Tipped employees are protected by special wage rules governing tips, tip credits, tip pools, and employer deductions. Restaurants, bars, hotels, salons, and other businesses can create liability when tips are retained by management, shared with ineligible participants, or used to satisfy wage obligations without meeting the legal requirements.
Tip Credit Requirements
When an employer relies on a tip credit toward the minimum wage, it must satisfy the governing notice and payment requirements. If the requirements are not met, the employer may lose the credit and owe the difference between the cash wage paid and the full minimum wage.
Tip Pools
Mandatory tip pools are subject to restrictions concerning who may participate. Managers and supervisors generally may not keep employee tips, and employer retention of tips can violate federal law. The rules can differ depending on whether the employer takes a tip credit.
Side Work and Non-Tipped Work
Disputes frequently arise when tipped employees spend substantial time on cleaning, preparation, stocking, opening, closing, or other work that does not directly generate tips. The applicable rules require a close look at the nature and amount of the work and how the employee is paid.
Service Charges
A mandatory service charge is not necessarily treated as a “tip” under federal law. How the employer communicates and distributes a service charge can affect the wage analysis.
Recoverable Damages
Depending on the violation, employees may seek unpaid wages, unlawfully retained tips, liquidated damages, and attorneys' fees and costs. Retaliation for asserting protected wage rights is prohibited.