Boosting Restaurant HR Compliance: The Benefits of a Co-Employment Model With a PEO

By Starza Thompson|Mar 11, 2024|5:16 pm CDT

Did you know that violating labor laws can cost restaurant owners and managers up to $10,000—and even lead to criminal prosecution? And that’s just one small part of restaurant compliance. On top of following labor laws, you also need to manage employees, set acceptable schedules, and handle HR complaints as they arise. Failing to do any of this can open you up to costly fines and dangerous lawsuits. 

Maintaining restaurant compliance can be complicated, but it’s also a non-negotiable part of running a thriving and ethical business. Luckily, there are solutions out there designed to simplify these challenges. Services like HotSchedules, the leading employee scheduling app, and Professional Employer Organizations (or PEOs) can significantly ease the burden. With the right tools and knowledge, you can easily keep your restaurant on the right side of the law.

Key Takeaways

  • Staying compliant in the restaurant industry includes understanding labor laws, ensuring health and safety standards, and upholding Equal Employment Opportunity (EEO) principles. Failing to comply can lead to hefty fines and tarnish the restaurant’s image.
  • Partnering with a Professional Employer Organization (PEO) could streamline compliance processes and generate growth. PEOs manage tasks associated with human resources, handle leave requests, and ensure adherence to crucial employment laws.
  • Restaurants partnering with a PEO experience 7-9% faster growth, 27.3% ROI cost savings, and 10-14% lower employee turnover.
  • Scheduling tools can greatly simplify compliance, ensuring there is no violation of minimum wage requirements, child labor laws, or fair workweek laws.
  • Regardless of the size of your business, a PEO can help you effectively manage HR-related tasks.

The Complex World of Restaurant HR Compliance

Navigating HR compliance in the restaurant industry can feel like moving through a minefield. The stakes are high, as failure to comply can lead to hefty fines. But understanding these laws and implementing proper staff management strategies can transform this daunting task into a manageable one.

Navigating Labor Laws and Regulations

Understanding labor laws is a vital part of running your restaurant. You must know and adhere to minimum wage requirements, overtime pay, and child labor laws

Many of these laws come with added complexity for restaurants. It’s common, for instance, for restaurants to employ 14- and 15-year-olds, but these teens can only work up to three hours on schooldays and up to eight hours on non-schooldays. Young teens are permitted to do kitchen work including using deep fat fryers, but they cannot bake, cook over an open flame, or use certain appliances, including mixers and food processors. Young teens may occasionally fetch things from walk-in freezers, but they can’t work in freezers for an extended period of time.

Minimum wage and overtime pay can also get confusing. Overtime pay must be at least one-and-a-half times the employee’s normal hourly rate. But what counts as a “normal hourly rate” for tipped workers? According to the US Department of Labor, this should represent the employee’s total compensation—including their base pay, average earnings in tips, and even their board and lodging if applicable. 

Following local, state, and federal regulations can get confusing fast. You should keep up-to-date with Fair Labor Standards Act (FLSA) requirements, which cover industry-specific wage laws, such as tip credit and pooling policies. Alternatively, consider partnering with a PEO that can manage these concerns for you.

Managing Health and Safety Standards

Protecting the health and safety of your staff and customers is vital to creating a successful business. Complying with Occupational Safety and Health Administration (OSHA) regulations, health codes, and safety standards is not just about avoiding fines—it’s also about maintaining a safe and healthy working environment. With some precautions in place, you can prevent foodborne illness, ace health inspections, and avoid citation risk. 

While following safety standards is an important part of regular restaurant operations, it can also help you avoid unlikely, but risky, scenarios. Businesses in the food industry can be legally vulnerable, as they’re often open to lawsuits from customers and insiders alike. In fact, 187 class action lawsuits were filed against the food and beverage industry in 2023 alone. While that’s not quite the all-time high of the 331 lawsuits we saw in 2021, the message is still clear—any business dealing with food is under immense legal scrutiny. 

