Tips and Tip Sharing
An employer cannot use tips (e.g., gratuities) that employees receive towards payment of minimum wage. In addition, an employer cannot require an employee to share tips with the employer or other employees. Nor can an employer require that an employee contribute any or all of the tips received into a fund or pool operated for the benefit of the employer or the employees. However, an employee can voluntarily share tips with other employees. If an employee voluntarily shares tips with other employees, who are indirect services employees (e.g., bus people, dishwashers, cooks or hosts), the voluntary tips that were received cannot be considered in calculation of wages for the indirect services employees. In addition, if one or more employees provides direct services to the same customer(s), then dividing the gratuity amongst those employees is not considered a violation of the prohibition against tip sharing.
If a customer provides a tip through a credit or charge card, the direct services employee must be provided the full amount of the tip, but the employer can deduct the credit card service charge in the same ratio as the percentage deducted from the total bill. Even so, the employer cannot pay wages to an employee that are less than minimum wage. Therefore, if you are an employer who deducts the service charge, you could run afoul of minimum wage laws.
Employees who receive more than $20 in tips in any month in tips must report those tips to the employer. The employer must deduct the applicable taxes from those reported tips.
Spangler and de Stefano, PLLP assists business owners with ensuring compliance with wage and hour laws.
The material contained herein is for informational purposes only, and is not intended to create or constitute an attorney-client relationship between Spangler and de Stefano, PLLP and the reader. The information contained herein is not offered as legal advice and should not be construed as legal advice.