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A Tip on Paying and Working Tipped Employees


By Gina Helou

A restaurant server/employee filed a lawsuit invoking minimum wage violations under the Fair Labor Standards Act (FLSA) as it applies to restaurant servers, bartenders, hosts and other tipped employees.  She claimed she and her co-workers in tipped position regularly spent time performing non-tipped duties for which they were not paid minimum wage.  She further claimed that her employer never informed its tipped employees of how the tip credit would affect their wage rate.

The FLSA sets the federal minimum wage rate, which is currently $7.25 per hour.  However, there is also a federal minimum cash wage rate of $2.13 per hour for tipped employees (where state minimum wages are higher, those wage rates apply over the federal rates).  A tipped employee is one who customarily receives more than $30 per month in tips.  Employers are permitted to apply a tip credit whereby the employee’s tips are calculated into the base cash wage rate to bring that employee’s wage rate up to the applicable minimum wage (i.e. applying the earned tips to bring $2.13 to $7.25 per hour under federal law).  Employees must retain all of their tips, but this tip credit prevents the employer from over-paying tipped employees by providing make-up money to ensure the tipped employee earns minimum wage.  Whenever a tipped employee does not make enough money in tips to equal the applicable minimum wage, the employer must pay that employee the difference between the cash wage rate plus tips and minimum wage.

The claims
The server claimed she and other tipped employees were never informed of the application of the tip credit – a requirement under the FLSA.  She also claimed she and other tipped employees performed non-tipped duties, such as dishwashing, food preparation, kitchen and bathroom cleaning and trash removal – duties where tips are not involved - while still being paid at $2.13 per hour.  There are provisions under the FLSA where tipped employees who perform dual jobs, one in a tipped position and one in a non-tipped position, must be paid minimum wage while working in the non-tipped position (e.g. where a maintenance man at a hotel also works as a server in the hotel bar).  This is distinguishable where a server spends part of his time cleaning, setting tables or occasionally washing dishes.  The key term the server in the current lawsuit focuses on is “occasionally,” as she claims the restaurant “regularly” used tipped employees to perform non-tipped work.   

According to the U.S. Department of Labor, a tipped employee who spends “substantial” time, or more than 20%, working on non-tipped duties must be paid minimum wage.  Defining “substantial time” requires a certain level of specificity.  For example, in the current case, the district court stated the server had not provided sufficient facts to support her claim. That without identifying the non-tip producing duties she performed, how many minutes or hours they took to perform, and place that time in the context of the hours worked during the entire shift, she could not support her claim of minimum wage violations under the FLSA.  The court did, however, find sufficient facts to support her allegations that she was not informed of the application of the tip credit.  But because notice of the tip credit can specific to each individual, she could not support this claim for other tipped employees.

Take away
Tipped employees are a confusing area of the FLSA, and the laws are constantly tested, providing new guidelines and restrictions on how employers must compensate their tipped employees.  Moreover, state laws play an essential role in tipped compensation.  It is important to stay aware of the federal and state changes to avoid minimum wage lawsuits, because in some circumstances, they can apply to the past three years of employment.

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