Completing routine inspections, holding safety training for staff (especially for food handlers), and maintaining cleanliness are all vital to managing health and safety.

Understanding Equal Employment Opportunity (EEO) Compliance

As a restaurant owner, you need to uphold the principles of EEO. This entails preventing discrimination and harassment in the workplace and promoting equal opportunities for all employees

Complying with EEO standards is mandatory for any restaurant employer, but even if it wasn’t, there are many reasons to prioritize equity in your workforce. Restaurant turnover is famously high—and although there are many reasons for this, one of the most common is a perceived lack of growth opportunities. EEO policies can help you ensure that when opportunities for employee growth do arise, everyone has an equal shot. 

As a result, you can expect a healthier, happier workforce, and improved retention. Staff are more likely to stick around and do their best work when they feel valued and respected. Enforcing EEO standards is one part of that. 

The Challenge of Immigration Compliance

Immigrants are a vital part of the restaurant industry—in fact, more than 1.6 million restaurant workers in the United States were born elsewhere. The challenge for restaurant owners and managers is figuring out how to employ these workers legally and properly.

There are several types of work visas employers may consider when hiring foreign-born employees. One common type is a H-2B visa, which covers temporary workers in non-agriculture industries. In restaurants, H-2B visas are usually extended to seasonal workers (for instance, workers who come on during busy summer months). Employers might also consider TN visas, which are available to Canadian and Mexican residents. For highly skilled, specialized roles such as executive chefs, an H-1B or O-1 visa might be appropriate. 

Verifying your staff’s employment eligibility is a crucial aspect of immigration compliance. This involves both navigating visa laws and adhering to I-9 compliance standards. Although it can be complex, it’s essential to maintain a lawful workforce. The easiest way to do this is by partnering with a PEO, which can handle visa and immigration law on your behalf.

How PEOs Can Boost Restaurant Ops Success 

The ROI of using a PEO in cost savings alone is 27.2%. See how leveraging HR & payroll partnerships can support your restaurant’s growth and streamline operations. 

Addressing Wage and Hour Compliance

As you progress in making your restaurant compliant with various regulations, a crucial area you need to focus on is wage and hour compliance. Let’s delve into this topic and its implications.

Overview of Wage and Hour Laws

The Fair Labor Standards Act (FLSA) is a federal law that regulates minimum wage, overtime pay, recordkeeping, and youth employment standards. Notably, it also contains specific rules for restaurants, such as tip credit and pooling policies.

Wage and hour laws include several key types of regulation:

  • Minimum Wage Requirements: All employers must comply with the federal, state, and local minimum wage standards, remembering that these minimums are different for tipped workers. You must also remember that overtime pay is not just the regular rate—it’s one-and-a-half times the regular rate (the regular rate should include both base pay and an average estimate for tips).
  • Child Labor Laws: You need to adhere to both federal and state laws if you’re considering hiring restaurant employees under 18. Each state has specific regulations about the hours minors can work and the kind of jobs they can perform. Remember that teenagers can perform certain cooking tasks, but cannot bake or use many potentially dangerous appliances. 
  • Leave Requests: Ensure you effectively manage employee leave requests, including those pertaining to medical leave, maternity/paternity leave, and vacation time, adhering to the guidelines of the Family and Medical Leave Act (FMLA).
  • Tip Credit: When an employer “takes a tip credit,” it means they are allowed to pay tipped employees below minimum wage, with some limitations. This is only permitted when the employee is doing work that can result in tips. If an employee spends 20% of their work hours or 30 minutes of a given shift on non-tipped work, the employer must pay them at least minimum wage. For example, if a server spends 45 minutes cleaning up at the end of the night, their employer must pay them minimum wage for the final 15 minutes. 
  • Pooling Policies: Employers must follow certain guidelines when establishing tip pools. All tips that go through a tip pool must be paid out within the same pay period in which they are earned, and the employer may not keep any employee tips. If you pay full minimum wage and do not take a tip credit, you may also include non-tipped employees in tip pools, which can be a powerful retention strategy for back-of-house workers.

