Tip the Scales in Your Favor by Providing Tipped Employees with Adequate Written Notice

By Luis J. Gonzalez Attorney Litigation Practice & Alcohol Beverage Team, Holland & Knight | December 18, 2016

Complying with the Fair Labor Standards Act (FLSA) and the Department of Labor's (DOL) regulations for tipped employees continues to present challenges for hoteliers and others in the hospitality industry. While recent attention has been paid to proper tip pooling practices (employers requiring certain tipped employees to chip in a portion of their tips, which are then divided among a group of employees), equal attention must be given to the FLSA's mandatory notice provision to tipped employees. A continuing trend in wage and hour lawsuits stems from the employer's failure to give the tipped employee the required notice. When such a failure occurs, the employer may be liable for back pay, liquidated damages, and the employee's attorneys' fees and costs.

Who Are Tipped Employees Under the FLSA?

Under the FLSA, a "tipped employee" is one who is engaged in an occupation in which he or she customarily and regularly receives more than $30 per month in tips. Tipped employees typically include waiters, waitresses, bellhops, counter personnel (who serve customers), bussers, and bartenders. Tipped employees must be paid the required minimum wage - in addition to any tips earned - even if the employee's weekly tips alone, when divided by the number of hours worked, exceed the required minimum wage. The minimum wage varies by state and cannot be less than the federal minimum wage. It is important to note that under the current DOL regulation, an employer is prohibited from using an employee's earned tips for any reason - with a few exceptions. Therefore, where a tipped employee receives the federal minimum wage of $7.25 per hour from the employer plus tips, the employer cannot require the employee to turn over the tips to the employer. (The application of this restriction has been called into question by various courts interpreting the FLSA.)

Exceptions to FLSA Requirement That Tipped Employees Keep All Tips

There are several exceptions to the requirement that tipped employees keep all tips earned. The first exception is when the employer has a valid tip pooling or sharing arrangement among employees who customarily and regularly receive tips. As mentioned above, a tip pool is a mechanism by which tipped employees who are subject to the pool contribute a portion of their tips, which are then divided among a group of employees. Typically, tip pools are established to allocate collected tips between servers, bussers, food runners, and bartenders, but tip pools can also be found in other occupations, such as valet parking attendants. The FLSA does not impose a maximum contribution amount or percentage on valid mandatory tip pools, but employers may not retain any portion of the tip pool for any other purpose.

A second exception to the requirement that tipped employees keep all tips earned is where tips are charged on a customer's credit card. In such cases, the employer, who must pay the credit card company a percentage on each sale, may pay the employee the tip earned, less the percentage charged by the credit card company. For example, where a credit card provider charges an employer 2 percent on all sales charged, the employer may pay the tipped employee 98 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 payday and may not be held while the employer is awaiting reimbursement from the credit card company.

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