U.S. Appeals Court Strikes Down Biden-Era 80/20 Labor Rule
2021 U.S. DOL rule only allowed employers to pay staff the federal tip credit for less than 20% of work. A United States federal appeals court has struck down the Department of Labor’s revised 2021 80/20 rule. The rule only allowed employers to pay their employees the subminimum wage (or federal tip credit of $2.13 per hour) to supplement earned gratuities while workers were performing tip-supporting tasks for less than 20% of their workweek. The rest of their work had to be paid according to the federal minimum wage of $7.25 per hour. According to the Fifth Circuit Court of Appeals judges’ ruling on Friday, the 80/20 rule, which legalized the subminimum wage that gives “credit” back to employers of tipped workers that make up “a large portion of earnings” from tips, is “contrary to the Fair Labor Standards Act.” The judges called the 80/20 rule, which was in effect during the Obama administration, rolled back during the Trump administration, and then brought back under the Biden presidential administration, “both arbitrary and capricious.” The rule was initially challenged in a lawsuit filed by the Restaurant Law Center — an affiliate of the National Restaurant Association — and the Texas Restaurant Association, in December 2021, shortly before the 80/20 rule was set to go into effect at the end of that year. The lawsuit stated that the rule overstepped the authority of the Department of Labor and that it was an attempt to rewrite the Fair Labor Standards Act. Though the final rule did attempt to clarify some of the details that were a part of earlier forms of this rule, such as what constitutes work on the 80% non-tipped side and the 20% tipped side, ultimately, the appeals court sided with the Restaurant Law Center and Texas Restaurant Association’s lawsuit This is one of the first federal appeals court rulings in the aftermath of the U.S. Supreme Court overturning the Chevron USA Inc. v. Natural Resources Defense Council case, in what is known as the Chevron deference. Without the Chevron deference, laws like the 80/20 labor rule, which have been up for interpretation under different presidential administrations, must be written with more precise language that cannot be easily interpreted in different ways by opposing political parties…
Restaurants Fight Back Against the FTC Crackdown on ‘Junk Fees’
As diners balk at new charges. Lawmakers want to crack down on “junk fees,” but restaurants are trying to stay out of the fight. Surcharges or fees covering everything from credit card processing to gratuities to “inflation” have become more popular on restaurant checks in recent years. Last year, 15% of restaurant owners added surcharges or fees to checks because of higher costs, according to the National Restaurant Association. In the second quarter, 3.7% of restaurant transactions processed by Square included a service fee, more than double the beginning of 2022, according to a recent report from the company. Opponents of the practice say those fees and surcharges may surprise customers, hoodwinking them into paying more for their meals at a time when their wallets are already feeling thin. Fed-up diners compiled spreadsheets via Reddit of restaurants in Los Angeles, Chicago and D.C. charging hidden fees. Even the Onion took a swing at the practice, publishing a satirical story in May with the headline “Restaurant Check Includes 3% Surcharge To Provide Owner’s Sugar Baby With Birkin.” The Biden administration has broadly targeted so-called junk fees, like an undisclosed service charge for concert tickets or unexpected resort fees when checking out of a hotel. This fall, the Federal Trade Commission is expected to publish a rule banning businesses from “charging hidden and misleading fees.” Restaurants are trying to stay out of the Biden administration’s crosshairs. They say surcharges and fees are necessary to keep their businesses afloat and to compensate their employees fairly in a competitive industry with razor-thin profit margins. “The challenge for the restaurants is that not all fees are junk fees … People know what they’re paying for when it comes to most fees that are on a restaurant bill,” said Sean Kennedy, executive vice president of public affairs for the National Restaurant Association.…
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Don’t Get Burned By The IRS
Tax tips for restaurant owners. Operating a restaurant is not easy. By the time you manage inventory, staffing, customer demand and narrow profit margins, the last thing you want to think about is the IRS. Recordkeeping and tax deadlines may seem like a low priority item that can be pushed off to another day. However, neglecting these obligations can not only put your restaurant in jeopardy, but expose you to personal liability for certain unpaid taxes. Restaurants, like other cash-intensive businesses, are a frequently targeted for audits by the IRS. It is easy for the IRS to allege that a restaurant owner underreported the restaurant’s income, inflated the cost of goods sold or failed to properly report their employees’ tip income. By keeping accurate and complete records, you can reduce the length and pain of an audit. Generally, the IRS has three years to audit a tax return, although in cases