The Pitfalls of Non-Compliance

Failing to adhere to wage and hour laws can lead to significant penalties. Non-compliant restaurants potentially face back pay, fines, or even lawsuits from employees. Misclassifying employees as exempt from overtime or underpaying employees can be very costly mistakes.

A 2018 report from the National Library of Medicine estimated that one outbreak of foodborne illness could cost a fast-casual restaurant up to $2.1 million, or a fine-dining restaurant up to $2.6 million. Food handler training is an important preventative measure here. 

Additionally, restaurants could be at risk for labor law violations. One cautionary is Tank Noodle, a Vietnamese restaurant in Chicago that came under scrutiny after one employee alleged they hadn’t received their full pay. The complaint turned into a full-scale investigation involving 60 employees, and the business was ultimately forced to pay $700,000 in back wages. And that’s without factoring in the cost of litigation. 

Compliance isn’t just about avoiding penalties—it’s also about building a positive company culture. By ensuring your team is paid correctly, you boost morale, increase productivity, and reduce turnover. Conversely, non-compliance can tarnish your restaurant’s image and your relationship with employees.

Predictive Scheduling and Fair Workweek Laws

Introduction to Predictive Scheduling

Recently, certain states and localities have enacted predictive scheduling requirements. These requirements determine how employers should communicate with employees about scheduling—in general, requiring that employers make good faith predictions about schedules well in advance.

In San Francisco, for instance, certain employers must provide workers with schedules at least two weeks in advance and pay an additional 1 to 4 hours of wages if employee schedules change with less than seven days’ notice.

While these laws can pose certain challenges for employers, they also have benefits—including a happier workforce and, potentially, more predictable labor forecasting.

Each affected state and locality has its own rules regarding predictive scheduling (indeed, some states have passed laws barring predictive scheduling rules from being enacted). To stay compliant, employees must keep a careful eye on local scheduling rules—or use scheduling software that integrates these rules automatically.

Navigating Fair Workweek Regulations

Like predictive scheduling, fair workweek laws hold immense significance in the food service industry. These rules are aimed at providing employees with stable, predictable income, and aim to reduce unpredictable scheduling. Although these rules vary by locality, they focus on preventing practices like last-minute schedule changes, shift cancellations, and “clopenings” (when an employee works a closing and an opening shift back-to-back).

At this point, fair workweek laws mainly affect retail and restaurant businesses. Oregon is currently the only state to have enacted a general fair workweek law, but similar legislation has passed in a number of major cities, including New York City, San Francisco, Chicago, and Seattle.

As with predictive scheduling rules, fair workweek laws are continuing to develop on a case-by-case basis. Follow your local laws closely, or consider partnering with a PEO that can manage these compliance issues for you.

Leveraging HotSchedules for Predictive Scheduling Compliance

As a restaurant manager or owner, you’re aware of how unpredictable the industry can be. The goal is to maintain a balance between your staffing needs and your employees’ work-life balance, without affecting your restaurant’s bottom line. A tool like HotSchedules can help you schedule efficiently while staying in compliance with developing regulations.

Introduction to HotSchedules

HotSchedules is a cloud-based scheduling software designed specifically for the restaurant industry. It optimizes the scheduling process, making it more effective and efficient. HotSchedules’ centralized platform allows employees to swap shifts, request time off, and even pick up open shifts—all in one place. Simply put, you’ll spend less time scheduling and more time managing your restaurant.

How HotSchedules Supports Fair Workweek Compliance

HotSchedules automatically adheres to local labor regulations, preventing any violations of fair workweek laws. It also helps you stay in line with minimum wage compliance requirements, overtime pay, and child labor laws.

