Restaurants are allowed to take a tip credit for a tipped employee. What is the tip credit and what is a tipped employee?
Am I a tipped employee?
Under the FSLA, a person is a tipped employee when the amount he or she receives as tips customarily and regularly totals more than thirty dollars a month. There are many different tipped employees, but the most common examples are servers and bartenders. By contrast, non-tipped employees are those who are paid at least minimum wage and do not interact with customers.
Several potential issues can arise with tipped employees.
Can my boss take a tip credit without telling me?
One is failing to provide notice that the employer intends to take a tip credit towards its obligation under the FLSA to pay its employees minimum wage. The FLSA states employers must pay tipped employees a minimum cash wage of $2.13 an hour and apply a tip credit of up to $5.12 an hour. By taking the tip credit, the employer is asserting that the tipped employee is earning enough in tips to make up the difference between the federal minimum wage and the cash wage. An employer is required to provide written or oral notice to tipped employees of the following: (1) The cash wage it is paying, (2) the additional amount claimed by employer as a tip credit, (3) that the tip credit cannot be higher than the amount of tips actually received, (4) all tips received by tipped employee are to be retained by employee, except for when there is a valid tip pooling agreement, (5) the tip credit will not be applied unless the employee was informed of all of the above. If the employer fails to inform the tipped employee of all of the above, the employer must pay the employee at least $7.25 per hour, and tipped employee may keep all tips.
2. Can my job force me to share tips with other employees?
Another very common question tipped employees have is whether or not their tip pooling arrangement is valid. In many restaurants, tipped employees must give a portion of their tips to other restaurant staff members. The idea behind tip pooling arrangements is that many members of the restaurant staff contribute to the service of the restaurant’s customers, so they should also share in the tips.
Under a valid tip pooling agreement, the tipped employee should only be required to share his or her tips with other employees who customarily and regularly receive tips. So, what restaurant employees, other than servers, customarily and regularly receive tips? Many courts address this by asking two questions: (1) Is the employee in the tip pooling arrangement paid less than minimum wage, and (2) Does the employee in the tip pooling arrangement interact with customers? If the answer to either question is “no” then the tip pooling arrangement is not valid. Courts focus on the extent of interaction with customers. Servers, hostesses, bussers, and service bartenders are viewed to have sufficient interaction with customers. Dishwashers, cooks, and janitors are not. Tip pooling arrangements that include these employees without sufficient interaction with customers are valid.
Can my manager or the owner share in the tip pool?
Can I be forced to pay for customers that walk out without paying?
The Department of Labor has explored this issue and responded as follows: “Where deductions for walk-outs, breakage, or cash register shortages reduce the employee’s wages below the minimum wage, such deductions are illegal. Where a tipped employee is paid $2.13 per hour in direct (or cash) wages and the employer claims the maximum tip credit of $5.12 per hour, no such deductions can be made without reducing the employee below the minimum wage (even where the employee receives more than $5.12 per hour in tips).”
Thus, an employer cannot make any deduction based on a dine-and-dash (or any other reason) that results in the employee’s wages being less than minimum wage for the given pay period. The restaurant or bar cannot avoid a violation even if the employee’s tips were high enough to still keep their full pay rate at or above minimum wage after the employer makes a deduction based on a dine-and-dash. The simple principle here is that under federal law, tips belong to the employee, not the employer.
Know your rights as a tipped employee. If your employer has committed any of the above violations or if you have any other questions about how the FLSA applies to tipped employees, contact me.