Tag Archives: tip credit

Will Congress Change the Tip Credit?

waiterThe federal minimum wage law has a special exception for servers, bartenders, and other employees who receive tips: These tipped employees can be paid much less than the minimum wage per hour (in most states), as long as they earn enough in tips to bring their hourly total up to at least the full minimum. Right now, the federal minimum wage is $7.25 an hour. But federal law allows employers to pay tipped employees as little as $2.13 an hour!

This practice of paying tipped employees less is called taking a “tip credit,” meaning the employer gets to credit part of the employee’s tips against its minimum wage obligation. Not all states allow a tip credit: California, for example, requires employers to pay tipped employees the full state minimum wage. And some states allow a lower tip credit, requiring employers to pay more per hour than federal law would mandate. (The more protective law governs in wage and hour matters.)

That measly $2.13 took effect back when the minimum wage was $4.25 an hour. In other words, the tip credit was supposed to be half of the minimum wage. But as the minimum wage increased, the wage for tipped employees stayed the same, part of a compromise to get the wage hikes passed. Now, Congress is contemplating raising both the minimum wage and the amount tipped employees must be paid. According to an article in today’s New York Times (“Proposal to Raise Tip Wages Resisted“), Senator Tom Harkin has introduced a bill that would raise the minimum wage to $10.10 and the tipped employee wage by 95 cents per year until it reaches $7.10. Further increases would be tied to inflation.

As is perhaps evident from the title of the article, this proposal is facing plenty of pushback, primarily from restaurant owners. And of course, it’s unclear how Congress would agree on a minimum wage and tipped employees wage increase when they can’t pass a farm bill or extend unemployment benefits. But at least this problem has hit the radar of the U.S. Senate and the nation’s paper of record.

Want to know more about your state’s law on tips, including tip credits, tip pooling, and who gets to keep those mandatory service charges the house tacks on to the bill? We’ve got a set of articles — one for each state and the District of Columbia — on this very topic; select your state from the list at State Laws for Tipped Employees.

Wage and Hour Violations at Restaurants

A couple of days ago, the New York Times published an article about wage and hour violations at Urasawa, a very trendy — and expensive — sushi restaurant in Beverly Hills. According to the article, workers were not paid overtime and not allowed to take legally required breaks. An employee interviewed for the article also noted that he was required to buy his own $700 set of knives, at a time when he was earning between $9 and $11 an hour. (Although the article didn’t mention it, this is a separate violation of California law, which requires employers to bear the cost of uniforms, tools, and other items necessary for employees to do their jobs.)

Restaurants are too frequently in violation of wage and hour laws, from overtime and break rules to minimum wage, uniform, and tip requirements. If the violator is extremely upscale, like the restaurant cited in the Times article, employees are often willing to put up with substandard conditions in exchange for the opportunity to gain the experience and cachet that stem from working at a trendy spot. (Apparently, diners are also willing to put up with a lot to eat there, from a $1,000 price tag for dinner for two to rules about how the food must be treated that would make Sienfeld’s Soup Nazi blush.) At the other end of the spectrum, employees working at fast-food franchises and low-budget eateries often don’t know their rights and work for an owner who is operating on a financial shoestring.

In recent years, the Department of Labor has taken steps to remedy this situation, from revising the regulations on tip credits to partnering with the Subway restaurant chain to make sure that employees know their rights. Let’s hope it works! Because I don’t know about you, but for my own selfish reasons, I’d prefer to have my food prepared by workers who are allowed to go to the bathroom when they need to.

Wage and Hour Lawsuits: Tips, Overtime, and Hours Worked Top the List

This month’s issue of Corporate Counsel includes an interesting article on wage and hour lawsuits brought under the Fair Labor Standards Act. The article includes a graph showing that the number of FLSA cases filed in federal court has risen steadily over the last five years. More than 7,700 cases were filed in the 12 months that ended on March 31, 2013, a new record.

According to Noah Finkel, a partner at Seyfarth Shaw who was interviewed for the article, the cases fall into three categories:

  • overtime exemptions, particularly employees who are paid a salary but believe they are entitled to overtime. 
  • hours worked cases, in which employees claim that they were not paid for all of their work time, and
  • disputes about the tip credit.

Finkel said he’s seen an increase in tip credit cases recently. Not all states allow a tip credit. In states that allow it, a tip credit lets employers pay less than the minimum hourly wage, as long as the tipped employee earns enough in tips to make up the difference. (The credit is the amount the employer doesn’t have to pay. For example, if a state’s minimum wage is $7.25, and the state allows employers to pay tipped employees a minimum wage of $4.25, the tip credit is $3.)

In 2011, the Department of Labor issued revised regulations on tip credits. Among other things, these regulations clarify the rules for tip pooling and require employers to give employees notice if they will be subject to a tip credit. Often, new regulations lead to more lawsuits, as employees and their attorneys test how the new rules will play out in practice. So, I guess the increase in tip credit cases isn’t much of a surprise. (For more on the rules, see our update Labor Department’s Final Regulations Clarify Tip Credit Rules.)