Restaurant servers and tipped employees in Indianapolis and across the United States often are not paid correctly under the Fair Labor Standards Act (“FLSA”). The FLSA contains a specific set of rules and regulations for the calculation of minimum wages and overtime pay for tipped employees. Tipped employees are employees who “customarily and regularly” receive tips, such as waiters, waitresses, bellhops, counter personnel who serve customers, bussers and service bartenders. Under the FLSA, employees such as dishwashers, cooks, chefs and janitors are not considered tipped employees.
If you are a restaurant worker or tipped employee, contact the Indiana employment lawyers at The Law Office of Robert J. Hunt, LLC for a free confidential review and evaluation of your employer’s pay practices. Contact us at 317-743-0614.
Typical Wage Problems For Servers and Tipped Employees
Minimum Wage Problems:
- If an employee does not receive sufficient tips to make up the difference between the hourly rate paid by the employer (which must be at least $2.13 per hour) and the federal minimum wage (which is $7.25 per hours, the employer must make up the difference.
- If an employee receives tips only and is paid no wages by the employer, the employer must pay at least the minimum wage.
- Wage deductions for walk-outs, breakage, or cash register shortages cannot reduce the employee’s wages below the minimum wage. Where a tipped employee is paid $2.13 per hour in wages and the employer claims the maximum tip credit of $5.12 per hour, the employer is prohibited from making deductions. State laws, including those in Indiana, may also prohibit wage deductions for walk-outs, breakage and shortages.
- If a tipped employee is required to contribute to a tip pool that includes employees who do not customarily receive tips, the employee is owed all tips he or she contributed to the pool and the full $7.25 minimum wage.
- If an employer takes the tip credit, overtime is calculated on the full minimum wage, not the lower cash payment of $2.13 per hour. Restaurants and other employers of tipped employees often assume they can satisfy overtime requirements by paying $3.20 per hour($2.13 x 1.5) to tipped employees for hours per week in excess of 40. The correct calculation is as follows:
- Federal Minimum Wage $7.25
- Rate for Hours in excess of 40 x 1.5
- Less “tip credit”
- ($7.25 less $2.13 per hour) ($5.12)
- Required wage for hours over 40 $5.76
Tip Credit: Section 3(m) of the FLSA permits an employer to take a tip credit towards its minimum wage obligation for tipped employees equal to the difference between the required cash wage (which must be at least $2.13 per hour under federal law) and the federal minimum wage.
Employers who wish to use the tip credit must provide the following information to a tipped employee:
- the amount of cash wage the employer is paying a tipped employee, which must be at least $2.13 per hour. (Some states require a higher hourly cash wage);
- the additional amount claimed by the employer as a tip credit, which cannot exceed $5.12 (the difference between the minimum required cash wage of $2.13 and the current minimum wage of $7.25);
- that the tip credit claimed by the employer cannot exceed 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; and
- that the tip credit will not apply to any tipped employee unless the employee has been informed of these tip credit provisions.
The employer may provide oral or written notice to its tipped employees informing them of items 1 – 5 above. An employer who fails to provide the required information cannot use the tip credit provisions and therefore must pay the tipped employee at least $7.25 per hour in wages and allow the tipped employee to keep all tips received.
Tip Pooling: Tips are the property of the employee. Employers are prohibited from using an employee’s tips for any reason other than as a credit against its minimum wage obligation to the employee (the “tip credit” described above) or in furtherance of a valid tip pool or sharing arrangement among other employees who customarily and regularly receive tips. The FLSA does not impose a maximum contribution amount or percentage on valid mandatory tip pools. The employer, however, must notify tipped employees of any required tip pool contribution amount, may only take a tip credit for the amount of tips each tipped employee ultimately receives, and may not retain any of the employees’ tips for any other purpose.
Retention of Tips: Tips are the sole property of the tipped employee regardless of whether the employer takes a tip credit. The FLSA prohibits any arrangement between the employer and the tipped employee whereby any part of the tip received becomes the property of the employer. Employers are not permitted to require employees to turn over their tips to the employer.
