24 June 2013, Comments: 3
Tipping is a very unique form of employee compensation in which employees are paid wages by both the employer and customers, who have no legal relationship with their the employer or the tipped employee. In spite of this unique relationship, the Fair Labor Standards Act (FLSA) and Texas Payday Law both recognize tips as wages to the tipped employee and are subject to minimum wage requirements, overtime pay and several unique wage rules.
Tipping & Minimum wage
Tipped employees are entitled to the full $7.25 minimum wage UNLESS the employer has notified the employee in writing that it intends to take the tip credit on minimum wage. The tip credit allows the employer to pay a minimum of $2.13 per hour under the assumption that tips will make up the additional $5.12 per hour. If the employee does not earn enough tips to reach minimum wage between the combination of tips and $2.13 hourly rate paid by the employer over the course of the workweek then the employer must make up the difference.
Any employee may receive tips from a customer but for employees to be eligible for the tip credit the employee must be in a position where it regularly and customarily receives at least $30 in tips. This usually includes wait staff in restaurants, bellhops in hotels and similar service positions. A cart clerk at a grocery store who receives an occasional dollar or two for assisting customers probably does not make enough tips to qualify for $30 monthly nor is it a position that regularly and customarily receives tips (anymore).
A tipped employee may be asked to perform work normally performed by non-tipped employees, such as a restaurant asking its waitresses to make coffee or help out cleaning the restaurant. These tasks are normally performed by employees who do not receive tips. An employer can count this time under the tip credit as long as the employee reaches minimum wage for the workweek. An exception to this rule is when the tipped employee spends a significant amount of time performing non-tipped work. The Department of Labor limits the amount of non-tipped work an employee can perform with tip credited pay at 20% of the employee’s total hours in the workweek. Once 20% is reached the employer must pay the full $7.25 minimum wage for hours spent performing non-tipped duties and only applies the tip credit to the remaining hours spent performing tipped work.
Overtime Pay & Tipped Employees
Tipped employees are entitled to overtime when they work more than forty hours in a work week. Overtime pay for a tipped employee receiving the tip credit is based on one and a half times the full minimum wage of $7.25 not $2.13. However, even if the employee’s hourly rate exceeds minimum wage through a combination of tips and the employers $2.13 hourly contribution the employer is only required to calculate overtime based on $7.25 hourly.
Your employer may not change the work week to prevent paying overtime by shortening the week or changing the start and end dates of the week (such as moving from a Sunday-Saturday week to a Wednesday-Tuesday week) to avoid an employee working more than forty hours in a week. Your employer also cannot roll hours over from one week to the next to cap your pay at forty hours per week if you work more than forty hours in the week. Your employer cannot give you paid time off in a different week or some other benefit instead of overtime pay.
Tip Pooling & Tipping Out
By law tips are compensation solely to the employee receiving the tip. However, both federal and state wage laws recognize that sometimes the service the customer is tipping on is the product of multiple employees and permit mandatory tip pooling or tipping out under certain circumstances. Tip pooling occurs when tipped employees pool some or all
of their tips and then split them among themselves and/or with other employees who assist in the service. Tipping out generally occurs when the tipped employees are required to give a percent of tips to other tip-eligible employees who assist in service, such as a waiter who is required to give 10% of tips to the bar staff for making the drinks. Not all tip pooling or tipping out is permitted by law although employees are always free to give other employees a share of their tips.
In Texas, employers can require tipped employees to join in a mandatory tip pool or mandatorily tip out other employees, subject to certain limits. An employer can only require tip pooling or tipping out on tips that exceed the amount necessary to reach minimum wage. So for example an employer may not require you to tip out a flat 10% of tips if you do not reach minimum wage with the remaining 90%. In a different example, say you receive enough tips to reach minimum wage and then an extra $100. The employer requires you to tip out 10% to the bartender. You would tip out on the entire amount of your tips, not just the $100, unless you would then fall below minimum wage. Employees can voluntarily agree to pool tips in any percentage they wish even if it brings them below minimum wage.
An employer may only require a tipped employee to pool a reasonable amount of tips. The Department of Labor suggests 15% is a reasonable amount to pool but an employer can set a higher percentage when the employer can show it is reasonable. To require the higher percentage the employer will have to show something about the division of labor between the tip recipient and the other tip-eligible employees requires greater sharing. For example, a restaurant may divide labor where employees at the counter take orders, prepare drinks and assemble orders and other employees run orders out to customers and collect tips left at the table. Under the FLSA those tips belong to the runners because they receive them from the customers but the employer could justifiably argue the counter employees are performing more of the service to the customer and are entitled to a greater portion of tips than 15% although they cannot deprive the runners of minimum wage.
Only certain employees can be included in a tip pool. Employees who are in positions that normally and customarily receive tips, as interpreted by the Department of Labor, can share in the pool. This includes wait staff, hosts, bartenders, food runners, barbacks and busboys in a restaurant setting. It would not include chefs, dishwashers and other back of house employees. Managers and business owners are not allowed to share in the tip pool even if the manager or owner is performing the same duties as tipped employees.
This same rule applies even if the tipped employees are not paid with the tip credit. At places such as coffee houses, where employees usually are paid minimum wage or higher, there is often a tip jar and the tips are split among employees at the end of the day. Only employees in positions that would normally and customarily receive tips can share in the pool. Supervisors and drink preparers who do not normally interact with the customers would not be entitled to share in the pool.
What to Do If You Believe Your Rights to Your Compensation are Violated
If you believe your employer is failing to pay minimum wage or overtime pay or you believe your employer is improperly requiring you to tip out or pool tips, you do have a remedy. The law protects these rights to your compensation and if your employer is violating the law you are entitled to recover the wages owed. Contact my office to discuss your case and your options to recover the money you are owed for your work.
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