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Can Restaurants Require Servers And Bartenders To Pay For Customer Walk-Outs?

The Fair Labor Standards Act (“FLSA”) permits restaurants and other employers of tipped employees to receive a “tip credit” when compensating their tipped employees. The FLSA permits the employer to pay its tipped employees $2.13 per hour plus tips as long as those tips cause the employee to make at least minimum wage per hour.

Under the FLSA, “the employer is required to satisfy the following two statutory prerequisites in order to utilize the ‘tip credit’ allowance: (1) the employer must inform the employee of the provisions in Section 203(m) of the FLSA; and (2) all tips received by an employee must be retained by the employee. If the employer fails to meet either of these requirements, it is not eligible to claim the tip credit, and in such a case, the employer must pay each employee the full minimum wage of $7.25 an hour that is required under Section 206.”

The FLSA also permits restaurants and other employers of tipped employees to require its tipped employees to participate in a valid tip pool. A valid tip pool is where the employer gathers a certain amount of tips from its tipped employees and then distributes the tips to among other employees who “customarily and regularly receive tips.” This permits employees like servers, waiters, bartenders, food runners, etc. to receive tips from the tip pool. It does not permit the restaurant or employer to keep part of the tips nor does it permit management, kitchen staff, etc. to receive tips from the tip pool
Therefore, a tipped employee must either be permitted to keep all tips or the employer must have a valid tip pool consisting of only proper employees participating in the pool. What happens when a restaurant makes the employees pay for customers who walk out on their bill (“walk-outs”) from their tips? The employer would be in violation of the FLSA’s requirements that the tips either are kept freely by the employee or are distributed strictly through a valid tip pool. Tips cannot be used to cover walk-outs, breakage, uniforms, etc. Violation of the FLSA’s tip credit laws mean that the employer is not permitted to claim a tip credit for its employees and the employees are entitled to minimum wage for all hours worked for the length of the statute of limitations.

If you have a question about the tip credit, contact us for a free consultation.