South Carolina Tip Pooling Lawyers
Tip pooling is a practice that is common in the restaurant industry, but the use of tip pooling varies from establishment to establishment. Some restaurants require front of the house staff to pool tips to ensure all employees are compensated fairly, but others simply leave tipped employees to rely only on the tips they receive.
In 2011, the United States Department of Labor (DOL) announced Fair Labor Standards Act (FLSA) regulations extending protections to tip income, but the result led to a difference of opinion in federal courts. While United States Court of Appeals for the Fourth Circuit (which has jurisdiction over South Carolina as well as Maryland, West Virginia, North Carolina, and Virginia), Tenth Circuit, and Eleventh Circuit all rejected DOL regulations and ruled employers could require tip sharing so long as they pay full minimum wage, the United States Court of Appeals for the Ninth Circuit held that tip sharing was prohibited.
The Tip Income Protection (TIP) Act of 2018 was intended to resolve the issues with 2011 regulations by rolling them back. The Act allowed for more employees to be included in tip pools, but strictly prohibited employers from collecting tips of employees.
If you think that your employer has not been fairly managing your tip pool and you are not receiving the wages to which you are entitled, you will want to retain legal counsel right away. Make sure that you contact Law Office of William J. Luse.
Our employment law firm serves clients in Myrtle Beach, North Myrtle Beach, Surfside Beach, Socastee, Conway, and Little River as well as other communities in Georgetown County and Marion County. Call (843) 839-4795 or contact us online to schedule a consultation.
Federal Tip Pooling Laws
The DOL states that tipped employees are employees who regularly and customarily receive over $30 in tips a month, and an employer is prohibited from using an employee’s tips for any reason other than as a credit against its minimum wage obligation to the employee (“tip credit”) or in furtherance of a valid tip pool. Only the tips an employee actually receives can be counted in determining whether they are a tipped employee and in applying for the tip credit.
The DOL states that FLSA § 3(m) allows an employer to take a tip credit toward its minimum wage obligation for tipped employees equal to the difference between the required cash wage (at least $2.13) and the federal minimum wage. Because the minimum wage of $7.25 less the minimum required cash wage of $2.13 is $5.12, that is the maximum tip credit an employer can claim, although an employer could claim additional overtime tip credits against overtime obligations in some cases.
Before an employer can use a FLSA § 3(m) tip credit, they must provide the following information to a tipped employee:
- the amount of cash wage the employer is paying a tipped employee (at least $2.13 per hour)
- the additional amount claimed by the employer as a tip credit, which cannot be more than $5.12
- that the tip credit claimed by the employer cannot be more than the amount of tips actually received by the tipped employee
- that all tips received by the tipped employee are to be retained by the employee except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips
- that the tip credit will not apply to any tipped employee unless the employee has been informed of these tip credit provisions
When an employer fails to provide the required information, they cannot use the FLSA § 3(m) tip credit and must pay the tipped employee at least $7.25 per hour in wages while allowing them to keep all the tips they receive. Employers who use the tip credit provision must be able to prove that tipped employees received at least the minimum wage when direct (or cash) wages and the tip credit amounts were combined, and an employer must make up the difference when they do not satisfy the minimums.
Tips are the sole property of tipped employees regardless of whether the employer takes a tip credit, and the FLSA prohibits any arrangement in which any part of a tip received becomes the property of the employer. When it comes to tip pooling, FLSA does not impose a maximum contribution amount or percentage on valid mandatory tip pools.
An employer must notify tipped employees of any required tip pool contribution amount. The employer can only take a tip credit for the amount of tips each tipped employee ultimately receives and they cannot retain any tips for any other purpose.
Starbucks was ordered to pay $105 million in 2018 to a group of baristas who filed a class-action lawsuit. The San Diego Superior Court said employers were prohibited under state law from taking the tips of employees.
It is also important to understand that a compulsory charge for a service, such as an automatic 15 percent addition to the bill, is not considered a tip. The amounts distributed to employees from service charges cannot be counted as tips received but can be used to satisfy the employer’s minimum wage and overtime obligations.
Another important exception concerns credit cards. The DOL states that tips charged on credit cards for which the employer must pay the credit card company a percentage on each sale can allow the employer to pay the employee the tip less the percentage charged.
The DOL states that some of the most common problems are minimum wage issues, such as an employee not receiving sufficient tips to make up the difference between the direct (or cash) wage and minimum wage. The employer must make up the difference in such cases.
If an employee receives tips only but is not paid a cash wage, the full minimum wage will be owed. The DOL also notes that deductions for walk-outs, breakage, or cash register shortages are illegal when the deductions reduce the tipped employee’s wages below the minimum wage.
Overtime pay can also be a common issue because overtime must be calculated on the full minimum wage, not the lower direct (or cash) wage, when the employer takes a tip credit. Instances of overtime not being paid based on the regular rate are common.
The South Carolina Department of Labor, Licensing, and Regulation states that it investigated 1,563 wage complaints in the fiscal year 2018. That same year saw 1,122 violations cited, 634 warnings issued, and 583 citations issues. There were $685,402 in wages paid in violations to employees.
The Tip Income Protection (TIP) Act of 2018
The TIP Act of 2018 was signed into law on March 23, 2018, and amended FLSA to roll back 2011 DOL regulations on tip pools. Under the Act, employees who do not typically receive tips can participate in tip pools as long as the employer does not take a tip credit.
Covered employees include several back of the house employees such as chefs, line cooks, busboys, and janitors. The TIP Act makes it explicitly clear that tips belong to employees, employers cannot keep tips received by employees for any purpose.
Whereas FLSA § 203(m) had previously restricted tip pools only to employees who “customarily and regularly” receive tips, the new rules under the TIP Act allow for employees who do not normally receive tips to participate in tip pools when employers are paying the full minimum wage and not taking tip credits. Tip pool violation penalties may include the amount of tip credits taken, amount of wages withheld, and liquidated damages as well as civil penalties of $1,100 per violation from the Secretary of Labor.
One of the main concerns with the TIP Act has been who is considered a manager and who is considered a supervisor. The DOL states that it defines supervisor and manager by using the executive employee overtime exemption criteria set forth in 29 Code of Federal Regulations (CFR) § 541.100(a)(2)-(4), which means a supervisor or manager must satisfy the following criteria:
- Primary duty is the management of the employment enterprise
- Regularly directs the work of two or more other employees
- Authority to hire or fire other employees or whose opinions on change of status of other employees are given particular weight
The current DOL definition of manager or supervisor is based on individuals with management duties, but there remain questions about whether hourly paid, non-exempt supervisors would be prohibited from keeping tip income.
Contact a Tip Pooling Attorney Today
Do you believe that you are not receiving all of the tips you are entitled to from a tip pool you are required to participate in? You could be entitled to many kinds of lost wages and other damages, so make sure you contact an experienced lawyer as soon as possible.
Law Office of William J. Luse can fight to make sure you get every dollar you are owed. We can examine your case as soon as you call (843) 839-4795 or contact us online to receive a consultation.