Can Employers Keep Employee Tips?

Can Employers Keep Employee Tips?

August 26, 2015

As some may know, full-service restaurants traditionally pay waitstaff an hourly wage rate that is far south of the current minimum wage.  This is permissible on account of an allowable tip credit prescribed by the federal Fair Labor Standards Act (FLSA) as well as state wage and hour law.  Florida law allows employers to take a tip credit of $3.02 against the current state minimum wage of $8.05/hour.  In other words, if all conditions of the tip credit are met, a Florida employer need only pay a tipped employee an hourly cash wage of $5.03 with the difference being made up by the employee’s tips.  To the extent the employee’s tips do not equal or exceed the tip credits taken in a given workweek, the employer must make up the difference with additional wages.

In order for an employer to lawfully claim a tip credit against tipped employee wages, the employer must inform the affected employees that it so intends to take a the tip credit.  Furthermore, an employer can only take a tip credit if the subject employees retain all of their tips unless the employees are required to participate in a valid tip pool.  To be valid, those receiving distributions from the tip pool must be limited to employees who are “customarily and regularly” tipped.  By way of example, busboys/busgirls are employee who are common valid participants in a restaurant tip pool.  On the other hand, chefs, dishwashers and other kitchen staff are not considered tipped employees and their participation would typically nullify an otherwise lawful tip pool.  If a tip pool is deemed invalid, the employer loses entitlement to any tip credits taken thus leading to a failure to pay minimum wages.  The employer will be liable for payment of the cumulative tip credits taken plus liquidated damages equal to the amount of said tip credits.  It should also be kept in mind that employers on the losing end of a wage and hour claim are generally required to pay the prevailing employee’s attorney’s fees and costs.

Be advised that some states prohibit tip credits outright while others restrict tip pools even where the employer elects not to take an available tip credit.   In contrast, Florida places no such restrictions on tip pools outside of the context of minimum wage law.  Theoretically, a Florida employer can lawfully retain employee tips and/or redistribute tips to non-tipped employees if the employer does not avail itself of the tip credit to offset the Florida minimum wage.