HotSchedules allows employees to take control of their own schedules. Employees are able to make bids on shifts and request time off easily, resulting in both greatest satisfaction and fewer concerns about overwork.

Failing to meet restaurant compliance guidelines can lead to hefty fines and damage your reputation. By leveraging HotSchedules and a reliable PEO, you can ensure adherence to these laws, thus safeguarding your restaurant’s future.

Take the Pain Out of Scheduling

With HotSchedules, we help you optimize your workforce, cut labor costs, and build better employee experiences. Learn how HotSchedules can simplify your schedules and help you stay compliant.

The Role of PEO Services in Simplifying Compliance

Staying up to date with restaurant HR compliance can be an exhaustive, and exhausting, process. But luckily, you don’t have to do it alone. By partnering with a PEO, you can automate many of the aspects of compliance. This will save you time, money, and legal risk, all while offering a better workplace for employees. 

What Is a PEO?

A Professional Employer Organization (PEO) acts as a “co-employer,” partnering with businesses to outsource complex HR tasks. As a restaurant owner, partnering with a PEO can help you tackle compliance challenges head-on and navigate through various employment laws and regulations. 

A PEO can guide you through all relevant labor laws, such as minimum wage requirements, overtime pay, and child labor laws. This co-employment model means your restaurant maintains daily control over staff, while the PEO handles HR management.

Why Restaurants Are Using PEO Services

What are the benefits of partnering with a PEO for a restaurant? The answer is extensive, covering both finances and HR concerns. 

PEO partnerships have been proven to result in more efficient operations, lower turnover, and higher profits. The national fast-casual business Noodles & Company is one example: after adopting HotSchedules, the business improved the accuracy of its labor forecasting by 20% and reduced labor spend by $4 million.

Restaurants that embrace PEOs experience 7-9% faster growth than the average small business, and an impressive 27.3% cost savings in ROI. Additionally, businesses that partner with a PEO have 10-14% lower employee turnover.

On top of improving profitability, PEOs greatly simplify restaurant compliance. The restaurant industry faces some of the most complex compliance issues of any industry, and there is a constant need to stay on top of regulatory changes. 

PEOs play an integral role here. They simplify tasks such as verifying employment eligibility, navigating visa issues, managing local labor laws, and more. A PEO partner will ensure you’re not blindsided by non-compliance consequences, which are often costly, and sometimes catastrophic.

Simplify Your Restaurant’s Compliance Today

Simplify your operations, stay compliant, and focus on what you do best—delivering exceptional dining experiences. Discover how our PEO services, coupled with HotSchedules technology, can transform your restaurant’s HR management and scheduling compliance. Explore how you can avoid non-compliance fines and improve ROI with Fourth PEO.

Implementing Effective Compliance Strategies

As a restaurant owner or manager, you need reliable strategies to help you stay compliant. Let’s explore the steps you need to take.

Choosing the Right PEO Partner

Selecting the right PEO can be the difference between experiencing seamless compliance and finding yourself in an unwanted legal battle. But not all PEOs are equally prepared for the challenges that come with managing a restaurant. 

When you choose a PEO, you want to ensure that they demonstrate expertise in labor laws, EEO laws, I-9 compliance, and predictive scheduling. Knowing that your PEO can help you adhere to OSHA regulations and health codes is crucial in your mission of maintaining a safe, healthy environment.

Ideally, you want a PEO that offers a wide range of services, integrates with the technology you already use, and that has a proven track record working with the restaurant industry. Restaurants face a unique collection of regulations and management concerns, so be sure your PEO is prepared with industry-specific expertise.

Leveraging Technology for Compliance

Technology can be a powerful tool for compliance, and the right PEO partner can guide you in using it to your benefit. From predictive scheduling software to advanced HR systems, technology can help you better manage labor laws, wage and hour laws, and health and food safety regulations.

If you’re managing scheduling with an intelligent tool like HotSchedules, be sure that your other important platforms are equipped to integrate with it. A PEO like Fourth makes this simple by partnering directly with top employee management tools.

