Tipped Employees

Martin & Martin, Atlanta, Georgia tipped employee wage law firm, routinely handles wage violation cases on behalf of tipped employees. Previously given the nickname “the Buckhead Tip Pool Attorneys” from a group of clients based on the firm’s representation of a number of tipped employees against several well-known Buckhead restaurants, Atlanta overtime attorneys, Kimberly Martin and Tom Martin, are proud to fight in the best interests of their tipped employee clients who are paid less than minimum wage and forced to turn over a portion of their tips to their employer in illegal tip pool schemes in violation of the Fair Labor Standards Act (FLSA). While most tipped employee wage cases in the news involve restaurant employees, i.e., servers, bartenders, bussers, and hosts/hostesses, the federal tipped employee regulations apply to all tipped employees receiving less than minimum wage as their hourly wage, not just restaurant employees.

Under section 203(m) of the FLSA regulations, employers are permitted to take what’s called a “tip credit” on wages for tipped employees, which permits them to compensate tipped employees less than minimum wage - typically $2.13 per hour - so long as the employee’s combined wages and tip income meets or exceeds the minimum wage. This means that at the end of each workweek, the total amount the employee received in tips plus $2.13 per hour must meet or exceed $7.25 per hour. Additionally, the employee must be permitted to retain all tips they received from customers with the exception of requiring the employee to participate in a valid, legal “tip pool.”

The FLSA regulations require that employers provide notice to its tipped employees of its intent to take the tip credit. Typically, this notice is provided to new employees during the onboarding process.

Under the FLSA, the term “tip pool” is used to describe the circumstance whereby an employer requires its tipped employees to contribute a portion of their tips to be distributed to other employees. Typically, an employer will require the tipped employees to turn in a percentage of their tips at the end of a shift. The employer “pools” this money together and distributes it to other employees who “customarily and regularly” receive tips. This includes bartenders, barbacks, runners, bussers, and hosts/hostesses. It does not include managerial/supervisory staff or back of house staff like cooks or dishwashers.

If an employer violates the FLSA by using the tip pool money for management employees, back of house employees, to bring other employees up to minimum wage, or simply keeps the money for the company, the employer loses the tip credit.

If an employer loses the tip credit it means that all employees who were paid less than minimum wage who participated in the tip pool are entitled to minimum wage for all hours worked for the previous two years or in cases of willful violations, three years. For example:

If a restaurant takes a tip credit and compensates its tipped employees $2.13 per hour, but, is later found to have violated the tip pool regulations, the restaurant owes the tipped employees the difference between $2.13 per hour and minimum wage ($7.25). This means that the restaurant owes the employee $5.12 per hour for every hour they worked for at least the last two years.

If the employer pays all tipped employees at least $7.25 per hour, then it may require tipped employees to contribute tips to a tip pool and the tip pool money may be distributed to employees who do not “customarily and regularly” receive tips, including the cooks, dishwasher, etc. However, managers and supervisors are still prohibited from receiving tips from the tip pool.

Some companies deduct a percentage of credit card sales or tips and tells its tipped employees that the deduction is to cover the credit card processing fees. However, as always, there are rules dictating how much employers may deduct from the pay of tipped employees for credit card processing fees.

First, the percentage deducted must be equal to the processing fees charged by the credit card companies. The employer must prove that its deductions from employees’ tipped income matches the amount charged by the credit card companies. It has been the experience of Atlanta overtime attorneys at Martin & Martin that the percentage charged by credit card companies is usually 2% or less. It is the employer’s burden to produce its contracts with the credit card companies to disclose its credit card procession fee requirements. Thus, a restaurant that has contracts with credit card companies requiring it to pay 2% of their credit card sales as credit card processing fees may not charge its servers more than 2% of their credit card tips.

Second, companies may only charge its tipped employees a percentage of the tipped employees’ credit card tips – not a percentage of total sales.

For example, a restaurant with a 2% contract with a credit card company violates the tip credit regulations if it charges a server 2% of the server’s sales as opposed to the server’s tips. Therefore, if a server has $100 in credit card sales and $20 in credit card tips, the restaurant may only take 2% of the $20 credit card tips – not 2% of the $100 credit card sales.

If an employer violates these regulations, it means that the employer loses the tip credit and must then compensate its employees the difference between what it paid them, usually $2.13 per hour, and minimum wage for every hour worked in the previous two years and in some cases, the previous three years.

Under the FLSA, if an employer violates the tip pool regulations and therefore, loses the right to the tip credit, the employer must pay all tipped employees the difference between what they were paid ($2.13 per hour) and minimum wage ($7.25 per hour) for every hour each employee worked for a two-year time period. In some cases, a court permits an employee to recover for a three-year time period.

Additionally, successful tipped employees are entitled to liquidated damages which are also called “double damages” because it doubles the amount of the unpaid wages. This means that if the employee is entitled to $3,000 in damages, the Court will order the employer to pay the employee an additional $3,000 in liquidated damages. Furthermore, if an employee is successful in the recovery of their unpaid wages, the Court will order the employer pay for the employee’s attorney’s fees and litigation costs.

1. How much were you paid per hour not including tips? $2.13 per hour or at least $7.25 per hour;
2. What amount did the employer require the you to contribute to the tip pool each shift;
3. Did the employer deduct a percentage for credit card fees and if so, how much? Is this the same percentage as the actual credit card processing fee or higher;
4. Did the employer deduct the credit card fees on total sales or total tips paid by credit card;
5. How does the employer distribute the pooled tips? Does it distribute the pooled tips to back of house staff, cooks, or dishwashers? Does it distribute the pooled tips to managers, supervisors, or to the company itself; and
6. If the employer did violate the FLSA tip pool regulations and lose the right to the tip credit, how much is each employee entitled to recover? (How many hours did each tipped employee work for a two-year time period? Three-year time period?)

The tipped employee attorneys at Martin & Martin routinely successfully handle tip pool cases on behalf of tipped employees who were not permitted to retain all of their tips and were required to participate in an illegal tip pool and/or required to pay a higher percentage in credit card processing fess or required to pay credit card processing fees on all sales – not all tips.

Overtime attorneys in Atlanta, Tom Martin and Kimberly Martin, are warriors on behalf of their tipped employee clients because they know how hard their clients work for their wages and tips. In response, the overtime law firm fights for all unpaid wages as well as liquidated damages (“double damages”) permitted under the FLSA. This means if an employee recovers $5,000 in unpaid wages, they may be entitled to an additional $5,000 in liquidated damages. Additionally, the FLSA provides an attorney’s fees and litigation costs recovery regulation. This means that if successful, Martin & Martin typically recovers all of their attorneys’ fees and litigation costs from the employer – not their clients.

If you are or were a tipped employee, Atlanta overtime attorneys, Kimberly Martin and Tom Martin, would be honored to speak with you about your case. You can contact the firm through Contact Us page or call the firm directly. They are typically available to respond to questions the same day.

For more information about the FLSA and tipped employees, see the law firm’s Overtime Blog and FLSA Frequently Asked Questions.