Rules on tip credits, tip pooling & more
Many employees in Florida earn tips, including those who wait tables, serve and mix drinks, open doors, carry luggage, clean hotel rooms, or provide other services, from moving furniture to delivering newspapers.
If you receive tips as part of your compensation, your legal rights under wage laws are a bit more complicated than if you receive wages alone. There are rules about what counts as a tip, how much your employer must pay you, and whether you have to contribute to a tip pool, among other things. Although federal law also covers these issues, employers must follow whichever law—federal, state, or even local—is the most generous for employees.
The basic rule of tips, under federal law and state law, is that they belong to the employee. Employers may not require employees to hand over their tips unless one of the following applies:
• State law allows the employer to take a tip credit. In certain circumstances, an employer may count some tips as if the employer had paid them directly to the employee.
• The employee is part of a tip pool and can be required to pay part of their tips into a pool shared with other employees.
The Fair Labor Standards Act (FLSA) allows employers to take a tip credit toward the federal minimum wage. A tip credit means an employer can pay tipped employees a lower than federal minimum wage – this is called a minimum cash wage. Tip income would bring employee wages back up to the federal minimum wage, or even higher.
In order to qualify for tip credits, an employer must inform each tipped employee:
• The cash wage they will be paid
• The amount claimed as a tip credit
• The tip credit claimed cannot be more than the amount of tips the employee receives
• The employee will retain all of their tips, except if there is a valid tip pooling arrangement in place
• The tip credit does not apply unless the employer informs the employee of the tip credit
Some employees may perform more than one job, in which case they spend some of their shift doing non-tipped work. Under federal law, if an employee performs related non-tipped duties at the same time as performing tipped duties, the employer can take a tip credit for the time spent on those non-tipped duties.
Employers may require tip pooling or “tipping out.” All employees subject to the pool have to chip in a reasonable, customary portion of their tips, which is then divided among a group of employees. The employee must be able to keep at least the full minimum wage. If the employer claims a tip credit, then only employees who regularly receive tips can be part of the tip pool. Tips from a tip pool can’t go to the employer, managers, or supervisors.
What Counts as a Tip?
If the customer pays in cash and tipping is voluntary, whatever amount the customer leaves over and above the charge for products or services (plus tax) is a tip. However, if the employer imposes a mandatory service charge, or the customer pays by credit card, the rules may be different.
Mandatory Service Charges
Some restaurants tack a “mandatory service charge” on to bills. This isn’t considered a tip and employees have no legal right to this money. If the employer chooses to give some of the “service charge” money to the employees, it must be treated as wages.
For the amount to count as a tip, all of the following must be true:
• The payment must be entirely voluntary
• The customer must have the unrestricted right to determine the amount
• The amount cannot be set by employer policy or subject to negotiation with the employer.
• The customer must have the right to determine who receives the payment.
Derek Usman specializes in employment law. For consultation call the Usman Firm at (813) 377-1197.