Moderator chiming in here.
Although I understand many of you have strong political opinions, we at Cheftalk do not advocate knowingly breaking the law.
I would have to agree with @kwan. What disturbed me when reading some of the posts, was that it was okay to break the law, as long as it was not affecting their own pocket.
As a business owner, there are so many reasons why these people should be reported, but I won't leave a laundry list. The top is not paying taxes. When overtime is paid, there are more taxes paid, and to me if you are willing to cheat the govt. on that, what else are they doing? The second thing I would look at if I were an employee is how much overtime is being paid out. I understand that sometimes it just can't be helped, but if there is a lot of overtime being paid consistently, it sounds to me that there is more of an issue of staffing. Overtime is good for our pockets for a short period of time, but after awhile it can mess with morale, and other issues within the staff.
@IceMan I get what you are saying, but the law is the law, and if you are not doing what is right under the law, its wrong. It maybe just a few dollars here and there for that one particular establishment, but you have to know that if they are doing it others are too... I may not have been clear but I wasn't just talking about this one place in particular.
@SpoiledBroth I would never be the owner that would falsify my numbers, so I can't answer that. Falsifying numbers is bad situation to get into, I have seen it destroy businesses, relationships and in one case, a life was taken due to someone falsifying numbers.
Don't get me wrong, I don't want people to get the impression I am high and mighty... I am a simple guy with a very straight forward view and have a problem with people skirting the law. Its the principles and ethics that were either instilled in me as a young child or as a grew as an adult, a chef, and business owner.
If its a law I may not particularly like, it needs to be followed, but we "the people" need to be the ones to push for it to change. I think the thing that I have learned as I have gotten older, is your vote does count, your voice can be heard, its all about how it is handled. But sitting on our hands, or shrugging our shoulders and then complaining about situations is not productive. Turning a blind eye when we know someone is doing wrong, is not good for anyone. In this situation, the original poster asked for advice, mine would be report them to the labor board in that state and either stay and see what happens, or move on. It sucks as it directly can affect him, but IMO its the moral and ethical thing to do.
PS... thanks for ruining Santa for me ;(
Iceman, for me it has nothing to do with morality and being "high and mighty." And I hate the argument "....because it's the law." I have problems with this because it can be a symptom of other, more serious problems about how the owner runs his business, and if you don't think the IRS, the State, and/or the City, don't come after people, and restaurants for evading taxes then you are wrong. I saw a guy, in Chicago, lose his 3 restaurants over night (literally) when the sheriff boarded up the doors and closed his places down for not paying taxes. Think of all the people out of jobs then. I've been involved in wage and hour audits by the government. Sure, the chances of getting caught are pretty slim, but why risk it. As an owner, you are not only risking your business but putting all your employees jobs at risk.
Based on my experience running a small restaurant I will offer this in the interest of furthering the educational nature of this forum.
Before making any possible decisions about tax avoidance, it is vitally important to have an accurate picture of your financial situation in every area. While there are inevitable tax concerns, there are also many other areas that can affect the bottom line in more subtle and insidious ways. Understanding that every detail is important is vital to getting the most out of your business. Services such as garbage disposal contracts, pesticide control, linen contracts, etc can be an enormous but quiet drain on your bottom line. Over paying for paper supplies is another. Wasted or underutilized space in any area can affect costs. Ownership is a constant struggle to keep aware of the potential to save dollars in every single area.
Structuring expenses correctly is another issue that should be addressed. Many small business owners begin thinking that they will pay themselves an income later, after the business has developed to some degree. Unfortunately they fail to do so as they would for someone else doing the same job and the cost of paying themselves is never factored into the essential costs of running the business. Naturally the need to pay bills remains while the pay issue continues being over looked. A variety of creative solutions arise, none of which address the underlying cause.
There are other structural issues related to expenses that a good accountant should be able to help you with.
There are several areas of concern over taxes.
Sales tax is typically the first one encountered. At the end of the day, too many operators lump the sales tax in with the rest of the days' receipts. On a daily basis, this amount can seem inconsequential. However it adds up quickly and can be a significant sum when the time comes to turn it over to the tax department. What many fail to remember or do not recognize is that this money was never theirs in the first place, not even for a moment. A good solution is to have a sales tax bank account. the bank will help you set it up. Whenever the receipts are deposited,, it is easy enough to make a second deposit in the tax account. This money can only be turned over to the tax department. Should anything happen to the business, the owner or if an unexpected expense should arise, the money can be considered to have been held in escrow and in effect, already paid.
Payroll taxes are a weekly or biweekly concern. There are numerous payroll companies willing to charge a healthy fee to complete the payroll for you. They also accept full legal responsibility for withholding and paying of all taxes. Software is also available in the event you wish to do your own payroll. In my case, Quickbooks was the answer. I completed the payroll using their software and with the online connection, received regular updates regarding any updates on tax rates or changes. Being connected to the online update service also meant freedom from liability for any accounting errors. I simply put in the hours each employee worked and the software did the rest. The software also generated any reports needed and organized everything in the precise manner required by the government. The software is also set up to handle the inclusion of all other expenses and is designed to be used for most small business. This enables you to have a wealth of information about your business in moments and make important decisions about relative costs and percentages.
