Tipped employees depend on gratuities for a good portion of their incomes, but they get shorted when their employers implement pay practices that divide and distribute tips to other non-tipped workers.
Waiters, waitresses, bartenders, bellhops, and others who receive more than $30.00 per month in gratuities are considered “tipped employees” according to the Fair Labor Standards Act (FLSA). Under the Act, tips are deemed to be the employee’s property, and an employer may not use tips except:
- To take a “tip credit” to offset any minimum wage obligation it owes to the employee. The tip credit is equal to the difference between the required cash wage of at least $2.13 and the prevailing federal minimum wage
- As part of a permissible “tip pool” sharing arrangement between workers who customarily and regularly receive tips, but expressly excluding non-tipped co-workers (such as dishwashers, cooks, chefs, janitors, etc.).
Matters become complicated when a worker is employed in dual tipped and non-tipped roles, such as someone working as both as a food server and a maintenance person for the same employer. In those cases, the tip credit applies only to time spent performing the tipped portion of the job. The employer may take a tip credit for time that the employee spends tasks that don’t usually produce tips, such as when waitperson devotes time each shift to cleaning and setting tables, making coffee, and occasionally washing dishes or glasses. Where the tipped worker spends more than 20 percent of the workweek on those kinds of duties, however, no tip credit may be taken.
Wage abuse occurs when employers take liberties with employees’ tips, for example:
- Where the employee does not receive sufficient tips to make up the difference between the cash wage and the minimum wage
- Where an employee receives tips only and receives no cash wage to meet the minimum wage obligation
- Where the employer deducts costs and expenses such as walk-outs, breakage, or cash register shortages that push the employee’s wages below the minimum wage
- Where a tipped employee is required to contribute to a tip pool that includes employees who do not customarily and regularly receive tips, but isn’t paid all tips he or she added to the pool as well as the full minimum wage
- Where the employer takes a larger tip credit for overtime hours than for straight time
- Where the employer fails to pay overtime based on the regular hourly rate, including all service charges, commissions, bonuses, etc.
Many local restaurants and national chains have become the subject of class action lawsuits claiming improper and unlawful tip-pooling and tip-sharing practices, including Landry’s Restaurants, Darden Restaurants, Houlihan’s, Red Robin, Chili’s, and Wahlburgers.