Restaurant Keeps All Banquet Gratuity - Wait Staff Only Paid Minimum Wage, No Tips. Is that Legal?

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Restaurant employees are often subject to lost wages through tips being taken or other employer actions against them. Restaurant employers often find themselves on the receiving end of wage and hour claims.

How banquet halls, restaurants, bars and other food establishments pay tips varies by location and state. The requirements that they must follow depends on state and federal laws. Some general guidelines include:

Employers Must Pay Minimum Wage

Employers are required to pay at least the minimum wage. Federal law permits restaurants to give employees less than a minimum wage and for them to consider tips part of the waiter’s regular rate of pay so long as the two figures together make up the minimum wage.

However, some states do not permit tips to make up the difference in minimum wage. For example, California’s labor code prohibits using tips as a credit toward the minimum wage requirement. Additionally, each county has its own minimum wage rate, so employees in certain counties may be entitled to a higher hourly rate than employees in other counties. In California, if an employer violates the minimum wage law, he or she can be required to pay the unpaid wages along with interest, statutory penalties, attorney fees and the cost of litigation.

Fair Labor Standards Act Requirements

The federal law on minimum wage and related regulations is the Fair Labor Standards Act. The Act contains important provisions for tipped employees, which are defined as individuals who regularly receive more than $30 a month in tips. The Act states that employee’s tips are their own and cannot be used by an employer for anything other than using it as a credit against the minimum wage obligation or for a valid tip pool.

Tip Credits

The Fair Labor Standards Act permits employers to take a tip credit toward the required minimum wage obligation in an amount up to the difference in the employee’s hourly wage rate and the minimum wage. The required minimum cash wage for tipped employees is $2.13. The employer is required to provide the employee with written notice regarding its intent to use a tip credit. If the employee did not earn enough in hourly wages plus tips to equal the minimum wage, the employer is legally responsible for any difference between these figures.

Tip Pool

Employers are also permitted under the Fair Labor Standards Act to pool together all tips from employees who regularly receive them in order to create a valid tip pool. These tips can come from people like waiters, bellhops, bussers and bartenders but cannot be shared with workers who do not normally receive tips, such as chefs, janitors and dishwashers.
The employer is required to notify its workers of any required contribution that they must make to tip pools and can only pool the tips that workers actually received.

Some states have similar requirements that allow employers to impose involuntary tip pools. However, these laws often state that the business owner, managers or other personnel may not receive a portion of the tips.

Other Charges

There may be other charges that affect the amount of tip that an employee is entitled to. For example, some businesses may charge a compulsory service charge. However, this amount is not considered a tip under the Fair Labor Standards Act and does not need to be provided to employees. However, if the employer does provide the employee with a portion of this fee, this amount can be used as a tip credit.

When someone uses a credit card, the business accepting the card must usually pay the credit card company a percentage of each sale. The employer is permitted to deduct the percentage from the employee’s tip. The employer is still required to pay the employee minimum wage.

If the employee is entitled to overtime pay, the employer is required to provide overtime for the full minimum wage, not on the cash wage payment.

Unpaid Wage Claims

Waiters and other tipped employees who believe that their employers have violated the Fair Labor Standards Act, state minimum wage law or other labor law may decide to file an unpaid wage claim. These claims are often made to state or federal agencies operated within the state. Typically, the agency will investigate the claim for its veracity. The agency may refer the case for mediation or for or a hearing or may dismiss the claim.

An employment law lawyer can provide assistance to workers and explain the rights and responsibilities of the uncompensated employee.


Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.

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