Articles Posted in Tip Pools

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On March 3, 2016, the Department of Labor (DOL) issued a press release regarding its enforcement initiative in the hospitality/restaurant industry in “college towns” stating that many companies are in violation of the Fair Labor Standards Act (FLSA) wage and hour laws.  The DOL has collected almost $100,000 for workers who were not paid properly.

During the investigation, the DOL found that because hospitality jobs are likely filled by students, temporary, or foreign workers who are often unfamiliar with wage laws.  Additionally, it found that language barriers, fear of retaliation, and fears of immigration status can cause these individuals to not exercise their rights allowing companies to take advantage of them.

Some of the violations found by the DOL include:

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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

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As part of the Department of Labor’s (“DOL”) continued focus on restaurant employees, a chain of three restaurants in New York have been ordered to pay over $1,000,000 in back wages including minimum wage and overtime. The DOL’s investigators found that the restaurant employees employed as servers and kitchen staff were not paid wages of at least hourly minimum wage and not paid proper compensation for overtime. The investigation also revealed that the restaurants kept inaccurate and incomplete records pay and hours of the employees.

Under the federal Fair Labor Standards Act (“FLSA”), restaurant employees must be compensated at least minimum wage of $7.25 per hour and one and one-half times this rate for overtime hours – all hours over 40 in a workweek. Under the FLSA, restaurants are also allowed to pay tipped workers $2.13 per hour plus tips. However, their tips must be high enough to allow the workers to make at least $7.25 per hour.

Restaurant employees are regularly underpaid for their work and their recovery under the FLSA can be substantial. Restaurant employees (servers, waiters/waitresses, hosts/hostesses, bartenders, bussers, barbacks, kitchen staff, etc.) can learn about their rights to pay under the FLSA by contacting Atlanta overtime attorneys.

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This year, the Department of Labor (“DOL”) focused on restaurants to determine whether restaurant employees were properly paid. The response was a resounding statement that the restaurant industry is vulnerable for minimum wage and overtime violations under the Fair Labor Standards Act (“FLSA”).

One problem is that restaurant employees do not know that their rights are being violated. Restaurant employees are some of the lowest paid employees in the nation and are paid even less when restaurants violate the FLSA when paying them. It’s important that restaurant employees learn how they should be paid under the FLSA. Hourly restaurant employees must be paid at least $7.25 per hour and one and one-half times this hourly rate for all hours over 40 in a workweek. The FLSA allows restaurants to compensate tipped employees just $2.13 per hour plus tips as long as their regular rate is at least minimum wage. Also, the federal regulations allow restaurants to require their tipped employees to participate in tip pools. These tip pool regulations are very specific and only allow certain employees to participate in the tip pools.

As part of the DOL’s restaurant investigation, Pancho’s Mexican Restaurant I, II and III – and Papa’s and Beer Mexican Restaurant agreed in October to pay 85 employees $485,913 in back wages due to minimum wage and overtime FLSA violations. The federal violations included paying kitchen staff a set salary without regard to the number of hours the employees worked and not providing additional compensation to tipped employees whose $2.13 per hour plus tips did not always equal at least minimum wage for each hour worked.

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BLOG-Photo-Drinks.jpgThe federal tipped employee regulations allow restaurants to pay servers and bartenders $2.13 per hour plus tips as long as those tips bump up the worker to at least minimum wage per hour. A question that arises is whether restaurants are permitted to deduct anything from the bartenders or wait staff’s pay to cover credit card fees. In order to accept credit card sales, restaurants agree to pay the credit card companies a fee. This fee is usually between 1.5% – 3% of total credit card sales and restaurants are starting to deduct these fees from the pay of its wait staff and bartenders. Is this legal?

Federal courts have held that restaurants can deduct fees from waiters and waitresses’ tips, however, it can only deduct the amount of the credit card fee associated with the tip – not the sales – and it can only deduct fees from credit card purchases – not cash sales. This means, at the end of each shift, the restaurant would look at total amount of credit card tips received by a server and it may deduct 1.5% – 3% for the costs in converting the tip.

Many restaurants, however, charge the wait staff a fee that is based on the servers’ total credit card sales. This is illegal because it is not the servers’ responsibility to cover all of the credit card fees charged to the restaurant. If the fee with the credit card companies is 2%, federal district courts have ruled that a restaurant can only deduct 2% of the servers’ tips.

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BLOG-Photo-Bartender.jpgThe area of tip pool litigation is one that has gained a lot of attention over the last few years as restaurant employees learn how they are supposed to be properly paid under the Fair Labor Standards Act (“FLSA”). First, federal regulations allow restaurants to pay their tipped employees as little as $2.13 per hour plus tips as long they make enough tips so that their hourly wage is at least minimum wage ($7.25). In other words, if you add up the $2.13 per hour for the week plus the amount of tips received for the week and divide it by the total number of hours worked, you will find an hourly rate. This hourly rate must be at least minimum wage. Also, the FLSA requires that for all hours over 40 in a workweek, the hourly rate must be at least minimum wage and a half.

Second, federal regulations allow restaurants to require their wait staff and other tipped employee to participate in a “tip pool.” However, only certain types of employees may participate in the tip pool. The FLSA says say that the employees in the tip pool must be employees who “customarily and regularly receive tips.” This means only employees like servers, waiters, bartenders, barbacks, food runners, and host/hostesses may receive money from the tip pool. Tipped employees may not be required to share their tips with employees who do not customarily and regularly receive tips.

Sometimes employers will illegally include other employees in tip pools to help cover that employees’ hourly wage. For example, a restaurant violates the FLSA if it collects tips from the servers and bartenders and then distributes some of the tips to kitchen workers. Sometimes restaurants even collect tips from servers and bartenders and then deduct a portion of the tips to cover overhead expenses like uniforms, broken glasses, etc. This also violates the FLSA tip pool laws. ALL of the tips collected in the tip pool must be given to the tipped employees and cannot be used to cover restaurant expenses.

If a restaurant violates the FLSA tip pool rules, it could end up owing its employees the difference between $2.13 (which was paid) and minimum wage for every hour the employee worked. Employees may also be able to recover liquidated damages which are essentially double damages – courts will double the amount of an employee’s owed wages.
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