Customer Tips: Whose Money is it Anyway?

 In Featured, Wage Law

Ever worked a service job and had an employer claim the tips belong to him or her? Whether the employer is right or wrong depends on several factors. Don’t stop reading, employers often do not know the law and it’s common for employers to commit what I call, “wage theft.”

The Department of Labor (“DOL”) has recently stated that cash tips belong to the employee who earned them regardless of whether that employee is hourly, salary, etc. In other words, it’s the DOL’s position that if a customer wants to add a cash tip on to their bill or just hand an employee cash, that money belongs to the employee not the employer. If your employer has taken your cash tips then your employer has violated the federal law called “The Fair Labor Standards Act” (FLSA). There is one caveat: an employer can require its employees to pool their tips as long as the “pool” is completely redistributed among regularly tipped employees.

Let’s clarify a couple of things regarding the pooling of tips before moving on. An employer can only require employees to pool their money and redistribute that money if the employees sharing in that pool have sufficient customer interaction. To give an example, if a cook shares in the tip pool, then the tip pool is invalid and you have a wage claim. Moreover, is an owner shares in the tip pool then it is invalid, even if the owner is working as a server. The last thing I want to clarify is that the pool must be completely redistributed; everything that was put into the pool must come out of the pool. The employer cannot skim any money from the tip pool.

If your employer has been skimming tips or you have been contributing to an invalid tip pool, call me today. You may have a wage claim and can potentially recover thousands of dollars. Call Herrmann Law: 817-479-9229.

Next, a service charge is not a tip and thus does not belong to the employee. A service charge is a mandatory charge whereas a tip is wholly voluntary. To give an example, if the customer’s bill has a required 15% gratuity already calculated then that is a service charge and belongs to the employer. However, if the customer adds (voluntarily) any amount to the bill then this is a tip and belongs to the employee.

There is a huge caveat to the service charge. If your employer voluntarily elects to give you the service charge (or any part of the service charge) as part of your wages then that service charge is part of your overtime rate. Example: an employee is paid $10.00 per hour and the employer pays out $50 in service charges over the course of one week. Moreover, the employee worked 48 hours in the one week pay period. To calculate the overtime rate for the 8 hours of overtime, a lot of employees assume that they are to be paid 1 ½ times $10.00=$15.00 per hour for overtime. That is not the case, the employee’s overtime rate would actually be calculated as follows:

Step 1: Regular pay=($10.00 x 48 hours) + $50 = $530

àThe $50 service charge is included in the regular pay.

Step 2: Regular rate of pay = $530/48hrs = 11.04 per hour.

àThis is the regular rate of pay; the overtime rate is 1 ½ times this rate (i.e. regular rate)

Step 3: Overtime Compensation = $11.04 x .5 x 8 hours = $44.16

Step 4: Total weekly compensation=$530 + $50 + $44.16 =$624.16

In the above example, failing to include the $50 service charge would have resulted in the employee receiving $1.56 per hour less. This may seem small, but over the course of two or three years, this amount can add up.

If any of the above described issues has happened to you, you need to seek legal counsel as soon as possible. There may be exceptions to the general rules laid out above and thus you need to seek legal advice if you have any questions regarding your pay. Feel free to call my office for a consultation (817) 479-9229

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