A company learned the hard way that paying an employee a salary does not remove the obligation to pay for overtime if the employee is entitled to it. A restaurant in Akron, Ohio found this out the hard way and it ended up costing them $118,354 in back wages and damages, paid out to 21 employees.
According to the Department of Labor press release:
“Investigators found Azteca Restaurante Mexicano paid kitchen staff fixed salaries, ranging from $550 to $675 per week, without regard to how many hours they worked. This practice resulted in failure to pay required overtime when these employees worked more than 40 hours in a week.”
Beacon Journal reporter Katie Byard reported that the restaurant owner, Salvador Alatorre, said “We’re working hard and trying to make everything good. But it’s a very hard time for the little business. This is a family business. It’s not a chain.”
Mr. Alatorre is correct. The Fair Labor Standards Act is a complex law. On the surface, it seems simple enough, but the intricacies of the law can cause problems for the business owner or manager not familiar with the FLSA. Mr. Alatorre made the same mistake that many small businesses make. He assumed that paying someone a set salary alleviated him of the responsibility of paying overtime. Unfortunately, paying someone a salary is not sufficient. Whether someone is “exempt” from being paid overtime is based on their job responsibilities and many, many business owners don’t realize that. They think “I am paying them a salary and that entitles me to their labor regardless of the hours worked.” That has resulted in many misclassification errors, that when caught, cost the business money.
Other overtime issues
The Azteca restaurant also had other overtime issues. They were incorrectly computing overtime. They were incorrectly applying the tip credit to some servers. They were paying less than minimum wage in some cases. The USDOL’s agreement with Mr. Alatorre has required him to install a computerized timekeeping system. This is a good start, however, the systems are not infallible and they still require an understanding of the regulations.
I have given Mr. Alatorre the benefit of the doubt in these mistakes, however, he had been cited in 2011 for similar violations. He obviously did not learn the lessons that he paid for at that time. Perhaps this hefty settlement and bad publicity will make this lesson a more lasting one.
Other small businesses can learn from Mr. Alatorre’s problems. The FLSA requires an attention to details. Paying a salary is not sufficient to avoid overtime. Proper time records need to be kept and proper payment records as well.