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Tip Credit & Minimum Wage

When workers receive tips, federal law allows their employers to compensate them with an hourly wage less than that of non-tipped workers. Sometimes, employers intentionally or unintentionally violate federal and state labor laws when paying tipped workers.

Minimum Wage For Tipped Employees

The federal Fair Labor Standards Act (FLSA) and many state laws permit employers to pay a cash wage less than the standard minimum wage to “tipped employees.” For purposes of the law, tipped employees are those who customarily and regularly receive more than $30 per month in tips, which includes servers but excludes managers, dishwashers, and cooks. The FLSA requires the minimum cash wage for tipped employees be $2.13.  State laws can mandate a higher wage for workers in those states. For instance, the minimum cash wage is $3.63 in Maryland and $2.77 in Washington, D.C.

Several requirements must be met, however, for an employer to pay a tipped employee a cash wage lower than the standard minimum wage. Below are a few of the common violations employers make. If an employer fails to meet even only one of the conditions, then the employer has broken the law, and the tipped employee is entitled to the standard minimum wage in addition to any tips he or she received.

Failure to Provide Notice to the Tipped Employee

Employers must provide certain information to a tipped employee before the employer may use the tip credit. Employers must inform employee of their cash wage (which must be at least $2.13 under federal law) and the amount claimed by the employer as “tip credit” (which cannot exceed $5.12 under federal law). Additionally, employers must inform employees that the amount of tip credit claimed by an employer cannot exceed the amount of tips the employee actually receives.

Finally, employers must also inform tipped employees they are allowed to retain all tips unless there is a valid tip pooling arrangement. The tip credit is not valid unless the employee has been informed of these rights. If an employer does not share this information with employees, the employees are entitled to at least $7.25 per hour and allowed to keep all tips received.

Forced Participation in a Tip Pool that Includes Non-Tipped Workers Such as Dishwashers or Managers

Employers can require tipped workers to participate in a tip pool.  However, this pool can only consist of employees who customarily and regularly receive tips, such as waiters, waitresses, bussers, bartenders, and barbacks. The tip pool cannot include those who do not customarily and regularly receive tips, such as dishwashers, cooks, chefs, janitors, bouncers, and managers.

Claiming the “Tip Credit” for All Hours Worked When an Employee Works as Both a Tipped and Non-Tipped Employee

When an employee is employed by one employer in both a tipped and a non-tipped occupation, such as an employee employed both as a cook and a waiter, the tip credit is available only for the hours spent by the employee in the tipped occupation. The FLSA permits an employer to take the tip credit for some time that the tipped employee spends in duties related to the tipped occupation, even though such duties are not by themselves directed toward producing tips.

For example, a waitperson who spends some time cleaning and setting tables, making coffee, and occasionally washing dishes or glasses is considered to be engaged in a tipped occupation even though these duties are not tip producing. However, when a tipped employee spends a substantial amount of time (in excess of 20 percent of the workweek) performing related duties, no tip credit may be taken for the time spent in such duties.

Don’t Wait To Speak To Minimum Wage Lawyers

FLSA regulations can be incredibly confusing. Many workers do not even know their employers are shortchanging them because they are unfamiliar with their rights under the FLSA. If you feel your employer isn’t paying you properly, contact Whitfield Bryson LLP today. We can analyze your situation and help you understand your legal rights.

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