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The Tip Credit How Tipped Employees Are Often Cheated Out of Wages

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Employees who rely on tips to make a living work extremely hard, whether they are waiters, busboys, bartenders, or valets. They've come to accept that making a live wage hinges on whether or not customers choose to tip them well, but that is not how it needs to be. In fact, many tipped employees are being cheated out of money they are due because they do not know about the tip credit.

If you regularly receive more than $30 per month in tips, you are considered to be a tipped employee. Those tips are yours to keep, but they also mean your employer can take a tip credit. He has to pay you the required cash wage of at least $2.13 an hour, but he can claim up to $5.12 per hour as a tip credit in order to meet the minimum wage requirement of $7.25. Applying the credit means your employer expects you will receive at least $5.12 an hour in tips from customers. This in itself is perfectly legal, but your employer also has to provide you with certain information before paying you in this way.

Your employer must provide oral or written notice to you about the following five things. If he does not provide all of the required information about the tip credit, you could hold him liable for unpaid wages. This means you would be paid the minimum wage of $7.25 per hour, plus keep all of the tips you've received. The five items your employer must notify you about are:

  1. The amount of cash wage he is paying you, which must be at least $2.13 an hour.
  2. The additional amount he is claiming as a tip credit, which cannot exceed $5.12 per hour.
  3. The tip credit he is claiming cannot exceed the amount of tips you actually receive.
  4. The tips you receive are to be retained by you, except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips.
  5. The tip credit will not apply to any tipped employee unless you have been informed of these tip credit provisions.


What if your employer using the tip credit but failed to tell you about it? In that case, you may be able to collect lost wages because of his omission. Contact the Indiana unpaid wage attorneys at The Law Office of Robert J. Hunt, LLC for a free consultation.

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