If an employer violates – accidentally or intentionally – the tip credit, then the employer is disavowed from using the tip credit and must pay the employee back wages at the full minimum wage, which can be a significant sum, especially for servers who are often paid as little as $2.13 per hour.
Seriously: Can My Employer Legally Do That?
If the federal minimum wage is $7.25 per hour, then how do some employers (specifically, restaurants) get away with paying employees less – in some cases as little as $2.13 per hour? You may be thinking, well I earn more than $7.25 after accounting for the tips I receive. This is probably true; however, your employer is still paying you less than $7.25 per hour. Those tips aren’t coming from your employer’s pocket, but are earned by you for the service you provided to your customers. However, there is a section within the minimum wage law that allows an employer to take a “credit” for the tips an employee receives against the $7.25 per hour minimum wage. However, your employer may be violating these laws or even operating an illegal tip pool, in violation of federal labor laws.
The federal wage law – known as the “tip credit” – is rather complex and rigid in application. If an employer violates – accidentally or intentionally – the tip credit, then the employer is disavowed from using the tip credit and must pay the employee back wages at the full minimum wage, which can be a significant sum, especially for servers who are often paid as little as $2.13 per hour. There are countless ways that employers violate the tip credit, thereby depriving employees of a fair day’s pay for a fair day’s work.
I am now going to list common “illegal tipping practices” and issues with illegal tip pools that I frequently see being instituted at restaurants.
Whose Tip is it?
First and foremost, any tip that an employee receives, belongs to the employee and the employer is prohibited from sharing in these tips, with two exceptions. The first exception being, an employer may deduct the actual cost to process a credit card tip, but nothing more. I have represented several groups of waiters and waitresses who worked at a restaurants that were deducting a 3% credit card processing fee for tips; however, as it turns out, these restaurants’ credit card processing fees were actually lower than 3%. Again, since a restaurant may only deduct the actual credit card processing fee (nothing more), this extra deduction violates the tip credit. Once the tip credit is violated, your employer owes you the full minimum wage (i.e. $7.25 per hour) for every hour you worked in the past two years.
The second exception is an employer may require you to contribute tips to a tip pool as long as it is not an illegal tip pool. Well, that leads us to the next logical question; what is an illegal tip pool?
Spotting an Illegal Tip Pool.
We are also often asked about mandatory tip pools and whether a restaurant is operating an illegal tip pool. An employer can require employees to share their tips; however, we find that a lot of restaurants are operating illegal tip pools. When it comes to illegal tip pools, there are mounds of legal issues that an employee should look out for. First, an employee cannot be forced to share tips or contribute to a tip pool where the owners, the chef, dishwasher, or managers are sharing in the tip pool. Yes, if you are required to share your tips with the chef, dishwasher, owner, or a manager, then this is an illegal tip pool; your employer is violating the federal wage laws.
One issue that often arises is where employees aren’t exactly sure who is receiving tips from the pool and so they are uncertain as to whether it is an illegal tip pool. However, we have obtained awards for waiters and waitresses where it was discovered that the restaurant was skimming the tip pool by talking to the hosts and bartenders, wherein they were tipped-off (excuse the pun) that the tip-out was too low; meaning some of the tip pool was going elsewhere. As it turns out in that case, the owners and managers were skimming funds from the tip pool for themselves, which taints the tip pool making it an illegal tip pool. The practice of owners or managers skimming money from tip pools or failing to redistribute the entire amount of tip pool is illegal.
Can My Employer Make Deductions from My Wages or Tips?
I also get lots of questions about wage deductions or whether an employer can require employees to pay for certain items. As a general matter, if you are paid less than $7.25 per hour (i.e. a tipped employee), an employer is probably violating the law if he or she makes any deductions from your wages or tips other than deductions for taxes or credit card fees. For instance, if an employer requires tipped employees to pay for broken glasses (glass breakage fee), returned food items, uniforms, walked tabs, cash register shortages, etc., then the employer is violating the federal wage laws.
Can My Employer Keep Gratuities?
Last, there is often a lot of confusion by employers and employees alike regarding the payment of gratuities versus tips. Yes, there is a difference between a gratuity and a tip. A “gratuity” is something that is mandatory and is not subject to negotiation. The principal example of a gratuity is a required charge of 20% for tables of six or more people. Whereas a “tip” is something that is completely left up to the discretion of the customer; the obvious example being cash left on the table or money voluntarily added to the bill by the customer.
The difference between a tip and a gratuity is important because a tip (see above) belongs to the employee. However, a gratuity legally belongs to the employer-restaurant. In other words, if you work a banquet, and the customer is paying your employer a mandatory, fixed amount service charge as part of the cost of the banquet, this gratuity does not have to be redistributed to the employees. However, if you are not earning “tips” during the time you worked the banquet, then your employer cannot use the tip-credit and must be paying you at least the full minimum wage for the hours your worked. This remains true even if your employer elects to distribute the gratuities to you – you still must be paid the full minimum wage before accounting for any gratuities received.
Recently, we have seen an increase in call from waiters and waitresses who are being required to contribute to an illegal tip pool or are otherwise being subjected to illegal wage theft. However, the good news is that there are strict laws protecting servers. If you are receiving tips as part of your pay and you have questions about your employer’s policies, you can contact an employment lawyer at Herrmann Law by calling 817-479-9229 or submitting your case online and we will contact you. I find that restaurants are some of the most common violators of the wage laws. You can also look at my blog, where you may find the answer to your questions //paycheckcollector.com/blog/
Prospective clients often ask me how employees can afford to hire an attorney to sue an employer who is violation wage laws. Many attorneys, including myself, often times represent employees with wage claims on a contingency basis. This means, you don’t owe me anything for working on your case if I don’t obtain a recovery for you.