The wage and hour laws are outdated and compliance is exceedingly difficult in light of the way in which most hotels and restaurants are required to operate. But, you already knew these facts. Recent tip credit and tip pooling cases continue to highlight the problems and we will be addressing tipped employee issues in this and future editions of the Hospitality eAuthority.

A “tipped employee” is one who routinely earns more than $30 in tips each month. That employee’s tips may lawfully be counted as part of the hourly wage paid by the employer. The difference between the minimum hourly wage and the amount paid directly to a tipped employee is referred to as the “tip credit.”  An employer may claim the tip credit for hours worked by an employee in an occupation in which the individual qualifies as a tipped employee.

When does an employee who handles many duties, some of which do not generate tips, cease to be a tipped employee? Unfortunately, there is no bright-line rule. A waiter who also cleans the coffee pots as part of his closing duties at the end of a shift presents a relatively easy circumstance. That individual remains a tipped employee. Cleaning the coffee pot is incidental to tipped duties. Also relatively straightforward is the situation of the waiter who changes uniforms and works as a maintenance employee for part of the day. The time spent in maintenance is not hours worked as a tipped employee and the full minimum wage must be paid. No tip credit applies. Likewise, the tip credit generally cannot be used when employees are required to attend non-tipped activities such as staff meetings and training sessions. Circumstances that lie in the middle of these scenarios can be more difficult. For example, consider a lead bartender who spends much of his or her time managing the inventory and equipment rather than making or serving drinks. The inventory work is not necessarily tip-producing. In a similar vein, a normally tipped employee who is assigned to primarily perform preparation work during a busy shift (such as garnishing and preparing salads) is not necessarily engaged in tip-producing work. 

Many hotels and restaurants are facing these challenges, and others, to the application of the tip credit to their employees. The Department of Labor has recently added over 600 investigators to its ranks who consider the tip credit a red flag issue, and counsel for employees are salivating at the prospect of pursuing class actions intended to recover the full minimum hourly wage (without the tip credit) by arguing certain workers are not really tipped employees. Prudent employers will plan for these challenges and provide guidance to their outlets on the limits of what constitutes work as a tipped employee. 

Note: This article was published in the October 2009 issue of the Hospitality eAuthority.

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