In Part I of this article, I explained how employers can legally pay servers $2.13 per hour and then use servers’ tips in order to make up the difference between that rate and minimum wage. However, in order to take advantage of what amounts to legal wage theft, employers have to abide by certain requirements.
First, an employer must notify servers that it is taking the tip credit. This can be either oral or written. Second, once the employer takes a tip credit, it must make sure that the employee is at least making minimum wage. If employees are being paid $2.13 per hour and their tips do not bring them to minimum wage, then the employer must make up the difference. Third, the employer cannot take any more than the difference between $2.13 per hour and minimum wage. If servers’ tips plus the $2.13 per hour have them earn $20.00 per hour that day, they get to keep all of the tips despite the fact that it is above minimum wage. Fourth, a server must be engaged in work that customarily receives tips in order for the employer to take the tip credit. If some time is spent performing duties that are related to serving (for example, setting a table or making coffee) the employer can still take the credit. But if the employee spends a substantial amount of time performing duties that are not tip producing (which the Department of Labor defines as more than 20 percent), then that time must be paid at full minimum wage. So if an employee spends eight hours of a 40 hour work week cleaning bathrooms, then those hours must be paid at full minimum wage.
There are also stringent requirements for tip pooling. Again, employers must notify employees if they are going to require tip pooling. The tip pool cannot be used for any purpose other than to compensate employees sharing in the pool. An exception to this is that employers may take credit card service charges out of the tip pool for credit card tips. Most importantly, the tip pool must only be shared among employees who “customarily and regularly” receive tips. This is the most confusing and therefore most violated of all the requirements. It is clear that servers are entitled to the pool and janitors are not. But there are other jobs where the duties are varied and it is unclear whether or not those people should be allowed to share in the pool. Food runners don’t normally get tipped, but it is generally agreed that they can share in the pool. On the other hand, restaurants often require that expediters share in the pool and it has generally been found that this is a violation. The rule of thumb is that anyone who regularly works in the front of the house, such as servers, bartenders, bussers, food runners, and hosts, can share in the pool. Anyone who works in the back of the house, such as cooks, dishwashers and expediters cannot.
The important thing to remember about these requirements is that ANY violation can lead to an entire invalidation of the tip credit. If an employer requires servers to share their tips with someone who is not entitled to do so, the employer will not only be required to restore the improperly shared tips, but will also lose the entire tip credit. Under federal law, the maximum tip credit that can be taken is $5.12 per hour. Depending on the size of the employer, multiplying the number of hours that all servers worked over a two or three year period by $5.12 per hour can, and often does lead to millions of dollars in damages. So, if you are being paid based on a tip credit, check out the Department of Labor rules and make sure your employer is following them to the letter.