Dual Jobs: When an employee is employed by one employer in both a tipped and a non-tipped occupation, such an employee employed both as a dishwasher and a waitperson, the tip credit is available only for the hours spent by the employee in the tipped occupation. The FLSA permits an employer to take the tip credit for the hours spent by the employee in the tipped occupation. The FLSA permits an employer to take the tip credit for some time that the tipped employee spends in duties related to the tipped occupation, even though such duties are not by themselves directed toward producing tips. For example, a waitperson who spends some time cleaning and setting tables, making coffee, and occasionally washing dishes or glasses is considered to be engaged in a tipped occupation even though those duties are not tip producing. However, where a tipped employee spends a substantial amount of time (in excess of 20 percent of the workweek) performing related duties, no tip credit may be taken for the time spent performing those duties.
Service Charges: A compulsory charge for service, for example, 15 percent of the bill, is not a tip. This type of charge is part of the employer’s gross receipts. Sums distributed to employees from service charges cannot be counted as tips received, but may be used to satisfy the employer’s minimum wage and overtime obligations under the FLSA. If an employee receives tips in addition to the compulsory service charge, those tips may be considered in determining whether the employee is a tipped employee and the in the application of the tip credit.
Credit Cards: Where tips are charged on a credit card and the employer must pay the credit card company a percentage of each sale, the employer may pay the employee the tip, less that percentage. For example, where a credit card company charges an employer 3 percent on all sales charged to its credit service, the employer may pay the tipped employee 97 percent of the tips without violating the FLSA. However, this charge on the tip may not reduce the employee’s wage below the required minimum wage. The amount due the employee must be paid no later than the regular pay day and may not be held while the employer is awaiting reimbursement from the credit card company.
The Law Office of Robert J. Hunt, LLC represents employees throughout the United States. Contact us at 317-743-0614. The majority of overtime and minimum wage lawsuits we accept are filed in federal courts.
For Indiana employees, The Law Office of Robert J. Hunt, LLC can file overtime lawsuits in either the United States District Court for the Northern District of Indiana or the United States District Court for the Southern District of Indiana. The location is determined by where you work or where the company is headquartered.
The United States District Court for the Northern District of Indiana has courts located in Fort Wayne, Hammond, Lafayette and South Bend. The Fort Wayne Division includes the following counties: Adams County, Allen County, Blackford County, DeKalb County, Grant County, Huntington County, Jay County, LaGrange County, Noble County, Steuben County, Wells County, and Whitley County. The Hammond division includes Lake County and Porter County. The LaFayette division includes Benton County, Carroll County, Jasper County, Newton County, Tippecanoe County, Warren County and White County. The South Bend Division includes Cass County, Elkhart County, Fulton County, Kosciusko County, LaPorte County, Marshall County, Miami County, Pulaski County, St. Joseph County, Starke County, and Wabash County.
The United States District Court for the Southern District of Indiana has courts located in Indianapolis, Terre Haute, Evansville, and New Albany. The Indianapolis division includes the following counties: Bartholomew County, Boone County, Brown County, Clinton County, Decatur County, Delaware County, Fayette County, Fountain County, Franklin County, Hamilton County, Hancock County, Hendricks County, Henry County, Howard County, Johnson County, Madison County, Marion County, Monroe County, Montgomery County, Morgan County, Randolph County, Rush County, Shelby County, Tipton County, Union County and Wayne County. The Terre Haute divisions includes the following counties: Clay County, Green County, Knox County, Owen County, Parke County, Putnam County, Sullivan County, Vermillion County and Vigo County. The Evansville division includes the following counties: Daviess County, Dubois County, Gibson County, Martin County, Perry County, Pike County, Posey County, Spencer County, Vanderburgh County and Warrick County. The New Albany division includes the following counties: Clark County, Crawford County, Dearborn County, Floyd County, Harrison County, Jackson County, Jefferson County, Jennings County, Lawrence County, Ohio County, Orange County, Ripley County, Scott County, Switzerland County and Washington County.