How to Steer Clear of a Tip-related Wage Violation – and a Lawsuit

Posted by Noff Colabella on Mon, Jun 19, 2017 @ 05:00 PM

tip-related-wage-violationWhen it comes to litigation, restaurants have been on the chopping block lately – specifically, their owners and managers. The issue at hand? Wage violations stemming from improper tipping practices.

This June, six people who work at the Founding Farmers restaurants in Washington, D.C. filed a lawsuit alleging that bartenders and servers were paid tipped minimum wage (between $2-4 an hour in the area) "when performing tasks that were not part of their tipped duties," among other complaints.

More recently in Ohio, Athens Buffalo Wild Wings found a class-action lawsuit on its plate for similar reasons: the company that owns the store "violated the Fair Labor Standards Act (FLSA) in at least four ways, largely relating to its tipped employees allegedly performing 'non-tipped' work and not being paid appropriately" for that.

Meanwhile, 17 Houlian's restaurants operating in New Jersey and New York were sued for "pervasive skimming from employees' tips and wages," according to the U.S. Department of Labor. If the lawsuit achieves its goals, it could recover millions of dollars in back wages, tips and liquidated damages touching on over 1,400 employees.

The rules on tipped minimum wages

Tipped wages are nothing new. When employees are expected to receive a significant portion of their income - over $30 a month, to be precise - through tips, it's normal for employers to pay a reduced minimum wage. But if an employee doesn't bring in enough tips to earn the normal, non-tipped minimum wage, it's up to their employer to supplement their wage to fill that gap. Of course, it's also the employer's duty to pay employees the full minimum wage whenever they're performing tasks that aren't tipped.

In some cases, tips are distributed to multiple employees through a tip pool; however, only those who regularly receive tips for their work can participate. In other words, "dishwashers, managers, cooks and chefs" are not legally eligible to join the pool, Food & Beverage Magazine said. If they do, tipped employees may rightly claim that these others are diluting the pool, and that as a result, they're "losing a portion of their hard-earned tips that would ordinarily only belong to them."

Who's to blame when litigation strikes?

When lawsuits like this come home to roost, it's not uncommon for restaurant owners and managers to be named as defendants. Let's make sure that doesn't happen to you. Here are a few rules to help you steer clear of a litigious mess.

  1. restaurant-risk-managementIf you take a tip credit - which allows you to pay employees a lower minimum wage based - make sure your policies are in writing, and that your employees are well informed.
  2. Taking a tip credit puts the onus on you to make sure that the income your tipped employees bring in is equivalent to the legal minimum wage. If they aren't getting that much in tips, you'll have to supplement it. That means keeping a close eye on your numbers for compensation and tip distribution.
  3. If employees who are paid a tipped minimum wage perform non-tipped tasks during their shifts, make sure those tasks are directly related to their tipped duties, and that they're spending no more than 20 percent of their time on them. How to know? Keep records. And keep their non-tipped work to a minimum.
  4. Never let non-tipped workers participate in a tip pool.
  5. Find ways to show your employees that you're on their side. Act with integrity, be transparent, watch out for their interests, and treat them with respect. By doing so, you make them less likely to take you to court if something goes wrong.

For information on rules regarding tip-related wage violations, look at this fact sheet from the U.S. Department of Labor. For the coverage to protect you if something goes wrong, look to us.

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