Restaurant & Hotel Employees, Tip Credits, and Your Right To Get Fully Paid For All Of Your Work

Restaurant & Hotel Employees: 

Do you know what the “tip credit” is?  Here’s a few “tips” to remember about your right to getting fully paid for all of your work.

Employees who work in restaurants, hotels, and other service establishments are often paid on a “tipped” basis, receiving an hourly wage paid by their employer plus tips received from customers.  However, did you know that the Federal law known as the Fair Labor Standards Act (FLSA) only permits employers to take a “tip credit” to reduce its minimum wage obligations when certain conditions are satisfied?

First, the FLSA considers tipped employees to be workers who customarily and regularly receive more than $30.00 per month in tips.  Employees who work in qualifying positions commonly include waiters & waitresses (a/k/a servers), bussers, barbacks & bartenders, and bellhops, whereas employees who usually do not work in tip-covered positions are cooks, dishwashers, maintenance employees, and managers.

Second, the maximum tip credit that an employer can claim under the FLSA is $5.12/hour, which means that when subtracting the full tip credit from the Federal Minimum Wage of $7.25/hour, you must be paid at least $2.13/hour in direct wages by your employer. In this regard, the amount of the tip credit claimed by an employer can’t exceed the amount of tips actually received by employees.

Third, tips are solely the property of the tipped employee(s) to whom they are paid.  In this regard, Federal law prohibits employers from retaining any portion of an employee’s tips.  As a result, employers may not force a tipped employee to turn over any part of an employee’s tips to the employer.  Moreover, although “tip pools” can be used to create a system for distributing tips amongst tipped employees, if non-tipped employees are included in the tip pool (i.e., cooks), the entire system may be destroyed, resulting in the employer owing all tipped employees compensation at the full Federal Minimum Wage of $7.25/hour.  Similarly, employers who institute tip pools must provide notice to their employees of any required tip pool contribution amount.

Fourth, employers are required to provide notice to tipped employees of the tip credit being claimed.  An employer who fails to provide employees with the information required by the FLSA will lose the benefits of the law’s tip credit provisions.

Employers who seek the protections of the FLSA’s tip credit must be able to show that tipped employees receive at least the Federal Minimum Wage of $7.25/hour when the direct wages paid by the employer are combined with the tip credit amount, which means that when an employee’s tips combined with the hourly wage paid by the employer are less than $7.25/hour, the employer must pay the employee the difference in additional wages to meet with the Minimum Wage. Likewise, it is illegal under the FLSA for an employer to make deductions from a tipped employee’s wages for customer walk-outs, breakage, or cash/register shortages if the deduction(s) reduce an employee’s wages below the Federal Minimum Wage.

Even if an employer takes a tip credit, overtime compensation for hours worked in excess of Forty (40) hours per week is still required by the FLSA on a time and one-half basis.  Significantly, an employer may not take a larger tip credit for overtime hours worked by tipped employees than for regular hours worked and the employer must still calculate an employee’s overtime rate for each week in the employee’s hours go over Forty (40) in any work week.

Finally, remember that tipped employees who perform work “off the clock,” or spend a substantial of time doing “side work” such as setting tables, rolling silverware, stacking plates or glasses, etc., are still entitled to proper compensation for both their regular and overtime hours worked.

You Earned It,
Now Let's Go Get It.

Contact us to learn more about your right to overtime, fair pay, and equal treatment in the workplace.

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