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Just Because You Earn Tips Does Not Mean Employers Can Deny You the Minimum Wage

The federal Fair Labor Standards Act (FLSA) and many state laws permit employers to pay a cash wage less than the standard minimum wage  to "tipped employees." For purposes of the law, tipped employees are those who customarily and regularly receive more than $30 per month in tips, which includes servers but excludes managers, dishwashers and cooks. The FLSA requires that the minimum cash wage for tipped employees must be $2.13.  State laws can mandate that a higher wage be paid for workers in those states. For instance, the minimum cash wage is $3.63 in Maryland and $2.77 in Washington D.C. 

Several requirements must be met, however, for an employer to pay a tipped employee a cash wage lower than the standard minimum wage. Below are a few of the common violations that employers make. If an employer fails to meet even only one of the conditions, then the employer has broken the law, and the tipped employee is entitled to the standard minimum wage in addition to any tips he or she received. 

Common Violations:

1) Failure to Provide Notice to the Tipped Employee 

The employer must provide the following information to a tipped employee before the employer may use the tip credit:

a) the amount of cash wage the employer is paying a tipped employee, which must be at least $2.13 per hour under federal law;

b) the additional amount claimed by the employer as a "tip credit," which cannot exceed $5.12 under federal law (the difference between the minimum required cash wage of $2.13 and the current federal minimum wage of $7.25);

3) that the tip credit claimed by the employer cannot exceed the amount of tips actually received by the tipped employee;

4) that all tips received by the tipped employee are to be retained by the employee except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips; and

5) that the tip credit will not apply to any tipped employee unless the employee has been informed of these tip credit provisions.

The employer may provide oral or written notice to its tipped employees informing them of items 1-5 above. An employer who fails to provide the required information cannot use the tip credit provisions and therefore must pay the tipped employee at least $7.25 per hour in wages (under federal law) and allow the tipped employee to keep all tips received.

Employers electing to use the tip credit provision must be able to show that tipped employees receive at least the minimum wage when cash wages and the tip credit amount are combined. If an employee's tips combined with the employer's direct (or cash) wages of at least $2.13 per hour do not equal the minimum hourly wage (under federal law) of $7.25 per hour, the employer must make up the difference.

2) Forced Participation in a Tip Pool that Includes Non-Tipped Workers Such as Dishwashers or Managers

Employers can require tipped workers to participate in a tip pool.  However, this pool can only consist of employees of those who customarily and regularly receive tips such as waiters, waitresses, bussers, bartenders, and barbacks. The tip pool cannot include those who do not customarily and regularly receive tips such as dishwashers, cooks, chefs, janitors, bouncers, and managers.

3) Claiming the "Tip Credit" for All Hours Worked When an Employee Sometimes Works as a Tipped Employee and Sometimes Not

When an employee is employed by one employer in both a tipped and a non-tipped occupation, such as an employee employed both as a cook and a waiter, the tip credit is available only for the hours spent by the employee in the tipped occupation. The FLSA permits an employer to take the tip credit for some time that the tipped employee spends in duties related to the tipped occupation, even though such duties are not by themselves directed toward producing tips. For example, a waitperson who spends some time cleaning and setting tables, making coffee, and occasionally washing dishes or glasses is considered to be engaged in a tipped occupation even though these duties are not tip producing. However, when a tipped employee spends a substantial amount of time (in excess of 20 percent in the workweek) performing related duties, no tip credit may be taken for the time spent in such duties.

If you believe you may have been wrongly paid, call us toll-free for a free consultation at 1-855-WBM-ATTY (1-855-926-2889), or contact us over the web.