Tipped Employees

Rob Wiley: My name is Rob Wiley and today I'm going to be speaking with Austin employment lawyer Collin Walsh about employees who get paid in tips. Now there are special rules for tipped employees but let's start off by talking about what kinds of employees are allowed to be paid tips as opposed to be paid the minimum wage.

Collin Walsh: Well those employees are going be everyone from your waiters to your hostesses to your bartenders.

Rob Wiley: It's also I think valets sometimes so it's not just people that are, are inside of a restaurant. But generally you have to get at least $30.00 a month in tips.

Collin Walsh: Yes. That's correct.

Rob Wiley: So now if someone is being paid in tips they will get a direct wage of $2.13 from the employer. But how is that they then satisfy the minimum wage requirements

Collin Walsh: Well that's because the employer can take what's called a tip credit of $5.12.

Rob Wiley: So essentially $5.12 from tips gets added to the $2.13 for the purposes of meeting the minimum wage. But this is really important. That tip credit, that is a privilege. That's not a right and employers can only take that tip credit if they follow all the rules. And so of course the first rule is they have to explain what they're doing. They've got to tell the employees ahead of time how the tip credit works and what they're going to be doing. But there are also some common violations. What are some of the common violations that you've seen where an employer loses that privilege of being able to take the tip credit?

Collin Walsh: Common violations I've seen are requiring employees to pay breakage fees. Requiring employees to tip out to management. Requiring employees to pay for walk tabs. These were all violations of the FLSA.

Rob Wiley: Yes. And I've also seen where for instance you include people in a tip pool who you can't include. The most common is kitchen staff, cooks, dishwashers, those aren't folks who can be included in a tip pool and if someone is ever required to share their tips with a dishwasher, with a cook, with someone who's working in back of the house then that means that the employer can't take the tip credit privilege. Now what happens if an employer breaks one of these rules; if they make an employee pay breakage fees or make them pay for walked tabs? What happens then in a lawsuit against the employer?

Collin Walsh: Well what would happen is the tip credit would be completely invalidated. That means that the employer is not paying minimum wage now for every hour that that waiter or that tipped employee worked.

Rob Wiley: And this is a big deal because those damages can be huge because the employer has been claiming $5.12 an hour in order to make minimum wage and when that's invalid the employer has to go back and pay $5.12 for each hour that that waiter or that that bartender or that valet ever worked and that can add up to a very large number and there's strength in numbers so if it's, the entire wait staff or tipped portion of a business that's bringing the action together it adds up very, very quickly.

Collin Walsh: And generally that amount is going to be doubled too.

Rob Wiley: Another issue that we see is tipped employees who are working overtime. Now if you are working less than 40 hours in a work week the employer pays you a direct wage of $2.13 an hour but if you work more than 40 hours what is the overtime direct wage?

Collin Walsh: The overtime wage would be $5.76 an hour.

Rob Wiley: But that's a common trap for employers to fall into. They think that they just pay $2.13 times 1.5 but it's not and so that's a violation that we do see. I think the tip credit is one of those issues where it starts to get really complicated. There's a lot of math. There's a lot of technical rules and there's a lot of ways that an employer can violate this tip credit privilege and so if you feel like your employer is violating the law I would much prefer for you to go and talk to an employment lawyer even if it turns out not to be a violation just because of the serious nature of these violations.

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