Tipping employees as part of their regular and customary compensation can involve complex legal questions, such as whether an employee is appropriately receiving the tip credit and, if applicable, whether the employee is part of a valid tip pooling arrangement. Our Firm is equipped to assist parties with all aspects of questions regarding tipping arrangements, including whether the tip credit is being appropriately used and whether a tip pooling arrangement is valid or invalidated by unlawful participants (e.g., those employees not customarily and regularly tipped).
Pay Issues with Tip Credits
Tipped employees customarily and regularly receive more than $30 per month in tips. Tips are the property of the employee and the employer is prohibited from using an employee’s tip for any reason other than as a credit against its minimum wage obligation to the employee (“tip credit”) or in furtherance of a valid tip pooling arrangement.
The FLSA permits an employer to take a tip credit toward its minimum wage obligation for tipped employees equal to the difference between the required cash wage (which must be at least $2.13 per hour) and the federal minimum wage ($7.25 per hour). 29 U.S.C. § 203(m). The maximum tip credit an employer can currently claim under the FLSA is $5.12 per hour ($7.25 minus the minimum required cash wage of $2.13 per hour).
Before using the tip credit pursuant to the FLSA, the employer must provide the following information to a tipped employee:
- The amount of cash wage the employer is paying a tipped employee, which must be at least $2.13 per hour;
- The additional amount claimed by the employer as a tip credit, which cannot exceed $5.12 per hour;
- The tip credit claimed by the employer cannot exceed the amount of tips actually received by the tipped employee;
- 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
- 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 of the five (5) items above. An employer who fails to provide the required information cannot use the FLSA’s tip credit. See Inclan v. New York Hospitality Group, Inc., 95 F. Supp. 3d 490, 497-98 (S.D.N.Y. 2015).
Another issue that may arise regarding the tip credit is when an employee performs “dual jobs,” that is a tipped role and non-tipped role for an employer. The tip credit is only available for the hours spent by the employee in the tipped occupation. See, e.g., Fast v. Applebee’s Int’l, Inc., 638 F.3d 872, 876-77 (8th Cir. 2011). In other words, if an employee works two jobs, one in which his work customarily and regularly produces tips and one in which it does not, the employee must be considered to be employed in two occupations, such that the tip credit may not be taken for hours of employment worked in the occupation not subject to tips. Id.
Other issues related to tip credits include the propriety of retention of tips and the relation of service charges and credit card charges to the tip credit.
Pay Issues in Tip Pooling
Often, restaurants will implement a system of compensation whereby servers are paid an hourly rate under minimum wage plus a share in a pool of all tips received from customers at the end of each shift. The tips are typically then distributed to all tip pool participants according to a set formula provided by the restaurant. Restaurants or other establishments with tipping pools may find themselves facing legal issues concerning tip pooling if a worker contends that other employees included within the tip pool do not perform the type of work that customarily and regularly receives tips and are, therefore, unlawful participants in a tip pool. Our Firm is experienced in representing parties in such tip pooling disputes.
A fundamental rule of the FLSA is that an employer must pay a minimum wage. 29 U.S.C. § 206(b). In determining the wage of a tipped employee, an employer may take a “tip credit” against the amount required to be paid to such employees, but all tips received by the employee must be retained by the employee. 29 U.S.C. § 203(m)(2). The requirement that an employee must retain all his tips, however, does not prohibit the pooling of tips among employees who customarily and regularly receive tips. 29 U.S.C. § 203(m)(2).
The requirement does prohibit, however, an “employer” under the FLSA from sharing in the tip pool. See, e.g., Koellhoffer v. Plotke-Giordani, 858 F. Supp. 2d 1181, 1189 (D. Colo. 2012). The FLSA expansively defines what or who may qualify as an “employer,” and it includes individuals. See 29 U.S.C. § 203(d); see also Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 326 (1992). If an individual qualifies as an employer and participates in a tip pool, this may invalidate the tip pool as applied to all participants. Morgan v. SpeakEasy, LLC, 625 F. Supp. 2d 632, 652 (N.D. Ill. 2007).
When an individual is alleged to have improperly shared in a tip pool, there are at least two questions that must be addressed. Koellhoffer, 858 F. Supp. 2d at 1189. First, is the individual an employee who “customarily and regularly receives tips?” If yes, then the individual may be allowed to share in the tip pool. Second, does the individual qualify as an “employer” under the FLSA? If yes, then the individual is prohibited from sharing in the tip pool. Id.
Whether an employee “customarily and regularly receives tips” is a fact-intensive analysis often dependent upon the employee’s duties. Examples of employees who customarily and regularly receive tips are wide-ranging and include everything from hosts and waiters or servers to sushi chefs. See, e.g., Kilgore v. Outback Steakhouse of Florida, Inc., 160 F.3d 294, 301 (6th Cir. 1998) (holding hosts customarily receive tips); Montano v. Montrose Rest. Assoc., Inc., 800 F.3d 186, 191 (5th Cir. 2015) (noting “sushi chefs who work at a counter in the dining room and directly serve customers may participate in tip pools” because they “provide customer service similar to counterpersons”). According to the United States Department of Labor, employees who typically cannot participate in a tip pooling arrangement include back-of-the-house workers such as dishwashers, cooks, chefs, and janitors.
If you have questions or concerns about tip credits or tip pooling pay arrangements, contact the Law Offices of Kevin J. Dolley by phone at (314) 645-4100 or by email at firstname.lastname@example.org.