{3:00 minutes to read} It is critical that restaurants make sure that owners (or managers with significant supervisory authority) do not participate in tip pooling and tip sharing arrangements. There have been significant penalties assessed against establishments that have run afoul of this rule. An East Coast restaurant chain was fined by the Department of Labor for employers illegally retained a portion of employee tips and for failing to properly pay minimum wage, overtime, and other required income. They paid a settlement of $6.8 million to over 1,100 employees.
Supervisors
Supervisory authority includes responsibility for making, or having input regarding:
- Hiring and firing decisions
- Assigning shifts to workers
- Evaluating employee performance
An employee designated as a supervisor, who does not have the aforementioned authority and who performs the same functions as tipped employees, can receive tips.
Tip Sharing & Negligence
It is also illegal to force tipped employees to share their tips with non-tipped employees, such as cooks, janitors, managers, or the employer. In addition, it is illegal to deduct pay from employees for customers who skip out on their bill, breakages, and cash register shortages, even if any of these situations is caused by the employee’s negligence.
Service Charges vs Gratuity
In some restaurants, there is a policy of imposing a service charge, which is an automatic gratuity (usually 18% or more) attached to large dining parties. In order for a service charge to not be construed as a tip, the employer must give the customer advance notice that a charge is not a gratuity or tip and that the notification is sufficient to ensure that a reasonable customer would understand such charge was not purported to be a gratuity.
No Tipping Policy
Some restaurants are adopting a “no tipping” policy and instead raising prices. Those restaurants will obviously not be subject to tip credits and must pay employee minimum wage and pay overtime for all hours over forty per week.
A regional solicitor from the US Department of Labor recently stated: “Restaurant workers are among those in our economy who are most vulnerable to wage violations, and we are committed to pursuing remedies vigorously on their behalf whenever necessary.“
As it is clear that the government is committed to aggressive enforcement of any perceived violations, restaurant owners must make sure that they understand the wage and hour regulations governing their business, and commit themselves to maintaining strict compliance with these rules.
Alan Krystal
Alan H. Krystal, P.C.
631 780 6555
Alan@alankrystallaw.com