Many service employees, like wait staff, bartenders, and valets are customarily “tipped” for their services by the customers they serve. Since tipping is a unique income area, it has special rules, and servers should know these rules and their rights to ensure fair treatment by employers.

WORKER RIGHTS REGARDING SERVER TIPS AND WAGES

Under the law, the tip belongs to the employee. Federal and state law governs how the employer counts the tip toward the employee’s minimum wage.

Tipped employees are those who customarily and regularly receive more than $30 per month in tips. The employer may not use an employee’s tip for any reason other than as a credit against its minimum wage obligation to the employee (called a “tip credit”), or as a part of a legitimate tip pool (discussed below). An employer may only count tips actually received by the employee in a) determining the employee is a tipped employee, and b) applying the tip credit.

“TIP CREDIT” REGULATIONS

Under Wisconsin and federal law, a “tip credit” is the amount an employer is allowed to apply toward its minimum wage obligation. In other words, employers can use the amount of the tips actually received by the employee as an offset to the total amount due in wages to the employee under the minimum wage law, but with a minimum wage cash payment. The required minimum cash wage from the employer is $2.33 per hour under Wisconsin law. The current minimum wage is $7.25 per hour. Thus, the most tip credit an employer can legally take is $4.92 per hour ($7.25 minus $2.33), and, again, the tip credit can only be based on tips actually received by the employee. If the employee’s actual tips plus the minimum payment ($2.33) do not come up to minimum wage, the employer has to make up the difference.

An employer must provide the following information to the employee before the employer may use the tip credit:

1. The amount of the cash wage the employer is paying the employee, which cannot be less than $2.33 in Wisconsin ($2.13 under federal law, though other states may also have laws that require a higher minimum);

2. The additional amount that the employer is claiming as a tip credit, which can’t be more than $4.92 in Wisconsin (the difference between the minimum cash wage and the current minimum wage);

3. Importantly, the tip credit claimed by the employer can’t be more than the tips actually received by the employee;

4. All tips received by a tipped employee belong to that employee, who is entitled to keep them (except in a tip pooling scenario, see below); and

5. The employer cannot apply a tip credit to an employee’s wages unless the employee has been informed in advance of this tip credit rules.

If an employer does not provide either written or verbal notice to tipped employees of these rules, it cannot use tip credits and has to pay the employee the full minimum wage, and the employee has the right to keep all of his or her tips.

Remember – tips are the sole property of the tipped employee. The employer is not allowed to require the employee to turn over any of his or her tips (but see tip pooling, below).

TIP POOLING: SPECIAL RULES APPLY TO TIP POOL ARRANGEMENTS

In some establishments, the workers pool some of their tips so that, for example, bus boys who would not otherwise receive tips can share in server tips given by the customers. Those sharing in the tips must be employees who customarily and regularly receive tips (e.g. not dishwashers or cooks), and in no event may include management employees. In a valid tip pool arrangement, tipped employees may be required to chip in a portion of their tips, which are then divided among the group of employees legitimately a part of the pool. The percentage of server tips required to be contributed to the tip pool is based on what is “customary and reasonable.” The employee must be able to keep at least the full minimum wage, meaning the employer cannot require the employee to contribute any of the amount the employer is applying to the tip credit for the employee. The law does require the employer to notify tipped employees of any required tip pool contribution amount, and may only take a credit for the amount each employee actually ultimately receives from the pool. The employer cannot keep any money in the tip pool for any purpose other than to distribute it as agreed to the pooled employees.

FINAL NOTE: CREDIT CARD CHARGES FOR TIPS

When credit cards are charged, the employer pays the credit card company a percentage, (e.g. 3% on all sales charged). When tips are added to the credit card charge, an employer can pay the tipped employee the tip minus the percentage of the tip that goes to the credit card company (e.g. 97%). This charge on the tip may not, however, reduce the employee’s wage below the required minimum wage. Server tips must be paid no later than the regular payday; the employer cannot wait to be reimbursed by the credit card company before reimbursing the tip to the employee.

Note that there are additional rules that apply to employees under 18 that are not discussed above. The foregoing is not meant as specific legal advice, but as a general statement of law for your information.

If you receive server tips and have specific questions regarding your wages, tip pooling, or credit card tips, please contact the Wage and Hour attorneys at Hawks Quindel to learn more about the law, your rights, and your options. Call us for a free consultation at our Milwaukee (414-271-8650) or Madison (608-257-0040) offices, or email us.

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