In the restaurant industry, it's a big, beefy no-no for employers to take an employee's tips. Generally, it's not legal for managers to pocket a worker's tips. Violations can be pricey.
But laws on gratuities can be confusing. With terms like "tip credits" and "tip pools" floating around, managers may also need some tips on how to make sense of it all.
Here are some general rules about tips -- and some insight on what can potentially happen if those rules are violated.
Tipped Employees and the FLSA
In general, most employers must comply with the Fair Labor Standards Act's rules for "tipped employees." A "tipped employee" is someone who gets more than $30 per month in tips. It covers restaurant servers, bartender, and valets -- basically, anyone who receives gratuities from customers.
Under the FLSA, tips are considered the sole property of the tipped employee -- though employers should note that mandatory service charges are not considered tips under the FLSA.
An employer can only legally use an employee's tips as a credit to offset the employer's minimum wage obligation to the employee (known as a "tip credit"), or to be included a valid tip pool.
Employer Liability and Damages
The potential liability for an employer who violates the FLSA can be significant. Any employee who did not receive her full wage can file suit against her employer for damages, including back wages, liquidated damages, and attorney's fees.
An employer will typically have to pay the balance between the hourly wages paid and the applicable minimum wage for every hour that was worked.
If the case also involved an invalid tip pool, the employer will be liable for the amount of tips the employee was required to contribute to the invalid tip pool.
Courts will then award that same amount in liquidated damages.
Since this calculation is performed for each injured employee, if there are many employees involved, the total award paid out can quickly skyrocket.
The amount can also be staggering because of the statute of limitations, which begins anew from each violation that occurs, and not from the first violation. The statute of limitations for filing a claim under the FLSA is two years. If the violation is willful, this time is extended to three years. Two or three years of owed wages per employee can add up to quite a pretty penny.
Get Tips on Tips
Tips are a sensitive matter. Employers who have questions about tips may want to speak with an experienced employment lawyer who's familiar with federal and state laws. As seen in a recent episode of Fox's "Kitchen Nightmares," employers who are known to take employees' tips could face a forkful of backlash from angry customers.
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