Brewery compensation series part 1: How to pay your brewers

This Brewery Compensation series is intended to provide guidance on the variety of compensation structures available as a brewery expands and brings on employees. While we hope to shed some light on these issues, this can be a complicated area, as each state has its own specific laws in addition to federal laws. Therefore, always consider consulting a legal professional regarding your specific situation. Furthermore, the laws in this area come from the federal government and individual state governments, so what is true in California may not be true in Colorado, for example.

To begin, let’s think of brewery employees as falling into one of three categories: brewing, sales and front-of-house (tasting room and/or restaurant). Each has a personality and structure unique to that category, and the type of compensation that works for one set of employees may not work for another. A brewery could begin with only one category of employee, but as the business expands, so should the variety of employees.

In this particular article, we will look at the issues specific to brewing teams (the other categories of employees will be addressed in articles to follow). These individuals are going to be the creative drivers in your business, but may also have variable hours and heavy manual work. You and your head brewer are likely to face some unique issues that are unlikely to come up in the other employment settings such as confidentiality, worker classification, bonus structures and/or possible ownership interest. Other issues apply more broadly, such as overtime and employee benefits.

Independent contractor or employee?

First consider whether the brewer is going to be an employee at all. In general, because of the nature of the work, head brewers are usually employees even if they are owners in the legal entity. However, if the brewer is highly experienced and working more as a part-time consultant, that might be the kind of relationship that calls for independent contractor status.

The difference between independent contractors and employees generally lies in who gets to make the decisions about how to reach the end goal. An independent contractor is generally given an assignment, a deadline and told to make it happen. How that happens is generally up to however he or she chooses to do it. An employee is given a goal, a deadline and specific instructions on how to get there. If the brewery controls the “how to” of a worker’s day-to-day, the worker is likely an employee, rather than an independent contractor.

By law, there are a number of factors that can come into play when making this analysis. See this IRS article on the questions to ask. Also, keep in mind that independent contractors usually provide similar services to your competitors, so non-competes would not be allowed in the service contract.

Classifying a potential hire as an employee or independent contractor is an important distinction to get right. Misclassifying an employee as an independent contractor might save some money in payroll taxes and avoid worker’s compensation insurance costs in the here and now, but it will also open the business to potential liabilities from the IRS, the state, the Department of Labor and the worker (for back pay). Furthermore, should a claim be made or an audit conducted, everything could become unmanageable for a small business, so proactively avoiding this liability is for the best.

Salary

Let’s assume the worker is an employee. Will the head brewer will be paid a salary or by the hour? The federal government generally classifies workers into two categories here: non-exempt (who are entitled to additional legal protections such as overtime wages) and exempt (who can be paid a salary and exempt from certain laws).

There are two tests to determine whether an employee can be paid as salary.

The first is whether the worker meets the base minimum salary requirement. Under federal law, the salary must exceed $455 per week. However, states, like California, require a rate equivalent to two times the current minimum wage multiplied by 40 hours a week and again multiplied by 52 weeks. In California, the minimum wage is currently $9 per hour right now, so the minimum salary would be $37,440 per year. Each increase in the base minimum wage would cause this annual salary to be affected proportionally.

The second part of the salary test is the “duties” test. Only certain types of jobs are allowed to be classified as exempt, and they usually exclude manual labor type jobs. There are essentially three job categories that allow an employee to be exempt:

1. The first is for licensed professionals, such as doctors, accountants, or lawyers, which generally doesn’t apply to brewers.

2. High-level, autonomous administrative staff, such as marketing executives, and executive assistants who are given a high degree of independence with their work. Again, this exemption is not likely to apply to most head brewers because much of the daily work is not directly related to management of the business.

3. The executive category, which applies to employees that manage a “division” of two or more employees (including the power to provide meaningful input on the hiring, discipline and termination of those employees) as well as are allowed to operate with some modicum of independence. This is the category that head brewers can fall into, especially if there are other brewers working under and reporting to the head brewer.

Accordingly, if you want to pay your head brewer a salary as executive exempt, make sure her or she has at least two employees under them, less than 50 percent of his or her time is spent on manual labor (such as pulling tap handles, moving kegs around, cleaning) and allow him or her independence in performing job duties. If the job duties will not add up to that job description, you may want to consider an hourly wage, possibly with additional bonus structures, rather than a salary in the beginning of employment. Members of the brew team under the head brewer do not likely fit the duties test, so these individuals should almost certainly be classified as non-exempt employees and paid overtime and provided breaks in accordance with federal and state law.

*Note: Some states do allow for alternative work weeks, i.e. four work days at 10 hours per shift versus five work days at 8 hours per shift. However, a procedure usually must be followed that includes filing documentation with the state and/or federal government. Therefore, the procedural cost often outweighs the amount of overtime trying to be saved, at least in a smaller operation.

Breaks

Most states have specific rules on hours worked, including breaks. Have clear policies and good timekeeping protocols to avoid future claims by disgruntled employees post-termination. Employment lawsuits make up a large percentage of lawsuits filed across the country nowadays and most states incentivize private attorneys to serve as enforcers of employment laws by providing statutory fees and penalties for such technical violations.

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