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Can my Employer Take a Tip Credit to Avoid Paying Minimum Wage or Overtime?

Published September 8, 2018 by Employment and Commerce Law Group

Employees are sometimes paid less than minimum wage when they “customarily and regularly receive more than $30 per month in tips”. These jobs include servers, delivery drivers, valets, casino dealers, etc. If certain conditions are met, this may be legal. If an employee does not regularly make this amount in tips per month no tip credit may be taken. Other conditions also must be met before a “tip credit” may be taken include the following:

The Employer must inform the employee of their intention to use the tip credit and how the tip credit works

The United States Department of Labor has determined 5 things an employer must inform an employee before they can take a “tip credit”. These include:

  1. The amount they are paying a tipped employee, which must be at least $2.13 per hour.
  2. The amount claimed by the employer as a tip credit, which cannot exceed $5.12.
  3. The tip credit claimed by the employer cannot exceed the amount of tips actually received by the tipped employee.
  4. All tips received by the employee are to be retained by the employee, except for a valid tip pooling arrangement limited to other tipped employees.
  5. The tip credit will not apply to any tipped employee unless the employee has been informed of these provisions.

Failure to inform an employee of any of these results in the employer losing the ability to take a tip credit.  The employer would then owe the employees at least the federal minimum wage for every hour worked.

The tips belong to the employee, not the employer

Tips are the property of the employee. An employer may not keep any part of the tip for themselves. Even if a tipped employee receives at least $7.25 per hour, the employer can not take the employee’s tips.

Tip pooling

Tipped employees may be required to pool their tips; but only under certain circumstances. Tip pools may only exist between other tipped employees. You can read more about tip pools here.

Dual Jobs

When an employee performs the job duties of a tipped employee AND a non tipped employee- such as a waiter who also serves as a line cook- the employer can normally only take a tip credit for the hours spent by the employee in the tipped occupation. The FLSA does permit an employer to take the tip credit for some time that the tipped employee spends in duties related to the tipped occupation, like when a waiter also spends time cleaning tables or making coffee.  However, if a tipped employee spends more than 20 percent of their time performing these non tipped job duties, the employer loses their ability to take the tip credit.

Service Charges

A compulsory service charge on a bill is not a tip.  Monies distributed to employees from service charges cannot be counted as tips for their employees. However if an employer gives an employee a portion of the monies, it can be used toward their minimum wage and overtime obligations.

Credit Card Charges

If tips are charged on a credit card and a service charge is made by the credit card company, the employer may pay the employee the tip less that service charge. However, if an employer withholds this service charge – the employee must still be paid the required minimum wage. The service charge may not bring the employee’s wages below minimum wage.

Tip credit violations are common in some industries, and cost employees to lose money. Each case will have different facts which will determine if you have suffered from wage theft as a result of improper tip credits.

It’s important to discuss your case with an experienced overtime lawyer. Our firm has recovered millions of dollars for employees who have not received proper pay under the Fair Labor Standards Act.

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