Tip Credit and Tip Pooling Laws

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Tip Credit and Tip Pooling Laws

Working for a restaurant (or other job where your primary income is earned in tips) can raise questions about the types of income rights you have and the extent to which your employer is permitted to manage your tips.

This guide will help answer some common legal questions that arise with tipped income in the service industry.

Tip Credits and Minimum Wage

Depending on which state you live in, your employer may be allowed to pay you less than minimum wage, as long as you are still earning at least minimum wage with tips. This is called a "tip credit" because the amount you earn in tips is credited toward the calculation of your overall wage.

Tip Pooling

Many restaurants have tip-pooling systems where servers must tip-out bartenders, bussers, hosts, and other restaurant employees. They may even require that all bartenders or servers on the floor split their tips evenly amongst themselves.

While these tip pooling systems may decrease the amount of tips you take home, they are generally legal so long as the tip pooling system is fair, and only employees involved in the "chain of service" receive tips. However, your employer is never allowed to receive any portion of your tips, and in some states managers and supervisors are also prohibited from participating in the tip-pool.

Tip Deductions

In some instances, your restaurant employer may attempt to dock your pay or seize a portion of your tips for other reasons, such as:

Here, while this may seem unfair, depending on the state you live in, this may be permissible so long as the pay-docking does not deplete your income below minimum wage.

However, in other states, such as California, this type of pay-docking is unlawful unless the employer can show that the employee acted dishonestly, willfully, or in a grossly negligent manner. Still, although pay-docking in these situations may be impermissible, employers are still allowed to discipline employees for mistakes.

Tip Payment

When a restaurant server is paid tips on customer credit cards, the employer must pay the server those tip amounts in full by the next scheduled pay-day. However, depending on the state, the employer may be permitted to decrease the credit card tip amounts by whatever percentage the credit card company charges for its service.

Contacting an Attorney

If you believe your restaurant employer is handling your wages unlawfully, you should contact an experienced attorney to find out if you are entitled to back-pay or other legal relief.

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Last Modified: 12-13-2013 04:23 PM PST

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