Property and school taxes are another area of potentially large expense depending on location and state. These can also be addressed in various ways, with variances and reductions possible with a bit of honest negotiation. Naturally this depends on your area.
To sum up, before embarking on any potentially illegal endeavors to save a buck, I would suggest developing the ability to have an honest overview of the business' actual financial picture.
As an employee, I expect to get paid for the work I do. Time and half if appropriate but paid nonetheless. As some one else mentioned, as this affects my social security and other issues, I'd prefer a recorded pay.
As an employer, I am first and foremost interested in a brutally honest and objective view of my business finances. I expect my employees to have complete faith in me when I speak to them regarding my business and that begins with the ability to be candid and upfront in every way with their hard earned pay. Thinking this way earned me years of faithful employees and when we finally sold the business, not one bill was left unpaid. All the employees received generous severance packages and all had new jobs before the sale was complete.
Well it works both ways. I started checking my SS account about 10 yrs ago. When I first checked I noticed there were three years blank. At that time I was employed by a very upscale well known caterer in NYC. That company is gone as well as the three years SS that was deducted from my pay plus match. I had to make up those years.
I'm a little vague on NY state since it's been 13 years since I worked there but.....there and with most states for that fact, if you are paid hourly you are considered non-exempt so if you work your 40 hours and stray so much as 5 minutes past, you are entitled to 1.5 time your normal rate for that 5 minutes and everything above. If you are salary and work past your 40 hours, for the record I don't believe I have EVER seen a salaried person be scheduled less than 50, you are considered an exempt employee and under the guidelines, in most states again, you do not receive overtime pay since your salary is meant to reflect the extra responsibility and hours.
There are some companies, Houlihan's for example but I don't know if they still do, they would pay their AKM's and AM's overtime above 50 hours even if you were salary. The concept was that you were in Training to become a KM or GM and should only be responsible for 5 10 hour days. If the restaurant had a problem with staffing, you were not there to fill gaps since that was not how a proper restaurant, in their minds, should run.
There are some vague rules about OT and performing job functions that have a rate less than your normal rate. Some states require that you be paid your highest hourly rate no matter what function you perform for the restaurant. Lets say you're a cook and you fill in as a host. As a cook you make $13hr but the Host only makes $8hr. If you work as a host any hours over 40 combined, you must be paid the $13 + OT for those hours. This was the case in Illinois and Georgia back in the 80's and 90's but I'm not certain if the rule still applies. I mention this because of two places I worked, several employees filed lawsuits against a couple restaurants regarding back pay and improper OT payment procedures and won huge settlements.
If the owners are paying you cash for any hours below or above 40, they're required to file a 1099. If you receive that cash, you are also required to file a 1099. If one or the other doesn't then that will come out in an audit. Trust me, I have seen these done on an entire restaurant because of the payment and tip declaration practices and I promise you never want to be caught without having filed your proper documentation. If you haven't, the IRS pretty much owns whoever hasn't.
I'm not going to turn this into a tax discussion and have only a short statement regarding the subject. Taxes suck. There's no doubt about that but they are also a necessity in a civilized society. Think about it. What would it be like if when you flushed your toilet, it just emptied onto the street? Simply put for owners and employees alike.........pay your taxes, file your proper documentation and keep straight records. So......when the audit happens, and it will sooner or later for the owner, staff or both.......just rest well knowing you have done what needed to be done and you won't be subject to the horror of paying back-debt to the IRS. They will garnish everything and you will lose everything! Right or wrong with the IRS isn't the case here. If you didn't follow the rules, you were wrong to start with. If following this is too difficult or you outright don't like the Owners procedures, then it's time to find a place where you're comfortable with practices and just let it be. No threats or anything else. Their day is coming.
@oldschool1982 It is interesting to hear that Houlihan's pays their AKM's and AM's an hourly overtime pay. I remember back in the mid ninety's, the restaurant company I was working for was sued by a Sous Chef on a little known law that if your position required more than 55% of the day doing "manual labor" the employer was required to pay hourly and overtime, and it didn't matter that we had signed paperwork that we had accepted our salary and were required to work 55 hours per week (per normal).
The employee won the case, then the Department of Labor did an audit and required that the company go back five years and retro pay everyone who had worked as a sous chef during that period. I remember the owner coming the the store to give each one of us the check that had held the position. He was very gracious, apologetic even, and I remember him stating it wasn't the money that bothered him, it was the fact that he even had to pay an employee that they fire due to embezzling money from them. The employee had been convicted, but the DOL required the company to pay him to. Any monies that could not be paid out due to not being able to find them after a couple of years, was paid directly to DOL.. I'm curious to know if that is the reason why Houlihan's does it that way.
I do not know if the law has been changed since....