Ensure Your Restaurant’s Compliance and Success

Take the first step towards a more compliant and successful restaurant today. Reach out to us for a free consultation and learn how our PEO services, combined with HotSchedules technology, can streamline your HR operations.


Let Fourth manage your payroll and employee benefits so you can focus on your business, not the HR business.


What are the benefits of partnering with a PEO for a restaurant?

A PEO manages HR,  payroll, and employee benefits while you retain direct control over the daily management of your employees.

Partnering with a PEO provides an umbrella of benefits for your restaurant.

  • Compliance Control: Your PEO helps manage risks by ensuring you’re in compliance with Department of Labor rules, OSHA and Food and Drug Administration (FDA) regulations, the Americans with Disabilities Act (ADA), EEO laws, and Fair Labor Standards Act (FLSA) requirements specific to the restaurant industry.
  • Inclusive Employee Management: With a PEO, you can more effectively manage employees, knowing that issues like labor laws and visa navigation are already being addressed.

Improved financing: PEOs can assist restaurants to conquer HR-related costs and avoid unnecessary fines, protecting your bottom line.

How does a PEO help with compliance regarding employment laws and regulations for restaurants?

A PEO is an HR partner that can help you navigate a wide range of employment laws. PEOs can offer expertise on a number of restaurant compliance issues, including minimum wage requirements, overtime pay, child labor laws, OSHA regulations, and so on. 

In a high-risk industry like food service, it’s essential to stay on top of these areas to maintain a healthy and safe environment. When you partner with a PEO, they can help ensure that you’re fully compliant with these regulations, reducing your risk of costly fines, failed restaurant inspections, and legal issues.

What should a restaurant look for when selecting a PEO partner?

When choosing a PEO partner for your restaurant, there are various factors you’ll need to consider. These include:

Industry Expertise: Your selected PEO should be well-versed in restaurant-specific issues, like minimum wage mandates for both untipped and tipped employees, labor laws adherence, child labor, and overtime payment.

OSHA Compliance: Your PEO must be knowledgeable about OSHA regulations, health codes, and safety standards specific to the food industry.

Legal Insight: Your PEO should offer insights on EEO laws and ensure your restaurant is free from any form of discrimination or harassment. They should help you take proactive steps to enhance employee relations, reduce grievances and implement best practices in the industry.

Understanding of Wage Laws: Restaurants are subject to wage and hour laws unique to the industry, such as tips credit and pooling policies. Your PEO should have a deep understanding of these regulations, helping you navigate labor laws without stress.

Predictive Scheduling Knowledge: Select a PEO that understands what predictive scheduling is and its significance. This way, they can help you better manage labor costs and enhance employee satisfaction in your restaurant.

How does the co-employment model work between a restaurant and a PEO?

When you partner with a PEO, you’re entering into a co-employment model. This unique relationship allows you to share employer responsibilities with the PEO.

Think of it as a strategic division of labor. You manage the daily operations while the PEO manages the legal HR matters, including wage laws, OSHA regulations, and workers’ compensation. You’re not handing over control—just reducing your liability in the face of HR concerns. You’ll still be making the day-to-day decisions that shape your restaurant.

Can partnering with a PEO help reduce HR-related costs for restaurants, and if so, how?

A PEO partnership can significantly impact your bottom line by cutting HR-related costs and keeping your restaurant compliant. Because your HR tasks will be both efficiently streamlined and more reliable, you will save time—and potentially save yourself from fines and citations. In fact, restaurants that partner with PEOS experience 7-9% faster growth, 27.3% ROI cost savings, and 10-14% lower employee turnover.

Does co-employment mean the restaurant loses any control?

No, co-employment doesn’t mean the restaurant loses control. The restaurant retains full control over the day-to-day operations while the PEO handles HR responsibilities, reducing the burden on the restaurant.