How Does Minimum Wage Affect Tipped Employees?

According to the U.S. Department of Labor (DOL), employees are “tipped” if they regularly or customarily receive more than $30 per month in gratuities. Therefore, receiving a tip now and then does not necessarily make you a tipped employee. For example, a hotel receptionist may occasionally receive gratuities for helping guests. However, these tips are infrequent and untypical for this kind of job. Therefore, a receptionist does not qualify as a tipped employee. Examples of tipped workers include:

• Restaurant servers
• Bartenders
• Casino employees
• Hotel housekeeping staff
• Hair stylists and nail technicians
• Delivery drivers
• Taxi drivers
• Babysitters
• Tour guides

A tip is an optional sum of money customers give to service sector workers for the services rendered, for example, waiting on them in a restaurant. The gratuity is additional to the actual price of the service. Tips are classified as income and subject to federal income tax, whether cash or non-cash. Tips workers must report to the IRS include:

• Cash tips
• Credit card or debit card tips
• Payments from tip pools and other tip-sharing
• Gifts such as jewelry, clothing, concert tickets, and other non-cash items

What Is Tip Pooling?

Tip pooling is a way to share tips among employees and can be particularly popular in the hospitality industry, such as in restaurants, hotels, and bars. The employer would typically collect all tips in a “pool” and distribute them to tipped employees regularly. Employers may also have a specific tip pooling policy for distributing the funds. For example, the money may be evenly distributed amongst all employees or divided according to the number of customers served or the hours worked.

It is important to note that non-tipped employees should be excluded from a tip pool. Federal laws do not allow supervisors, managers, or employers to receive tips from the pool. Some states have more complex tip pooling laws.

Having to share your tips with untipped employees or your employer is illegal. If your employer frequently “helps themselves” from the tip jar or includes untipped managers and supervisors in the tip pool, you could have a case for wage theft and recover compensation.

According to the DOL, tipped employees must receive the equivalent of the minimum wage in their state. However, employers may calculate the tipped worker’s hourly compensation plus tips together. The minimum hourly wage for tipped employees is currently $2.13. The tips combined with $2.13 should equal at least the federal minimum wage, which now stands at $7.25 per hour. This system is called a “tip credit.” If the tips and the minimum tipped employee wage amount to less than the federal minimum wage, the employer must make up the difference.

Depending on your state, you could be entitled to higher pay, as many states have laws with higher minimum wage amounts. In addition, some states do not allow tip credits, meaning employers must pay the hourly state minimum wage in full, even if some employees receive additional tips.  

Wage and labor law can be complex and confusing, particularly for tipped employees. However, your employer must pay you minimum wage, whether you are a tipped or untipped employee. If you suspect your employer underpays you, our firm’s labor and employment lawyers could

If your employer pays you less than the current federal minimum wage of $7.25 an hour or the minimum wage in your state, they are violating labor laws and stealing your wages. You could hold them accountable for wage theft and receive compensation, such as back pay with interest, missing tips, attorney’s fees, and other damages.  

Morgan & Morgan Fights for Workers

Handling a missing wage claim against your employer can be stressful and intimidating, especially if a lot of money is at stake. However, you don’t have to go it alone. Morgan & Morgan’s qualified and tenacious labor and employment lawyers could help you assert your rights and recover what you deserve. We can assess your case and determine the best course of action for recovering the money you are owed. You don’t pay anything upfront when we take your case.

Every worker in this country deserves to be paid at least the current minimum wage per hour. If your employer skirts labor laws and fails to pay you properly, Morgan & Morgan could help you fight back. Contact us now for a free and confidential consultation to clarify your options.