Tipped Employees

Your Tips Belong to You

It is common for employers to rely on tips to make up part of an employer’s minimum wage, and more than 4 million American workers regularly receive tips as part of their job. Most of these workers are waiters or bartenders, but valets, car wash and nail salon workers, and airport attendants also often receive tips as part of their income. Employment laws in the United States, such as the Fair Labor Standards Act, have established a range of protections for workers who depend on tips, but those employees must still be aware of several different tactics on the part of employers that can potentially deprive them of their income. If you are worried about your employer taking your tips, we recommend that you contact one of Austin Employment Lawyers, P.C.’s Austin employment lawyers to discuss the potential for legal action.

Rules That Employers Must Follow

Employees who receive enough tips (generally more than $30 per month) may be paid $2.13 per hour as base pay, rather than $7.25. Their employer is allowed to claim a “tip credit” of $5.12 per hour, and it is assumed that the employees will earn that money in tips. Employees must be told of the tip credit ahead of time. Importantly, workers must always make $7.25 per hour or more, regardless of whether or not that money comes from tips. If $2.13 an hour plus tips does not reach the $7.25 threshold, the employer is required to make up the difference.

Employers also often calculate overtime incorrectly when dealing with tipped employees: for example, they may do so by taking one and a half times the minimum rate of $2.13 per hour. This is incorrect. Employers are required to calculate overtime for tipped employees by taking one and a half times the base rate for non-tipped employees ($7.25 per hour) and then subtracting the tip credit. For minimum-wage employees, this results in an overtime pay rate of $5.76 per hour rather than $3.20—a significant difference!

Tip Sharing and Tip Pools

It is common for employers to require employees to put their tips into a “tip pool,” in which the tips for the entire business are divided among the employees without regards to who earned what. Although this is legal, there are strict restrictions that employers must follow. Employees must be informed about the tip pool ahead of time, and cannot be required to pay an unreasonable amount into the pool. An employer’s tip pooling system cannot cause its employees to take home less than the minimum wage for their hours worked. Additionally, only employees who regularly receive tips may be included in the tip pool. For example, in a restaurant, only waiters can share tips: cooks and dishwashers cannot be included. Supervisors, managers, and the employer themselves can never take any tips from tipped employees or be a part of the tip pool, even if those supervisors or managers also act as waiters and bartenders.

Paycheck Deductions Are Illegal

Additionally, tipped workers often find that their employer has deducted money from their paycheck. These deductions can appear in a variety of situations: for example, an employer may require their employees to pay for walked tabs or deduct breakage fees. This is not allowed under the Fair Labor Standards Act, regardless of whether or not the deduction brings the employee’s compensation under the minimum wage threshold. If your employer is requiring you to cover the cost of walked tabs, they may be breaking the law and violating your rights.

When and How to Take Action

If your employer is improperly taking your tips, then you may be entitled to the full amount of the tip credit for every hour worked during which tips were improperly taken from you. You must bring such a claim within two years. However, for willful violations, you may be eligible to receive compensation for the last three years of lost income. Depending on the specifics of the situation, you may also be awarded liquidated damages, which doubles your compensation. An Austin employment lawyer like those at Austin Employment Lawyers, P.C. can help you interpret the complex rules surrounding tipped employees and determine whether or not you have a claim. If you believe that your employer is not following the rules around tips, or is taking prohibited deductions out of your paycheck, you can get in touch with us by filling out our intake form or calling our office at (512) 271-5527.