So you have a wonderful dinner at your favorite restaurant and you would like to show your gratitude to your fabulous waiter. As such, you give him or her a generous tip. Unfortunately, these hard working waiters or waitresses do not always get to keep their tip. This is because many restaurants have what is known as a “tip pool”. Not only may this be surprising to the customer but just think how that poor hard working waitress feels. Regardless, it is important for the employees to know that not all tip pools are legal. If the tip pool is found to be illegal the employee may be entitled to a full hourly wage for hours worked, liquidated damages and attorney’s fees.
The difference between a legal and illegal tip pool depends on a few factors. These factors are often intertwined with the employer’s legal ability to take a “Tip Credit” to pay the lower hourly minimum wage of $2.13 per hour. Specifically, for a tip sharing program to be legitimate the tips can only be shared among employees that regularly and customarily receive tips. This would include employees such as bartenders, counter staff, waiters, waitresses and sometimes hostesses. It would not include cooks, managers, chefs or owners. This would be mainly those employees that aren’t paid at the $2.13 minimum wage.
Taking this a step further, for the employer to be allowed to take a credit for the tip and reduce the hourly wage to $2.13 an hour the following must occur:
1. The employer must notify the specific amount of cash wage the employee will receive. This cannot be less than $2.13 per hour.
2. The tip credit that the employer claims can’t exceed the actual amount of the tip received by the employee
3. The employee must be allowed to keep all tips earned except for the amount to be legally contributed to the tip pool
4. The tip credit will not apply to the employee unless the employee has been informed of these tip credit provision. It is important to note that this notice can be oral or written.
If an employer has set up an illegal tip pool or has not complied with the foregoing tip credit provisions they may have to pay the difference between the $2.13 an hour paid and the current minimum wage. The employee would also be allowed to keep all tips earned.
Also, if the employer decides to use the tip credit provision they must be able to show that the employee earned a minimum of $7.25 an hour. In other words, if you take the $2.13 an hour paid and all tips earned by an employee during a week and divide that amount by the number of hours worked then the average wage should equal or exceed $7.25 an hour.
Finally, do not forget about overtime. If you work over 40 hours per week you are still entitled to 1.5 times your hourly pay for the hours worked over 40. This is probably one of the most overlooked FLSA violations around.