With more legal action being taken regarding employee remuneration lately, tips for employees like waitstaff are being scrutinized more closely these days.

Truly, laws governing tips are somewhat obscure. Many businesses realize only after discussing a pending suit with counsel that their tipping or tip pooling policies are illegal. Worse, regardless of intent, businesses found to be in violation of the Fair Labor Standards Act regarding tipping policies are penalized by paying double back wages for a 2-year and sometimes 3-year period.

A recent third-party whitepaper by Epstein Becker Green P.C. discusses implications of tip tracking as it pertains to the Fair Labor Standards Act. If you have any questions regarding tip tracking after reading this article, you should definitely give the article a close read.

Tip Tracking Basics

Employees who earn tips typically work for $2.13 an hour. The employer then applies for a “tip credit” when reporting earnings and taxes that compensates for the extra $5.12 to achieve the minimum wage of $7.25.

In order to be eligible to apply a tip credit toward an employee’s work, the employee must:

• work a position where he or she customarily and regularly receive over $30 / month in tips
• be informed that a tip credit will be applied toward wages earned
• retain all tips received except for tips contributed to other customarily and regularly tipped employees via an appropriate tip-pooling arrangement

Record-Keeping Requirements

In addition to the data required under the normal provisions of the Fair Labor Standards Act, employers must also maintain records regarding the following information for tip-earning employees:

• Tip-earning employees’ records must have a special symbol or letter to designate their status as a tip-earner.
• The tips reported to the employer by the employee must be tracked weekly or monthly.
• The amount of tip credits attributed to each employee for each pay period.
• The amount of hours worked each day for tip-earning employees. The total daily or weekly straight-time remuneration must also be tracked.
• For employees working multiple positions – with at least one tip-earning position and one without tips – the amount of non-tip earning time must be tracked. The total daily or weekly straight-time remuneration for non-tip work must be tracked as well.

Of course, HR Compliance Team’s time and attendance software helps you ensure each of these requirements are met.

Tip Pooling

Some establishments pool tips, meaning all tips from all employees are combined and distributed evenly at the end of the day. Employers, beware, though – many FLSA violations are the result of tip pooling.

When a company mandates participation in a tip pool, law, court precedent, and DOL regulations must be considered first. The DOL has defined many occupations that qualify for such programs, the result of exhaustive litigation.

Customer interaction is a key element considered by courts when determining whether or not an employee should receive tips or be required to join a tip pool. Dishwashers, chefs, and bus boys and girls, for example, are recognized as being exempt from employer-imposed tip pool mandates.

Remember to Consider State Laws

Sometimes, state laws can contradict the federal law regarding tip reporting. Some states do not use tip credits – prohibiting them outright. Other states require a higher direct wage than federal law requires. Other states still have special provisions governing tip pooling.

For more information regarding tips and tip pooling, read the full whitepaper.

Please contact us to learn more about our employee time and attendance systems or request a quote today.