Can Employers Take Their Employee's Tips?

More than four million Americans are estimated to work in “tipped occupations.” Tipped employees regularly receive more than $30 per month in tips and gratuities. Bartenders and waitstaff are the most common tipped employees, but barbacks, housekeepers, and delivery drivers also depend on tips to supplement their pay.

Federal and state labor laws protect tipped employees’ wages and ensure employers pay a full minimum wage. As more customers pay with credit cards and don’t leave cash tips, employers can use various methods to gather and divide tips among employees. The Fair Labor Standards Act (FLSA) ensures that all workers get their due share and have legal recourse if their boss takes their tips.

Tip Credits and Tip Pooling

If you tip your server an extra $20 after your meal, you expect them to get all of it.

Under the FLSA, employee tips belong to the employee. If the employee’s tips boost their pay above the minimum hourly wage, the employer cannot reduce or withhold their hourly pay. Some tipped workers in high-value locations like Las Vegas can make several hundred dollars per night in tips. But they are still entitled to their hourly wage.

Tip Credits

Employers must pay tipped workers a federal minimum wage of at least $2.13 per hour. If the amount of tips per pay period does not equal the federal or state minimum wage, the employer must make up the difference. The “tip credit” allows employers to advertise tipped jobs at the minimum wage, with credit for the employee’s tips.

Tip Pooling

Many businesses have tip pooling arrangements to share tip benefits with back-of-house staff, such as bussers, dishwashers, and barbacks. Waitstaff and bartenders normally get the lion’s share of tips, and tip pooling ensures everyone gets some money.

Some businesses use voluntary tip pools, but others have a mandatory tip pool. The only requirement for a mandatory tip pool is that all employees be aware it exists. Employers may not take money from the tip pool for any reason.

Credit Card Tips and Service Charges

Credit card tipping can make tip pooling more attractive to employers. People no longer leave piles of cash on tables anymore, and it’s much easier to divvy up numbers from the register. On the other hand, credit card companies charge processing fees. Is that part of the tip or part of the cost of the meal?

It depends on where you are. Federal law says businesses may deduct credit card fees from the tip provided the employee’s wage exceeds the minimum wage.

Some states disagree. California state law says these fees are “business expenses” not part of the tip. Tipped employees in Minnesota must also receive the full amount of tips paid by credit card or e-payment.

Employers may add mandatory service charges to the bill. These are not tips, and employers can retain these amounts for themselves. A few cities or states may require employers to pass service charges to employees. Service charges are not employee tips and do not apply to tip credits.

Wages and Overtime

Federal law sets the minimum wage requirement, but states may set their own minimum wages. The U.S. Department of Labor Wage and Hour Division enforces labor laws throughout the states.

Each state has its own department of labor to enforce state wage laws. For instance, California abolished tip credits and requires employers to pay employees the full amount of the tips plus their full hourly wage.

To calculate the overtime pay rate for tipped employees, employers take the employee’s minimum wage, multiply it by the statutory overtime rate (1.5 or “time and a half”), and subtract the maximum tip credit (capped by the FLSA at $5.12 per hour). This figure is the employee’s overtime rate. For employees in states without tip credits, employees work straight overtime, plus tips.

If Your Employer Takes Your Tips

FLSA regulations are clear: Employers cannot take tips from workers and have no right to any portion of pooled tips.

A valid tip pooling arrangement can split tips among non-tipped employees, but managers and supervisors cannot share them.

If you believe your employer has withheld tips, consider speaking with an employment attorney. You should also take steps to preserve any evidence of missing tips or wages.

Under the FLSA, employers must:

• Determine who a “tipped employee” is based on FLSA definitions. A tipped employee regularly receives more than $30 per month in tips and gratuities. An employee who sometimes receives larger sums (such as during holidays) is not a tipped employee and is not part of the tipped employee category.
• Pay all tips promptly. Employers must pay credit card tips no later than the pay period following the workweek in which the employee earned them.
• Pay all employees the full minimum wage obligation if the tip amount does not equal the federal or state minimum wage.

If your employer fails to pay your tips according to FLSA regulations or state law, you may have a legal cause of action. The statute of limitations for FLSA claims is two years or three years for deliberate violations. State statutes of limitation may vary from two to four years. So it's important to talk to a lawyer as soon as possible.

Get Legal Advice from an Employment Law Attorney

Minimum wage laws and tip regulations are important for workers who rely on tips to survive. If you think your employer is improperly taking your tips or failing to pay you correctly for your work hours, contact an employment law attorney in your area right away. They can examine the details of your case and help you decide what to do next.