There is an increasing number of restaurants that are instituting the option of instant pay for their employees. Restaurants are giving their staff the ability to instantly withdraw earnings in advance of employees’ regular paydays via pay-on-demand apps integrated with their payroll systems,.  

There are a few different ways this type of instant pay can be structured.  It can be an employee-paid system wherein each employee pays a minimal fee to withdraw money per transaction or via a monthly fee, it can be set up internally and paid for by the employer, or it can be a combination of the two.  

Outback Steakhouse, McDonalds, Church’s Chicken, Pizza Hut and Checkers restaurants have all been engaged in some form of instant pay for their employees. Some of these restaurants have reported that the benefits to offering early access to pay has included better retention, attraction of more talent, and a reduction in turnover. With many restaurant employees living paycheck to paycheck, the ability for employees to access money early has proven to increase loyalty. With a more stable workforce, restaurants report increased productivity, as employees are happier and more motivated.  

With wage and hour laws being a hot bed for litigation, restaurants should be sure to follow these tips to ensure legal compliance when instituting instant pay for their employees.

With wage and hour laws being a hot bed for litigation, restaurants should be sure to follow these tips to ensure legal compliance when instituting instant pay for their employees: 

First, restaurants should conduct a legal analysis to assure all of its workers are classified correctly under the law.  Misclassification is one of the biggest wage and hour mistakes made in the restaurant industry. There are millions of misclassified workers throughout the country, according to the IRS, and wage and hour lawsuits continue to be on the rise. 

This is especially true in states like California, where more and more state laws are making questions of classification even more difficult to discern. Legal issues could arise if there are employees misclassified as independent contractors who question their eligibility to participate in an instant-pay program. In sum, assure that you have not misclassified any of your workers as independent contractors, when they should be paid as employees. 

From there, before you contract with a vendor and/or decide to begin offering instant pay as a benefit to employees, be sure to analyze your local, state and federal laws that govern wage deductions as they relate to advances made to employees. In many states, certain wage deductions are against the law. For example, it will be imperative to assure that any state required written employee authorizations are obtained before advances and/or wage deductions are made. In some states, like California, generally, wage deductions from a final paycheck are not allowable. Such laws must be considered before a vendor or restaurant attempts to deduct an advance from a final paycheck.   

The restaurant will want to assure that the manner in which they are issuing paystubs is correct, as there are tax considerations and other requirements that can accompany daily (or instant) pay, as well as requirements to properly account for all wages, hours worked, etc. in light of the pay advance.  

Accordingly, restaurants will want to be sure to carefully evaluate each of these elements to avoid wage and hour claims that could include lawsuits such as class actions, PAGA claims (in California), and/or individual lawsuits brought by employees seeking recovery of wages and/or penalties due to misclassification, unpaid wages, paystub violations, etc.  

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