Unlawful Tip Pooling

“Tipped employees” are those employees who customarily and regularly tips. Tipped employees can include waiters, waitresses, busboys, food delivery drivers, bellhops, couriers and casino workers. Under the FLSA, tips actually received by tipped employees may be counted as wages by employers; however, the employer must still pay not less than $3.675 an hour.

  Tip Credits

If an employer elects to use the FLSA’s “tip credit” provision the employer must:

1. Inform each tipped employee about the tip credit allowance (including amount to be credited) before the credit is utilized.
2. Be able to show that the employee receives at least the minimum wage when direct cash wages and the tip credit allowance are combined.
3. Allow the tipped employee to retain all tips, whether or not the employer elects to take a tip credit for tips received, except to the extent the employee participates in a valid tip pooling arrangement.

If the tipped employee does not make up the other half of the minimum wage in tips, the employer is required to pay the difference so that the tipped employee is paid a minimum of $7.35 per hour.

  Retention of Tips

A tip belongs to the tipped employee. The tip is the sole property of the tipped employee regardless of whether the employer takes a tip credit. The FLSA prohibits any arrangement between the employer and the tipped employee whereby any part of the tip received becomes the property of the employer. For example, even where a tipped employee receives at least $7.35 per hour in wages directly from the employer, the employee may not be required to turn over his or her tips to the employer or management.

Tip Pooling

The requirement that an employee must retain all tips does not preclude a valid tip pooling arrangement among “front of the house” employees who customarily and regularly receive tips, i.e., waiters, waitresses, bartenders, busboys/girls or hosts. However, the FLSA prohibits tipped employees from having to share their tips with “back of the house” employees, i.e., management, supervisors, cooks, chefs, dishwashers or others who do not customarily and regularly receive tips.

Credit Cards

Where tips are charged on a credit card and the employer must pay the credit card company a percentage on each sale, the employer may pay the employee the tip, less that percentage. For example, where a credit card company charges an employer 3 percent on all sales charged to its credit service, the employer may pay the tipped employee 97 percent of the tips without violating the FLSA. However, this charge on the tip may not reduce the employee’s wage below the required minimum wage. The amount due the employee must be paid no later than the regular pay day and may not be held while the employer is awaiting reimbursement from the credit card company.

Service Charges

A compulsory charge for service, for example, 15 percent of the bill, is not a tip. Such charges are part of the employer’s gross receipts. Sums distributed to employees from service charges cannot be counted as tips received, but may be used to satisfy the employer’s minimum wage and overtime obligations under the FLSA. If an employee receives tips in addition to the compulsory service charge, those tips may be considered in determining whether the employee is a tipped employee and in the application of the tip credit. Read more information on the FLSA’s regulations governing tip pooling on the U.S. Department of Labor’s website.

If you are a tipped employee or think your employer has cheated you out of wages, talk to the experienced Missouri wage and hour attorneys at Dashtaki Law Firm today.