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TIPPED EMPLOYEES AND MINIMUM WAGE REQUIREMENT

August 4, 2016 | Posted in: ADA, Minimum Wage

Normally, tipped employees are paid an hourly wage plus a portion of all tips received during their shift. According to the U.S. Department of Labor, Wage and Hour Division, tipped employees are those who “customarily and regularly receive more than $30 per month in tips.”

What is “tip credit”? The following information is taken directly from the U.S. Department of Labor’s website. Section 3(m) of the Fair Labor Standards Act 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 and the federal minimum wage. Therefore, the maximum tip credit that an employer can currently claim under the FLSA is $5.12 per hour (the federal minimum wage of $7.25 minus the federal minimum required cash wage of $2.13). What this basically means is that the employer can take a credit against paying the employee the full minimum wage by using the amount of tips the employee receives during his or her shift.

If the equation looks like this, the employer is complying with the FLSA:

hourly wage paid by employer + amount of tips employee receives = minimum wage per hour.

The FLSA goes on to say “the employer is prohibited from using an employee’s tips 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 pool.”

What is a “tip pool”? The requirement that an employee must retain all tips does not preclude a valid tip pooling or sharing arrangement among employees who customarily and regularly receive tips, such as waiters, waitresses, bellhops, counter personnel (who serve customers), bussers and service bartenders. A valid tip pool may NOT include employees who do not customarily and regularly receive tips, such as dishwashers, cooks, chefs and janitors.

Certain tipped employees, such as a server in a restaurant, often have to put a portion of their tips in a tip pool at the end of their shift and pay a portion of the tips they have received to the bar staff or busser who clears their tables. Only tips the employee actually receives count against the minimum wage requirement. For example, if a server ends a shift with $75.00 in tips but provides the bar staff with $10.00 for the tip pool and the wait staff bussing tables with $5.00 for the tip pool, only $60.00 of that server’s tips count against the minimum wage requirement.

Why is this important? Employers electing to use the tip credit provision must be able to show that tipped employees receive at least the minimum wage when direct (or cash) wages and the tip credit are combined. Meaning, if the employee’s tips combined with the employer’s direct (or cash) wages of at least $2.13 per hour do not equal the minimum wage, the employer must make up the difference.

Other minimum wage problems include:

1) When an employee is paid only in tips and receives no cash wage, the employer must pay the employee the full minimum wage.

2) Where deductions for walkouts, breakages or cash register shortages reduce the employee’s wages below the minimum wage, such deductions are illegal. Example: when a customer fails to pay a bill at a restaurant.

3) Where an employee contributes to a tip pool that includes employees who do not customarily and regularly receive tips, the employee is owed all tips he or she contributed to the pool and the full $7.25 minimum wage.

For more information, please visit the U.S. Department of Labor’s website, where this information was obtained.

This is an interesting article on new taxes imposed by the IRS on tips for waiters and waitresses.

http://dailycaller.com/2013/09/08/new-irs-policy-taxes-automatic-tips-for-waiters/

If you need a wage and hour attorney, please call The Friedmann Firm today.