A full-service restaurant group operating in seven states discovers, during a wage and hour audit, that its tip credit calculations have been wrong for two years. The HCM system was configured to take the federal tip credit for all tipped employees regardless of state. Several of those states don't allow a tip credit. The system paid the tipped minimum wage where it should have paid the full state minimum wage.
This is not a configuration error in the sense of a technical mistake. Someone made a configuration decision (apply the federal tip credit) and did not account for the state law variation. The platform doesn't prevent this. It does what it's told.
FLSA tipped employee regular rate
The FLSA allows employers to pay tipped employees a reduced cash wage (the federal tipped minimum wage is $2.13/hour) and take a tip credit for the difference between that rate and the federal minimum wage, as long as the employee's tips make up the difference. When they don't, the employer must pay the shortfall.
The regular rate of pay calculation for overtime for tipped employees is not straightforward. Overtime for tipped employees must be calculated at 1.5x the full minimum wage, not 1.5x the cash wage. An employer who pays overtime at 1.5x $2.13 instead of 1.5x the applicable minimum wage has underpaid every overtime hour worked by every tipped employee.
RJR reviews tipped wage configuration as a standard step in every restaurant and hospitality implementation: tip credit eligibility by state, tip credit calculation mechanics, and overtime rate calculation for tipped hours.
Tip pooling after the 2018 FLSA amendments
The 2018 Consolidated Appropriations Act changed the federal rules governing tip pooling. The amendment prohibited employers from keeping any portion of tips, regardless of whether the employer takes a tip credit, and allowed tip pools to include back-of-house employees when the employer does not take a tip credit.
Many HCM configurations were set up before 2018 and have not been updated to reflect these rules. RJR reviews tip pooling configuration against current federal law and applicable state law (several states have more restrictive tip pooling rules than federal law) during both new implementations and compliance assessments of existing configurations.
Predictive scheduling ordinances
Cities including Seattle, San Francisco, New York, Chicago, Philadelphia, and others have enacted predictive scheduling ordinances that require employers to post schedules in advance (typically seven to fourteen days), provide premium pay when schedules are changed within the posting window, and offer additional hours to existing part-time employees before hiring new employees.
These ordinances are location-specific and change independently of federal and state law. HCM scheduling modules need to be configured to enforce the advance notice requirements, calculate premium pay when applicable, and maintain the records required to demonstrate compliance during an audit.
RJR maps the client's operating locations against applicable scheduling ordinances before implementing the scheduling module, configures the advance notice and premium pay rules, and establishes the record retention structure the ordinances require.
Seasonal staffing configuration
Retail employers who add several hundred seasonal employees in Q4 and off-board them in January create specific HCM configuration requirements: batch onboarding processes, benefits eligibility rules that account for the ACA's look-back measurement period, and offboarding workflows that generate the correct final pay calculations including accrued PTO payout where state law requires it.
RJR has configured seasonal staffing programs for retail clients ranging from specialty apparel to home improvement. The configuration separates seasonal employees into their own population for benefits eligibility tracking, applies the correct accrual rules based on employment type, and automates the offboarding sequence so that the January mass-termination doesn't create a manual processing backlog.
POS integration for demand-based scheduling
Retail HCM implementations almost always require integration between the scheduling module and the point-of-sale system. POS systems (NCR Aloha, Toast, and others) generate transaction volume data that scheduling modules use to project staffing needs by hour and day of week.
RJR designs POS-to-scheduling integrations that feed the demand signal from the POS into the scheduling module without requiring manual data entry. The integration is tested against actual historical transaction data to validate that the demand projection logic produces staffing recommendations that match the client's actual experience, not a generic retail curve.
Topics
- retail
- HCM
- payroll compliance
- tipped wages
- scheduling