Tipped Employee

Tipped employees are those who work in occupations in which they customarily and regularly receive more than $30 a month in tips. An employer may count tips actually received by tipped employees as wages when calculating wages for purpose of FLSA minimum wage and overtime pay requirements. This is known as a “tip credit.” However, the employer must pay not less than $2.13 an hour in direct cash wages. Note that some states require direct wages of more than $2.13 an hour.

An employer who chooses to use the tip credit provision must inform each tipped employee about the tip credit allowance; be able to show that the employee receives at least the federal minimum wage when direct wages and the tip credit allowance are combined; and allow the tipped employee to retain all tips, except to the extent the employee participates in a valid tip pooling arrangement. If the employee’s tips, combined with the employer’s direct wages, do not equal at least the federal minimum wage for each hour worked in a tipped occupation, the employer must make up the difference. The tip credit claimed during overtime hours may not be different from the tip credit claimed for straight-time hours.

A mandatory charge for service (for example, 15 percent of the customer’s bill) is not a tip. Such charges are part of the employer’s gross receipts. Therefore, the employer has complete discretion in choosing the manner in which the compulsory charge is used, including whether or not to use it to pay his or her employees. When an employee is paid by the compulsory service charge, the payment to the employee is considered a commission payment and not a tip.

When tips are charged on a credit card and the employer must pay the credit card company a percentage on each sale, the employer may pay the employee the tip, less that percentage. The amount due to the employee must be paid no later than the regular pay day and may not be held while the employer is awaiting reimbursement from the credit card company.

Tip Pooling

Tip pooling is an arrangement among employees who customarily and regularly receive tips to “pool” or share a customary and reasonable percentage of their tips received with others in the pool.  The following occupations have been recognized as falling within the eligible category for tip pooling:  waiters and waitresses, bellhops, counter personnel who serve customers, busboys/girls, and service bartenders.  Tipped employees may not be required to share their tips with employees in occupations which have not customarily and regularly participated in tip pooling arrangements, such as janitors, dishwashers, chefs or cooks, and laundry room attendants.

Tip Pooling Lawsuit

If you are a server or employee in a restaurant or other service employment who relies on tips as a source of income, and you believe your employer has violated your rights, then contact us for a free, confidential assessment of your circumstances. We work with established class action law firms which may be able to help you through your employment claim.