where gross income has been underreported by 25 percent or more, then the IRS has six years to audit. Once you are under audit, you may no longer remember some of the day-to-day details from a particular year, especially if it was six years ago. It is important to prepare ahead of time – keep the acronym TOAST in mind. T – Taxes: Pay Them! One of the worst mistakes you can make is to fall behind on taxes. Some types of delinquent taxes can lead to personal responsibility for you as the restaurant owner or responsible individual. Depending on the facts and circumstances, tax delinquency can even lead to criminal prosecution of owners, officers, and employees. Taxes you collect from others on behalf of government agencies, such as the employee portion of employment taxes and sales taxes from your customers, are considered trust fund taxes. The restaurant and its agents are in a position of trust to collect these taxes from third parties and remit them to the appropriate entity — typically the IRS, the state Department of Revenue, and the local municipality, if collecting separately from the state. If the restaurant fails to remit these trust fund taxes, responsible individuals — most often the corporate officers, bank account signers, and any other person deemed to have decision-making authority over tax payments can be held personally liable. It can be easy for a struggling restaurant to fall behind on tax remittance, thinking that the taxes can be caught up once the cash flow improves…
What to Know Before Opening Your First Restaurant
Becoming a restaurateur is a major milestone. Opening your first restaurant is an exciting time. You’re finally realizing your culinary potential and can take great pride in becoming your own boss. However, there’s plenty of work to be done before you make your first sale. You’ll need to spend weeks writing a well-rounded business plan to raise funds for your restaurant. You should be in constant communication with potential partners to ensure that you’re able to properly procure your ingredients and equipment when you finally launch your new establishment. Taking the time to properly plan your business can help you create a compelling brand that resonates with local people, too. A well-thought-out business plan can also help you identify gaps in the market, meaning you can create menus and advertising materials that are popular with diners in your area. Creating a Business Plan. A well-rounded business plan can make a world of difference when working with lenders. You can’t expect investors to pitch in their hard-earned cash if you don’t have a clear plan and will likely find it hard to move forward without a clear sense of your overall vision as a new restaurateur. You can create a business plan that impresses investors today by including key details like: Executive Summary: This section summarizes your vision and entices investors. It includes a mission statement as well as some key financial information like projected profits and potential costs…
Reshaping the Future of Full-Service Dining
AI and Automation. Full-service restaurants are getting a tech makeover as artificial intelligence (AI) and automation are revolutionizing multiple aspects of dining, from the customer experience to kitchen operations, while boosting the bottom line for owners. In the competitive restaurant world, this is more than an upgrade—it’s a survival strategy. Today’s savvy diners crave personalized experiences, and while the concept of personalization itself is not new for the restaurant industry, AI is helping it evolve faster for everything from booking a reservation to the overall experience for customers. By analyzing customer data, AI systems can unlock a new level of personalization that was once unimaginable. Imagine a future where every aspect of the dining journey is seamlessly enhanced by AI. After a customer books a reservation, the system recognizes returning guests, welcomes them warmly, and offers personalized dining suggestions based on their preferences, party size, and the nature of their visit—whether it’s a business lunch, family gathering, or night out with friends. This personalized approach sets the stage for a unique and tailored dining experience. AI can also entice customers to visit the restaurant by sending personalized offers and promotions based on their dining history and preferences. For example, if a customer frequently orders a particular dish or visits on weekends, they might receive a special discount or invitation to a themed night featuring their favorite cuisine. In another instance, the restaurant’s AI could detect if the customer is nearby or goes to a competitor and ping them with a targeted offer. Or imagine a customer arriving in a favorite city; the algorithm detects that and prompts them to visit the restaurant, offering the first round on the house…
Delivering on Delivery
