This is the part of labor cost you do not get to optimize. It is also where a restaurant can lose more money in one ruling than in a year of careful scheduling, almost always by accident. What follows is what to know exists and check for your own state — rules vary by jurisdiction and change, and none of this replaces an accountant or an employment attorney.
💵 The wage floor is not one number
- There is a federal minimum, and your state or city may set a higher one. The highest applicable rate is the one you owe. In some places it rises on a published schedule every year — find out when yours moves, because it is the most predictable cost increase you will ever have and it still surprises people every January.
- Tipped wages are their own subject. Some states allow a lower cash wage for tipped employees when tips make up the difference; others require the full minimum before tips. If you operate where a tip credit exists, the rules around it — notice, record keeping, what happens on a slow shift, what counts as tipped work — are detailed and are enforced.
- Tip pooling and tip sharing have rules about who may participate, and managers and owners generally may not. This is a common and expensive mistake.
- Service charges are usually not tips. An automatic charge on large parties often counts as revenue, with different tax and distribution consequences. Check before you introduce one.
⏱️ Overtime, which is arithmetic
The federal baseline is that non-exempt employees are owed one and a half times their regular rate for hours over 40 in a workweek, and some states add rules of their own — daily overtime, or a seventh consecutive day. The practical consequences:
- Overtime is not just more hours, it is dearer hours. Ten overtime hours cost what fifteen regular ones do. Scheduling someone to 44 hours because it is convenient is a decision worth making on purpose.
- Watch it during the week, not after. By Sunday it is a fact. Most scheduling tools will warn you as you build, and that warning is the whole feature.
- Swaps create it. An approved swap that pushes somebody to 43 hours is exactly the case the approval step in the previous course exists to catch.
- Two jobs at one employer still add up. Someone who serves three shifts and cooks two is one employee with one weekly total.
- The regular rate can include more than the base wage. Certain bonuses and additional pay must be worked into it. Ask your payroll provider rather than assuming.
Occasional overtime is normal and sometimes cheaper than hiring. Systematic overtime means you are short a person and paying a premium to avoid noticing.
🏷️ Classification, the expensive one
| The shortcut | Why it is tempting | What it risks |
| Making someone salaried to avoid overtime | A predictable number every week | Salary alone does not make anyone exempt. There are duties and salary tests, and getting it wrong means back pay for every hour over 40 |
| Paying a cook as an independent contractor | No payroll taxes, less paperwork | If they work your hours, in your kitchen, with your equipment, they are almost certainly an employee. Back taxes and penalties follow |
| Paying part of a wage in cash | Everyone involved agreed to it | Unpaid payroll taxes, no workers' comp coverage if someone is injured, and personal liability that does not go away |
| "Training days" that are unpaid | They are not productive yet | Time worked is time paid, including training and required meetings |
| Rounding hours to the quarter | Tidier payroll | Rounding is only defensible when it is neutral over time. Rounding that always favours you is a claim waiting to be made |
📁 The paperwork that protects you
- Keep time records for the required period. When a wage dispute happens, the employer without records is generally the one who loses it — the employee's account is what stands.
- Verify work authorization as required and keep the documentation properly.
- Post the notices you are required to post, in the languages required.
- Give pay statements that show hours, rates and deductions clearly. Most disputes start as a confused employee, not an angry one.
- Get a payroll provider. For a small restaurant this is genuinely cheap insurance: they track thresholds, file the taxes and keep up with rule changes so you do not have to.
- Ask a local professional once a year. An hour with an accountant or employment attorney who knows your state costs less than one mistake, and this is the chapter where mistakes are largest.