Tip-Related Violations - Wait staff and other Tipped Employees

Stueve Siegel Hanson is investigating claims against restaurants, hotels and other establishments for a number of tip-related violations including:

  • depriving wait staff of the full proceeds of customer tips or services charges;
  • improper tip pooling;
  • minimum wage violations (such as the illegal execution of tip credits) under the Fair Labor Standards Act (FLSA) and certain state statutes;
  • using “service charges” as tips.

All employees are protected by various state and federal laws relating to their wages. These laws prohibit employers from sharing in or keeping any portion of a gratuity left for or given to one or more employees by a patron. It is also illegal for employers to make wage deductions from gratuities, or from using gratuities as direct or indirect credits against an employee’s wages.

Tip Pooling

Some employers require their employees to participate in a “tip pool,” where they share their tips with others. Federal law provides that only certain employees are entitled to share in the tip pool. Specifically, only those people who “customarily receive tips” may participate in the tip sharing pool.

Examples of people who may properly share in the tip pool are: hosts, hostesses, busboys, and bartenders. Those who are not entitled to share in the tip pool include: non-service bartenders, bar backs, kitchen staff, assistant managers, store managers, expeditors, janitors, and other employees who do not regularly interact with the customers. 

Tip pool violations are common. The result of tip pool violation litigation, however, can be significant.

Tip Credits

The Federal Labor Standards Act (FLSA) permits an employer to take a tip credit toward its minimum wage obligation for tipped employees equal the difference between the required cash wage (which must be at least $2.13) and the federal minimum wage of $7.25.

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 amount are combined. If an employee’s tips combined with the employer’s direct (or cash) wages of at least $2.13 per hour do not equal the minimum hourly wage of $7.25 per hour, the employer must make up the difference. 

Retaining Service Charges Reasonably Believed to be Tips

In some states, such as New York, Massachusetts, Minnesota, and Hawaii, state laws prohibit the employer from retaining charges or fees that are assessed to a customer or guest that a reasonable person would think was a tip belonging to the employee. This includes all types of charges for services rendered by the employee, including delivery and other charges.

          Some jobs that are likely covered by the laws are:

  • Hotel service worker (bellboy, room service);
  • Waiter/bartender/busboy;
  • Food/grocery/product delivery person;
  • Runner/courier;
  • Casino worker;
  • Skycaps/airport service worker;
  • Food delivery at a sports arena (such as professional football, basketball games); or
  • Cruise ship worker.

Service Charge

In some states, a compulsory charge for service, for example, 15% of the bill, is not a tip. Such charges are part of the employer's gross receipts. Thus, in some states 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.

In short, if the employer gives an employee a portion of a mandatory service charge and then counts that as part of the employee’s tips, it may violate various state laws.

If you have worked as a tipped employee anywhere in the country, and believe your employer has engaged in these illegal wage practices, please call us at 1-877-536-1985 or complete the form below for a free consultation.


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