Sometimes employers use illegal practices to pay tipped employees (including servers, wait staff, busboys, bartenders, bellhops, counter personnel who serve tipping customers, and valets). After reading our blog post about Tips and Tip Pooling – What Employees Need to Know, you may want to note some specific practices that restaurant employers sometimes use to illegally reduce their workers’ pay. The basic rules are that the employee is entitled to keep all of her tips and that the employer cannot take a “tip credit” unless it has informed the employee in advance of exactly how the credit is calculated (and that the employee will get minimum wage). An employer cannot take a tip credit for more than the amount of tips the employee actually received. The following scenarios are ones in which employees should make sure they are being paid correctly.
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An employer cannot require a tipped employee to share tips with other employees who are not customarily tipped, such as cooks, janitors, and dishwashers. The employer loses its right to a “tip credit” if it includes non-tipped employees in a tip pool, and the tipped employees are entitled to keep their tips plus the full cash minimum wage paid by the employer for all time worked (now $7.25/hour).
Paying Less Than Minimum Wage
A tipped employee’s tips together with her wages must equal at least $7.25/hour, the current minimum wage. A Wisconsin employer must pay a direct or “cash” wage of at least $2.33/hour. If the employee receives tips that do not add up to the difference between $2.33/hour and minimum wage, the employer must make up the difference. For example, a waitress works a 40-hour week. Her gross minimum wage must be at least $290.00. She receives $50.00 in tips. Applying the tip credit requires the employer to pay her the remaining $240.00, which means it must pay the waitress $6.00/hour, and the employee keeps her tips. If, however, she receives $1000.00 in tips, the employer can use the full tip credit, and is only required to pay her cash wages of $2.33/hour. Note that the Wisconsin cash wage requirement of $2.33/hour is different from the federal cash wage requirement of $2.13/hour, but in Wisconsin, the Wisconsin requirement applies.
Set-Up, Clean-Up, and Meeting Time
Any time the employee is required to be at work (see our blog “When Does My Workday Start”), the employee is entitled to be paid. The employer is required to pay the employee minimum wage even for work time when the employee cannot make tips, such as opening and closing, attending meetings, and similar work-related activities that the employer requires. These hours must be paid at the tip credit rate (that is, the hours have to be included in the calculation of the tip credit).
An employer can take credit against an employee’s wages (with prior notice) for food provided to the employee at cost, which is typically an hourly deduction from the employee’s pay. Department of Labor regulations allow an employer, with the prior agreement of the employee, to exclude the cost of no more than one free meal per workday when calculating overtime rates. In these circumstances, the employer may not take a meal credit for the cost of the meal, but if the employee works overtime, the value of the meal may be deducted from the overtime calculation.
A service charge is not a tip, it is an amount added by the restaurant or dining facility to the bill as a mandatory charge. For example, a hotel restaurant may add a mandatory 15% on to a room service tab. These charges are part of the employer’s gross receipts. The employer may, but does not have to, pay any or all of the service charge to the employee. If the employee receives no tip, however, the employer is still required to pay minimum wage and, if applicable, overtime.
An employer may deduct the actual cost of a charge when a customer adds a tip to a credit card charge. If the credit charge is 3%, the employer can deduct 3% from the amount of the tip. These deductions do not reduce the employer’s obligation to pay minimum wage and overtime, however, and wages must be paid within the regular pay period. An employer may not wait to pay wages until reimbursed for the charge by the credit card company.
Sometimes restaurant employees do more than one job, e.g. a server who sometimes does short order cooking. Employers may only take a tip credit for the hours an employee spends in the tipped occupation. An employee is engaged in a tipped occupation even though some amounts of time are spent doing related activities that do not result in tips, such as making coffee, setting tables, and cleaning up. Where a tipped employee spends more than 20% of her time performing related duties, the employer may not take a tip credit for that time.
How to Calculate Overtime Pay
An employer must pay overtime for all hours over 40 worked per week. Overtime must be calculated based upon the full minimum wage, not on the lower cash wage payment. Overtime must therefore equal at least $5.96/hour ($7.25 x 1.5 minus tip credit of $4.92). The following example is based on an employee earning minimum wage (direct cash payment of $2.33/hour plus tips of at least $4.92/hour, the tip credit):
|– Hours worked during week||50|
|– Cash wages for regular work week, $2.33 x 40:||$93.20|
|– Overtime ($5.96 x 10):||$59.60|
|– Hours worked during week:||50|
|– Cash wages for regular work week, $6.00 x 40:||$240.00|
|– Overtime ($9.63 x 10) *:||$ 96.30|
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