Minimum Wage and Tips in the Restaurant Industry

The DOL has recently affirmed its intention to enforce amended 2011 regulations regarding the use of “Tip Credits” and “Tip Pools in the restaurant industry.  As permitted by the FLSA and state law, Virginia restaurants may pay “tipped” employees an hourly wage of $2.13, provided that they receive at least $5.12 an hour in tips to offset the minimum wage requirement of $7.25 per hour.   This differential amount is known as the “tip credit” or “wage credit.”  To take advantage of the tip credit, the employer must adhere to several regulatory guidelines:

(1) the tip credit may only be applied for hours in which an employee works as a “tipped employee;”

(2) the employer must notify the employee of its intention to use the credit and its method for applying the tip credit as an offset against minimum wage obligations; and

(e) tipped employees must be permitted to retain all of their tips, with the exception of amounts contributed to a valid “tip pool” among employees who customarily receive tips.

As referenced, an employer can set up a “tip pool” whereby servers have to contribute a portion of their tips according to the following limitations.

(1) the employer must notify the employee of the tip pool requirements;

(2) the tip pool can only include those employees who customarily and regularly receive tips. (i.e. it can include other front-staff who render personal service to customers such as busboys or bartenders, but not non-tipped personnel such as managers, janitors or kitchen staff);

(3) the employee’s required contribution to the tip pool must be customary and reasonable;

(4) the employer may only take a tip credit for the amount of tips each employee ultimately receives; and

(5) the employer may not retain any of the employees’ tips for any other purpose.

An employer who fails to provide notice of its “tip credit” or “tip pool” policies could be subject to hourly minimum wage obligations regardless of the tips actually received by servers.  In any event, if a “tipped” server receives less than $5.12 per hour in tips, the employer remains obligated to offset any minimum wage deficiency.