Tipped Employment Issues


The service industry, particularly restaurants, operates within a unique payment system. Many workers receive diminished hourly wages assuming the practice of “tipping” will compensate them for the difference. As this system of payment is irregular, it can commonly lead to underpayment of employees.

Underpayment happens when a “tipped employee” spends time performing tasks for the employer for which no tips may be earned, but is only compensated at the reduced hourly rate which is usually below State or Federal minimum wage.

If you work in the service industry, it is critical to understand the Federal and State laws that govern payment requirements of employers. Many service workers are entitled to additional pay, but unless the employees know what to look for an employer may knowingly or unknowingly take advantage of them.

Who is Affected by Tipped Employment Issues?

While minimum wage requirements apply to all businesses, there are special rules governing the service-based positions that receive tips as a custom.

The most common positions that face illegal underpayment due to tipping, include:

  • Bartenders
  • Waiters and Waitresses
  • Servers
  • Hosts and Hostesses
  • Bussers
  • Valets

If you have worked in any of these positions and feel you were paid a tipped wage while doing a job that you couldn’t earn tips, it is important to meet with an experienced employment law attorney that can ensure you are not missing out on money you have earned.

Most common not-tipped tasks are typically deemed side-work and include:

  • Opening and closing duties
  • Rolling silverware
  • Cleaning bathrooms
  • Polishing glasses and silverware
  • Brewing coffee or tea
  • Re-stocking
  • Sweeping
  • And more

As the service industry has its own set of specific regulations, it can be a complicated process to determine whether your employer has broken the laws or not. As such, it may seem daunting and impossible to figure out the specifics, but a qualified employment law attorney with years of experience can walk you through the process and determine how much you are owed.

Minimum Tipped Wage Laws

Minimum wage laws are put into place to ensure that employers do not take advantage of their workers. For year employers did not have any regulations on the wages their employees earned and could thus underpay them for the value they were truly providing to the company. Accordingly, both Federal and State legislation has been enacted to protect workers and ensure their employers do not withhold what they are legally entitled to earn as employees in the state.

It has become common practice for employers in the service industry that allow tipping for services to have a base hourly wage that is lower than minimum wage. It is legal to have the base hourly wage lower than minimum wage as long as the tips received by the workers even it out to gross at least minimum wage.

It is not legal for an employer to have an hourly rate lower than minimum wage and then allow their employees to make less than the legal minimum wage if they do not receive sufficient tips to make them reach that point. Every employee is entitled to at least minimum wage, regardless of the tipping practices of the company.

Federal Minimum Wage

Federal regulations are in place to enforce a minimum standard of payment to employees throughout the United States. The Fair Labor Standards Act (FLSA) details the exact requirements for employees and employers to warrant minimum wage payments. Since July 24, 2009 the federal minimum wage has been set at $7.25 per hour.

This minimum wage standard is enforced by the Department of Labor’s wage and hour division. This national standard was intended to set the absolute minimum requirement of payment to employees, but states have further discretion as to how it is applied and can increase the state minimum to be higher than the federal standard through the voting and legislation process.

An employer is legally allowed to pay a tipped worker $2.13 per hour according to federal regulations. This does not mean that the employee is not entitled to receive at minimum the $7.25 per hour wages.

It means that the base hourly wage can start as low as $2.13, but if the tips that employee received in addition to the hourly rate does not meet the minimum wage standard, then the employer is legally required to make up the difference in the wages. Meaning, at a minimum, all covered U.S. employees are federally entitled to at least $7.25 per hour.

The federal minimum wage requirement, under FLSA, applies to U.S. employers that have annual gross volume sales over $500,000. It can also apply to smaller companies if the employees are deemed to be engaging in interstate commerce.

This is a determination that a skilled employment law attorney can assist with. There are specific exemptions that employers can claim to avoid the minimum wage standard, e.g. commissioned sales employees, seasonal establishments, and motor carriers. While an employer may claim an exemption, it is a narrowly construed determination and an attorney can help determine if an exemption may apply in each particular circumstance.

State Minimum Wage

In addition to the federal minimum wage, states have the power to set their own minimum wage standard as well, so long as it is not below the federal minimum wage of $7.25 per hour. Most states have voted to increase the minimum wage to a level higher than the federal limit, and their citizens are legally entitled to that higher wage.

If an employee is subject to both federal and state minimum wage laws, the higher of the two standards applies. As Arizona’s minimum wage is higher than the federal standard, all Arizona employees are entitled to at least the Arizona wage and not just the federal level.

In recent years Arizona’s residents voted to raise the minimum wage to a level higher than the Federal regulation. As of 2019, the current minimum wage in Arizona is $11.00. By 2020 the minimum wage in Arizona should reach $15.00 according to the recent legislation.

It will increase incrementally over the next few years until it reaches that point. There is then a formula in place that will help determine the amount this should increase potentially each year, based on inflation, cost of living, changes in the market, etc. This may seem straightforward, but again, could be affected by the unique procedures regulating employees in the service industry.

Affects of Tipping as an Employment Policy

Tipping for services rendered is a common practice these days. The businesses take into account the likelihood or expectation of tips and base prices and wages on this system. The situation is further complicated by the different ways in which each business allows tips and how they are allocated.

Some companies let each worker keep the tips they are given, others must put it into a pool and divide it among multiple workers from the full pool. While both of these options are legal, they have different effects and legal implications. For instance, if your company works out of the pool system, there are specific rules regarding who is allowed to have a piece of the pool.

Managers are not allowed to have a cut from the pool, but if workers are unaware of this rule, managers could be illegally taking a portion of the workers’ income to which they are not legally entitled to take.

Overtime Issues

As a state regulation, non-salary employees are entitled to overtime pay for any work they are required to complete that exceeds the normal 40 hours. Many service industry employees are unaware this applies to them as well. This timeline includes menial and operational tasks that are required of the workers, including:

  • Opening and closing duties
  • Rolling silverware
  • Cleaning bathrooms
  • Polishing glasses and silverware
  • Brewing coffee or tea
  • Re-stocking
  • Sweeping

Getting the Money You Deserve

Federal and state law now allows you to recover not only your withheld wages, but potentially damages as well, which could amount to double the amount withheld. With this much money on the line, it is key to have a knowledgeable employment law attorney on your side to ensure you follow the proper procedures to file a complaint and be entitled to payment.

It can be a rigorous process and missing out on the money you are entitled to based on a clerical or legal error is not worth it. Having someone on your side with experience in this process can not only ensure you get the money you are owed, but can expedite the process so you are paid sooner. The JacksonWhite Employment Law Team has years of experience in assisting clients in these matters and will be with your through the entire process. They will assist in:

  • Filing the demand letter
  • Filing official complaints
  • Negotiating on your behalf with your employer and their attorney
  • Taking the case to trial, if necessary
  • Ensuring you receive the maximum value you are legally entitled to

It can be complicated to decide which claims can be made according to the FLSA regulations and those made according to state laws. Our attorneys have the experiential knowledge and understanding of the inter-workings of the labor systems and payment laws that govern these situations.

This experience can help to ensure your claim is made for the most amount of money you are entitled to, the process is completed efficiently and accurately, and that you do not have to stress and still obtain the wages you are legally entitled to receive.

If you have worked in the service industry and believe your employer has potentially not complied with these regulations, contact our Employment Law Team today so we can help you get the money you deserve.

Call our Employment Law team at (480) 464-1111 to discuss your case today.

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