Don’t Drown In The “Tip Pool:” St. Louis Restaurants Sued By Ex-Employees For FLSA Violations, Are You Compliant?

Feb 27, 2014

Restaurants are everywhere, and, consequently, are one of the nation’s largest employers. Along with the commonly known HR issues that surround all employers, restaurant employers must be aware of several industry-specific HR issues.

Two of those issues surround tips. Tips are the property of the employee.  Accordingly, employers are prohibited from using an employee’s tips for any reason other than (1) as a credit against the employer’s minimum wage obligation, or (2) in a valid tip pool.

The Fair Labor Standards Act of 1938 (“FLSA”) allows an employer to take a tip credit towards its minimum wage obligation for tipped employees.  The maximum tip credit that an employer can claim is the difference between the federal minimum wage ($7.25) and the current required cash wage ($2.13), or $5.12 per hour.  The tip credit claimed by an employer cannot exceed the amount of tips the employee actually receives, and the employer must be able to show that the employee received at least minimum wage when wages and tip credit are combined.

A “tip pool” is sharing arrangement by which tipped employees pool tips earned and share in a portion of the total.  A valid tip pool includes only employees who “regularly and customarily” receive tips in excess of $30 a month.  According to the Department of Labor’s (“DOL”) guidelines, employees who “regularly and customarily” receive tips include servers, bussers, bartenders and bellhops.  Excluded employees include dishwashers, cooks, chefs and janitors.  While tip pooling is common and, when done correctly, is perfectly legal, the arrangement poses significant liability under FLSA if done incorrectly.

Wage and hour claims of all kinds are on the rise, and restaurant-employers are on plaintiff attorneys’ radar.  Ensuring compliance with FLSA with respect to tipped employees is one way to avoid hard-hitting lawsuits.

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