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With the holidays around the corner, vacations are being planned and time off work is being considered. When reconciling your personal schedule with the demands of a restaurant that doesn’t close for major holidays (unlike most other industries), it’s important to understand restaurant employment laws when it comes to holiday, overtime, and vacation pay for your tipped employees.

While these three categories are closely related, there are different rules, regulations, and traditions that govern each one of them. Plus, they may be different for salaried employees than tipped, hourly employees. Legalities aside, you also want to balance the needs and stresses of your workers during the hectic holiday period and reward their loyalty for their past year of hard work.

Wondering the best way to ramp up your staff without blowing your bottom line? Keep reading to find the answers to some of the most common questions regarding overtime, holiday, and vacation pay for restaurant workers.

1. Do Restaurants Have to Pay Overtime?

Restaurants must pay their employees overtime pay for working more than 40 hours a week. Unless classified as an exempt (salaried) employee, your restaurant employees are entitled to receive overtime pay “at a rate not less than time and one-half” their normal rate of pay, according to the Department of Labor

The period of time that defines the 40-hour threshold is a standard week: “seven consecutive 24-hour periods” that don’t have to align with the calendar week, meaning that a workweek period can begin on any day and any hour of the week. An important thing to note is that overtime pay cannot be averaged out over the course of two weeks, a pay period, or any other timeline.

How to Manage Overtime Pay for Tipped Employees in Your Restaurant

Labor costs are one of the biggest expenses for you as a restaurant owner, so here are some tips on reducing the cost of overtime pay for hourly workers.

  • Ensure you (or whoever is managing the staff schedules) is not scheduling any one employee for more than 40 hours at a time within each pay period.
  • If employees ask to swap or take over a shift from another employee, make sure that change does not push one or both of them over the 40-hour threshold for any given week.
  • Cross-train employees so they can fill in for their co-workers in more than one capacity.
  • Hire seasonal employees during your busiest times.

2. Do Restaurants Have to Pay Holiday Pay?

There is no federal law that requires employers to provide time off for holidays, either paid or unpaid, or provide any special holiday pay like time and a half for hourly workers. Salaried employees must still be paid their full weekly salary even if your restaurant closes for a holiday on a day that the employee would normally be working.

Things get a little more complicated when it comes to religious holidays. While employers don’t have to provide pay, they are required to provide “reasonable accommodation for the religious practices of its employees,” unless they can demonstrate that doing so “would result in undue hardship” for the business. 

How to Manage Holiday Pay and Time Off for Tipped Employees in Your Restaurant

Despite the lack of mandated holiday pay and time off laws in restaurants, you still want to make sure your staff is happy and able to enjoy the holiday season with their loved ones. Here are some ways to find the right balance.

  • Offer time and half pay to employees who volunteer to work on holidays, even though it isn’t mandatory.
  • Incentivize employees who volunteer to work on holidays with things other than money, like the ability to take an additional paid day off in the future.
  • Consider closing your restaurant for a holiday to give you and the entire staff a break, especially if that particular holiday isn’t a huge selling day for your restaurant (a burger place on Thanksgiving, for example).
  • Hire additional seasonal staff to help take the strain off the rest of your employees.

Download our free Guide to Staff Management for more information on staff turnover, increasing retention, and more.

Offering Holiday Incentives for Your Restaurant Employees

Although restaurant workers don’t always get to take time off during the holidays, a savvy employer will find other ways to support staff during the season of giving. Here are some options to consider:

  • Give a holiday bonus. Think about offering your tipped workers a bonus during the holiday season to show your appreciation. Consider giving the bonus in early December and your employees will feel your generosity during the crunch of the holiday season. Plus it will be a welcome surprise for their own holiday shopping.  
  • Ramp up seasonal staff. The combination of increased foot traffic into your restaurant, employees’ family commitments, and holiday party invites will make for a busy holiday season. Seasonal staffing is a chronic problem across the restaurant industry, so it’s vital to stay ahead of the game and start hiring some extra help as soon as possible.
  • Have a plan in place. By communicating with your team far in advance and asking for day-off requests long before the holidays hit, you can solve staffing issues before they start. Do your best to give everyone at least part of one holiday off so they can spend time with their families.
  • Spread holiday cheer. It’s easy to forget to show gratitude and say thank you once the busy holiday rush comes around. You can offer a hot chocolate station in the break room complete with candy canes, invite staff members to a special pre-shift brunch, or leave notes for your staff telling them how much their contribution helps to make your customers’ experiences magical during this time of year.
  • Keep things fun. Offer your staff the opportunity to earn prizes throughout your busiest times based on who can sell the most gift certificates or who can sell the most seasonal holiday cocktails.
  • Offer a post-holiday break. Once you’ve made it through the holidays, offer a little extra flexibility to let your staff recover. After all, it’s a quick sprint between New Year’s and Valentine’s Day and you need your staff back on the top of their game by February. Allow for some shorter shifts, a day or two off, and be open to your staff’s suggestions for how they’d like to recoup after the holidays. A little flexibility upfront could result in a much happier staff long-term and lead to lower post-holiday turnover.

3. Do Restaurants Have to Provide Vacation Pay For Tipped Employees?

Like holiday pay, there is no law that requires restaurant employers to offer paid vacation days, especially for your hourly tipped employees. While each establishment is different, most salaried positions come with a set number of vacation days each year, typically referred to as paid time off, or PTO. Although it’s not required by law, PTO is a traditional offering and averages about 14 days per year for employees in their first year of employment at a given establishment, according to salary.com.

How to Manage Vacation Pay for Tipped Employees in Your Restaurant

More and more restaurant owners are offering paid time off to all employees as a means of staff retention, which often saves the business money in the long run. If you’re thinking of offering paid time off to your employees, there are a few things to consider when creating your PTO policy.

  • How many days a year will each employee be entitled to?
  • Will you offer a set number of sick and vacation days? Or will you offer a number of paid time off hours that can be used in daily or hourly increments for any reason?
  • How will you fill shifts when an employee takes more than one or two days off?
  • How long will the probationary period be between when an employee is hired and when they are eligible to use their time off?
  • How many employees will be allowed to take overlapping PTO?
  • How far in advance should employees request PTO?

As far as holiday, vacation, sick, and overtime pay in the restaurant industry are concerned, there is very little that restaurant owners are required by law to provide for their employees. However, it’s been shown time and time again that employees who feel appreciated and are treated well are happier, more productive, and less likely to leave. Invest in your employees, treat them well, and you will see the benefits return to you in the form of guest satisfaction, workplace harmony, and reduced training and payroll costs.

Why is turnover is so high, what is the actual cost, and how do you fix it? Find the answers in our Staff Management ebook.

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Written by   |  
Stephanie is a Providence, RI native and eight-year food industry veteran. As Upserve's Content Marketing Coordinator she creates materials that help restaurateurs, managers, and service professionals succeed. When she's not writing, Stephanie is most likely traveling, cooking, or trying new restaurants.