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$8.5M Wage, Tip, Overtime Settlement: 3 Takeaways

By Jenny Tsay, Esq. | Last updated on

Restaurant chain Chickie's & Pete's has agreed to settle with the Department of Labor and some of its current and former employees over alleged wage, tip, and overtime violations.

If the two settlements are approved, the Pennsylvania-based company will pay a total of $8.5 million to more than 1,200 employees it allegedly short-changed, according to The Philadelphia Inquirer.

The Department of Labor called its probe of Chickie's & Pete's "one of the largest tipped-employee investigations in recent years." So what legal lessons can employers learn from the settlements?

Lesson 1: Tipped Workers Must Make the Minimum Wage.

When the Department of Labor is involved, they usually base their investigations on compliance with the Federal Labor Standards Act. The FSLA sets the federal minimum wage at $7.25 per hour; if you operate a business where your employees earn tips, the minimum cash wage is $2.13 per hour. So if your employee makes at least $5.12 in tips per hour, then the minimum wage of $7.25 is met. If not, then employers must pay a "tip credit" of up to $5.12 to meet the minimum wage, according to the Department of Labor.

Chickie's & Pete's allegedly didn't pay the "tip credit" to employees on those slow days, and in other cases, didn't even pay the $2.13/hour baseline wage, reports the Inquirer.

Lesson 2: Don't Take Workers' Tips.

Another problem at Chickie's & Pete's involved servers' tips. Under the FLSA, tips belong to the workers who earned them. The only times when a boss can lawfully keep workers' tips are when they're used to offset the tip credit obligation or when they're used in a valid tip pool.

Chickie's & Pete's apparently made servers fork over 2 to 4 percent of their tips; Labor Department investigators say managers kept about 60 percent of the tips they collected. However, this is disputed by the chain, according to The New York Times.

Regardless, business owners should remember keep their hands off their employees' tips unless there's a lawful reason to do so.

Lesson 3: Who's Entitled to Overtime Pay?

The workers at Chickie's & Petes also asserted that they weren't paid overtime when they worked more than 40 hours in a week, reports The New York Times.

According to the Department of Labor, employees who earn less than $455 per week (or $23,660 per year) are automatically entitled to overtime pay. If an employee makes more than that amount, he can still collect overtime if he's paid on an hourly basis. However, there are some exemptions for certain types of employees (like outside sales employees).

So be sure you're on the right side of the law when it comes to wages, tips, and overtime. If you have questions or concerns, consult an experienced employment lawyer near you.

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