An implementation guide. Online food delivery thrives as phones become one-stop shops for ordering and tracking meals. This convenience has made the online food delivery market massive, with global revenues of over $1 trillion in 2023 alone. As the huge market keeps growing, expected to hit $1.8 trillion by 2028, restaurants face a big decision. They must choose whether to use third-party online ordering platforms or handle delivery in-house. This guide helps restaurants pick the right way to deliver. Plus, it explores how to efficiently implement ordering platforms and optimize delivery operations. In-House vs. Third-Party Delivery. In the past, customers had to call or fill out forms on the restaurant’s website to get food to their doorsteps. However, things have changed with the rise of delivery apps for restaurants. These apps have made it much easier for people to order food for delivery. Customers can now browse menus, place, and track their orders, all from their phones. For restaurants, there are pros and cons to using third-party solutions offering different types of delivery services. For example, online ordering platforms help smaller restaurants reach more customers. Specifically, you are getting exposed to a pool of people who might not have known you existed. However, the downside is that the delivery apps charge restaurants steep fees. Also, the blame for unsatisfactory delivery experiences can fall on you. An alternative for restaurants is to create their own online delivery platforms. This approach allows for more control over the customer’s experience. Plus, restaurants retain 100 percent of the order revenue. Handling deliveries yourself can be tricky. You will need time and resources to set up a smooth system. This scenario also implies hiring couriers and handling logistics. So, which option should a restaurant choose? It really depends on the specific needs and circumstances of the business. For example, your restaurant offers highly customizable meals such as build-your-own salads. In this case, a custom online ordering platform may be a better choice. As a restaurant owner, you can tailor your solution to accommodate complex menu options…
Red Lobster to Close More Struggling Restaurants This Week
The seafood chain is rejecting the leases of 23 more locations as part of its ongoing bankruptcy process. Red Lobster is closing more restaurants across the country amid its ongoing Chapter 11 bankruptcy process. In a bankruptcy filing Thursday, the company said it was rejecting the leases of 23 struggling locations that it had deemed to be a drain on its finances. It plans to vacate the restaurants by Aug. 31. The closures follow the shutdown of 93 Red Lobster locations on a single day in May. They will bring Red Lobster’s total footprint to just over 500 outlets, a more than 20% decline from the nearly 650 locations the chain had at the end of 2023.
Could These Be the Next Restaurant Chains to File for Bankruptcy?
Hooters and Black Angus Steakhouse are struggling. A pair of well-known casual-dining brands could be the next restaurant chains to file for bankruptcy or restructure as they struggle to pay their debt. That’s according to John Bringardner, executive editor of Debtwire, a publication that tracks companies’ debt. At least 16 restaurant chains, franchisees or operating groups have filed for bankruptcy this year. Many took on debt to survive the pandemic and are struggling to pay it back as consumers slow their restaurant spending due to inflation. “It’s almost like they just made it out of orbit but couldn’t quite exit because they had to take on a great deal of debt just to survive closures during the pandemic,” Bringardner said. Chains including Red Lobster, Buca di Beppo and Rubio’s have been among the biggest to file for Chapter 11 protection. BugerFi also appears to be on the brink of bankruptcy. And there are sure to be more. Debtwire has identified Hooters and Black Angus as two likely candidates…
Did You Know?
4 ways operations can reduce rising employment liability claims in hospitality. Complaints over harassment, discrimination and retaliation have had a notable impact on the hospitality industry over the past several years. The U.S. Equal Employment Opportunity Commission (EEOC) has continued to intensify its enforcement efforts, with 2022 marking a notable increase in employment discrimination lawsuits. As of 2023, the EEOC has reported a significant rise in the number of discrimination charges filed, reflecting its ongoing commitment to addressing workplace inequality. Employment discrimination complaints can lead to substantial charges and penalties from the EEOC. In fiscal year 2022, U.S. employers paid over $506 million to individuals who alleged discrimination, demonstrating the financial impact of these claims…
Employee Tip
Five common mistakes new restaurant managers make. Are you grappling with the challenge of finding and nurturing effective management within the confines of your restaurant’s four walls? The allure of recruiting seasoned professionals from outside may seem tempting, promising to transform your operations into a lean, mean, and profitable machine. However, in my experience, this strategy rarely pays off. The real solution lies in developing and hiring your next managers from within. The trick is to help them avoid the five common mistakes new restaurant managers make. As a seasoned restaurant expert, coach, and creator of The Restaurant Prosperity Formula, I’ve learned the value of looking to your existing team for managerial talent. Not only are they already familiar with your business and culture, but they also come at a potentially lower cost than hiring a seasoned pro.…
