Tipped Employee Wages

Tipped employees such as waiters and waitresses are among the hardest working, lowest paid Americans in the workforce. Despite this hard work, the National Restaurant Association has lobbied to keep wages low and freeze tipped minimum wage at $2.13 per hour.

Under the Fair Labor Standards Act (“FLSA”), tipped employees are employees that regularly and customarily receive more than $30 in tips per month. These tips are the property of the employee. The employer is absolutely prohibited from using an employee’s tips for any reason other than (1) crediting the tips against the employer’s minimum wage obligations or (2) furthering a valid tip pool. Only tips actually received can be applied to a tip credit.

Tipped Employee Wages: Tip Credit & Tip Pools

Tip Credit: Section 3(m) of the FLSA permits an employer to apply a tip credit towards its minimum wage obligations if it complies with certain statutory requirements. The maximum tip credit an employer can claim is $5.12 per hour (minimum wage of $7.25 minus the minimum cash wage of $2.13/hour).

Tip Credit Requirements:An employer must provide a tipped employee the following information or it cannot legally use the tip credit:

  • the amount of cash wage the employer is paying the tipped employee
  • the additional amount claimed by the employer as a tip credit
  • a disclaimer indicated that the tip credit claimed by the employer may not exceed the actual amount of tips received by the tipped employee
  • a disclaimer that all tips received by the tipped employee should be retained by the employee except for a valid tip pooling agreement
  • a disclaimer that the tip credit will not apply to any tipped employee unless that employee has been informed of all of these tip credit provisions

An employer that fails to provide the above information cannot use the tip credit provisions. Such employers must pay tipped employees at least $7.25 per hour and allow the tipped employee to keep all tips received.

Tip Pool: While employees must typically retain all tips, this requirement does not allow a valid tip pooling arrangement among tipped employees. However, only employees that customarily and regularly receive tips, such as waiters, bellhops, counter personnel, bussers, and bartenders may take part in a valid tip pool. A tip pool is not valid when it includes employees who do not customarily receive tips, including managers, dishwashers, cooks, chefs, and janitors.

Tipped Employee Wages: Service and Credit Card Charges

Service Charges: A compulsory charge for service (i.e. 15 percent of a bill) is not considered a tip. The sums distributed to tipped employees from these service charges cannot be counted as tips received, but may be used to satisfy the employer’s minimum wage and overtime obligations.

Credit Card Charges: Where tips are charged a credit card and the employer is responsible for paying the credit card company a percentage of each sale, the employer may deduct the percentage from an employee’s tip. For example, assuming a 3% credit card charge, a tipped employee would receive 97% of received tips. This charge, however, may not reduce the tipped employee’s compensation below minimum wage.

Tipped Employee Wages: Common Tipped Employee Overtime Problems

Invalid Tip Pool: If a tipped employee is required to contribute to a tip pool including employees who do not customarily receive tips, the employee is entitled to all tips he or she contributed to the tip pool and minimum wage. Often times, these tips pools involve kitchen staff, resulting in servers and waiters not getting proper minimum wage and overtime wages.

Failure to Account for All Wages in Overtime Calculation: Employers fail to pay proper overtime when the employees regularly hourly rate—use to determine overtime—fails to account for service charges, commissions, bonuses and all other earned compensation.

Credit Card Fees: Employers often make illegal deductions from tipped employee wages, causing employee wages to fall below minimum wage.

Overtime Calculation Fails to Include Full Minimum Wage: If an employer takes a tip credit, overtime is calculated on the full minimum wage, not the cash wage payment. For example, assuming you make minimum wage, the employer must pay overtime on $7.25/hour; not the $2.13/hour the employer pays you in cash wages if the employer maximizes the tip credit.

Employer Takes Inconsistent Tip Credit: The employer may not take a larger tip credit for an overtime hour than for a straight time hour (i.e. $2 for regular hours; $4 for overtime hours).

Tipped Employee Wages: Contact Us

Our overtime attorneys encourage waiters, strippers, bartenders and other tipped employees  to give us a call with questions regarding whether their employers owe them minimum wage and overtime payments. We help tipped employees apply complex law to their particular circumstances to see if we can recover wages and overtime from their current or former employers.

Please give our Dallas overtime and unpaid wage attorneys a call or text (yes, we do that) at (214) 790-4454 if you are a tipped employee that may have an unpaid wage or overtime claim. Also feel free to use our contact form below and we’ll make sure to get you answer about your wage questions as soon as possible.

Jack Siegel is the Dallas overtime attorney responsible for this website.
The Siegel Law Group’s Texas overtime lawyers have a principal place of business is in Dallas, but serve clients through the state of Texas and the entire country. Our Dallas overtime attorneys proudly serve the following communities in the Dallas Fort Worth area against their employers for overtime pay violations: Addison, Allen, Arlington, Carrolton, Coppell, Dallas, Denton, Desoto, Duncanville, Fort Worth, Euless, Farmers Branch, Flower Mound, Frisco, Garland, Grand Prairie, Grapevine, Irving, Keller, Lancaster, Lewisville, Mansfield, McKinney, Mesquite, Midlothian, Plano, Richardson, Rockwall, Rowlett, Southlake, Terrell, Waxahachie, and Wylie.