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Tipped workers are among the most common victims of wage theft.

The trouble arises because tipped workers—such as servers, bartenders, bussers, and others—are often paid a wage rate that is less than the minimum wage. This is often referred to as “tipped minimum wage” or, in more technical terms, the employer is taking a “tip credit.”

In order to take a tip credit, employers are required to strictly follow a number of rules specified in the wage and hour laws. If an employer fails to follow even one of the rules, they are not allowed to take a tip credit, and their employees are thereby entitled to full minimum wage for all hours worked.

Biller & Kimble Partner, Andy Biller, explains the basic rules for taking a tip credit in this short video:


The rules for taking a tip credit are relatively straightforward, but often broken. In sum, they are:

Rule # 1: Your employer must inform you of the requirements for taking a tip credit.

In other words, your employer must explain that they are permitted to take a tip credit and are taking a tip credit because the employee receives tips as part of their work. They must explain to you the wage rate you will be paid, the amount of the tip credit the employer will claim, that the employer will make up the difference between what you receive and minimum wage if the tips are not sufficient, and that you will be permitted to retain all of your tips, except if the company maintains a valid tip pool.

At first, this may seem like an odd requirement. It also may seem harsh that an employer would be required to pay full minimum wage for all of an employee’s hours, just because they did not provide the employee with this information.

But when you really think about it, it makes sense. Employees need to know the requirements for taking a tip credit in order to know if their employer is applying it correctly. Because employers choose to place their employees in this precarious position (being paid below minimum wage), the employers are strictly held to the requirements for claiming a “tip credit.” A properly informed tipped employee can recognize a tip credit violation and call it out. Thus, employers must make sure their employees are properly informed.

Rule # 2: You must be allowed to keep your tips. The only exception is for tip pools that include ONLY other tipped employees.

Employers are permitted to create tip pools, but those tip pools must only include employees engaged in the customer service. Rule #2 sounds so easy, so why do employers, especially restaurants and bars, keep breaking it? Because they usually get away with it!

Some common ways employers break this rule are:

  • Letting non-tipped workers share in the tip pool. This can include managers and owners (even if those people also act as servers), cooks, dishwashers, cashiers, and other employees who don’t usually earn tips.

  • Keeping more than 2-4% of credit card tips to cover credit card fees.

  • Making waiters, waitresses, and bartenders pay for things like broken dishes, returned orders, mistake plates, or cash register shortages.

  • Giving any amount of the tips to the employer itself for any reason (other than 2-4% for credit card fees). This happens all of the time with to-go orders or employers who collect an “administrative” or any other kind of fee.

Rule # 3: Your employer can only pay you a tipped wage when you are actually doing tipped work.

Almost every tipped worker deals with “side work.” If you are a tipped employee, you know the drill—clean some glasses, wipe down the bar, roll some silverware.

Employers are permitted to pay a tipped wage for non-tipped work that is “related” to the employee’s tipped duties. In other words, making coffee is normally okay, but if you are cleaning bathrooms and re-arranging furniture, for example, at a tipped wage, your employer is likely violating the tip rules.

Rule # 4: You must actually receive the tipped wage rate you are promised.

Tipped employees are paid a form of minimum wage. Because of that, any deduction or expense they incur, or any reduction in their hourly rate, will drop them below minimum wage and violate the tip credit rules. For example, if an employee is required to work off the clock, their effective hourly rate drops for that workweek, and the employer’s ability to claim a tip credit is in jeopardy. Or, an employee might have deductions taken for customer walkouts, or have to incur other expenses that benefit their employer (like paying for a uniform). These costs also cause the employee’s effective hourly rate to drop for that particular workweek. If the employer is not paying the promised wage, they are arguably in violation of the tip credit rules.

If your employer is breaking any of the tip rules, contact Biller & Kimble right away. You could be entitled to unpaid wages, an additional 1x unpaid wages as liquidated damages, plus attorneys’ fees and costs. In certain states, like Ohio, you could also be entitled to additional damages.

When Biller & Kimble represents workers in wage and hour cases, we almost always work on a 1/3 “contingency fee basis.” That means, if we accept your case, we will not get paid anything unless you get paid, and we will advance all costs associated with your case. If you prevail, Biller & Kimble would receive 1/3 of your award as a contingency fee, and be reimbursed for advanced expenses. This way, instead of you spending thousands of dollars and taking on the risk that you do not prevail, we take on that risk for you.

Contact Biller & Kimble, LLC today for a free consultation.

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