In the past, WHD directed or targeted cases have ranged from a low of about 15 percent to as much as 25 percent or more of its total caseload, depending upon the number of investigators. Now, with more investigators on staff, WHD can conduct more investigations resulting from complaints, as well as conduct more directed or targeted investigations as the result of initiatives, just like that directed toward the hospitality industry.

If you have not done so within the past year, you should review your pay and classification practices outlined in the WHD’s Fact Sheet # 45. Specifically, hospitality employers should review their practices regarding tip pools, overtime compensation, working time, proper classification of employees as non-exempt or independent contractors, and deductions from employee pay.

For more detailed guidance on hospitality employers’ obligations under the wage and hour laws and the strategies they can implement to comply, click here. If you have never participated in a wage and hour audit and/or want a better understanding of your rights and obligations during such an audit, click here.