Three Restaurant Tip Credit Mistakes That Eat Away At Your Paycheck

Employees are often involved in restaurant tip pools, but often have questions as to whether they are legal or not. many restaurants violate the Fair Labor Standards Act regulations for tip credits and tip pools, but most wait staff have no idea how these violations eat away at their paychecks every month.

If you are a tipped employee, read the FLSA regulations that affect wait staff, because if you don’t every paycheck you earn could be eaten away in illegal tip pooling arrangements.

What is a Tip Credit?

Tipped employees who make over $30 a month in tips can be paid with a tip credit, which means your tips can be counted as wages to meet the minimum wage of $7.25 per hour. There are certain conditions that must be met in order for employers to be able to apply this credit.

Federal law requires employers who use a tip credit to meet the following requirements:

1. Inform each tipped employee about the tip credit allowance (including amount credited) before the credit is utilized;
2. Be able to show that the employee receives at least the minimum wage when direct wages and the tip credit allowance are combined;
3. Allow the tipped employee to retain all tips, whether or not the employer elects to take a tip credit for tips received, except to the extent the employee participates in a valid tip pooling arrangement.

If any of the above are not met, including if an employer does not inform you of their intention to use a tip credit, the tip credit is invalid and you may have a claim for back wages, even if your hourly rate comes out to $7.25. Our firm has filed on behalf of tipped employees in FLSA cases including invalid tip pool arrangements.