Many Servers in the Restaurant Industry are Owed Minimum Wages and Overtime

Tipped Employees

Servers and other tipped employees are often improperly compensated by their employers and entitled to unpaid minimum wages and overtime compensation.  The general rule under the Fair Labor Standards Act (“FLSA”) is that all employees are entitled to a minimum wage (currently $7.25) for every hour worked in a workweek and overtime compensation in the amount of one and one-half times the regular rate of pay for all hours worked in excess of 40 in a workweek.  29 U.S.C. 206 (minimum wage) and 29 U.S.C. 207 (overtime).  However, like all good general rules, there are always exceptions.

Employers may have the ability to take a “tip credit,” allowing them to pay their tipped employees an hourly wage that is less than the required minimum wage for each hour worked as long the employee’s tips at the end of the workweek cause his or her “regular rate” to meet or exceed the statutory minimum.  However, employers often fail to follow all of the requirements for taking a tip credit and end up paying their tipped employees illegal sub-minimum wages.

A “tipped employee” may be properly paid less than the minimum hourly wage if he or she “customarily and regularly” receives more than $30 per month in “tips.”  “Tips” are amounts “presented by a customer as a gift or gratuity in recognition of some service performed.”  29 C.F.R. 531.52.  This is distinguishable from a service charge such as an automatic gratuity that is added to the customer’s bill.  This means that banquet servers, who often receive automatic gratuities that are negotiated and determined prior to the customer’s arrival, may not be considered tipped employees (banquet servers may be considered commissioned retail sales employees who may not be entitled to minimum wages at all, but we will address this topic in a future post).  An important concept in determining whether an amount constitutes a tip is the customer’s discretion; whether a tip is to be given, to whom, and the tip amount, are matters determined solely by the customer.

Tips must also be free and clear from the employer’s reach, except in the instance of a valid tip pool.  This means that if you receive a tip, no deduction may be made to that tip except to share the amount in a valid tip pool.  A valid tip pool may only share tips among other tipped employees and can not, under any circumstances, share tips with managers or owners.  This means that while a tip pool that requires servers to share their tips with bussers, hosts or bartenders is valid, a tip pool requiring servers to share tips with kitchen staff or other employees who do not have direct contact with the public is not valid. Finally, if a valid tip pool generally cannot require a tipped employee to contribute more than 15% of their tips to a tip pool, therefore, if a restaurant requires a 3% tip share on gross sales, the tip share is likely to exceed 15% of the tipped employees earned tips unless they receive an average of 20% tips on gross sales.

Finally, tipped employees who spend more than 20% of their time on general preparation and maintenance work cannot be considered tipped employees for at least the amount of time doing general preparation and maintenance.  This means that servers who must arrive to work early or stay late to stock shelves, prepare salads, roll silverware, and perform other non-tip producing activities must be paid a full minimum wage for all such time if the total time spent performing these non-tip producing activities exceeds 20% of the total amount of time spent at work.  In fact, the United States District Court for the Southern District of Mississippi has previously held that work performed prior to or after a restaurant is open cannot be considered tip producing activities and must be compensated at a full minimum wage.  As most, restaurants pay sub-minimum wages for all hours worked by servers, it is very likely that those servers have claims for the amount of time spent working before and after the restaurant is open.

If you are treated by your employer as a tipped employee and have questions about your rights to compensation, contact an experience employment lawyer today.