Subscription-Based Legal Service Advises on Tip Credits, Tip Sharing, Overtime Pay for Tipped Workers… and More
Restaurant servers, bellhops and salon service providers may come to mind first as tipped workers. Others range from movers, store carryout personnel, massage therapists and home services providers to attendants at children’s parties in trampoline parks, indoor playgrounds and specialty gyms. All in all, tips supplement the pay of some 5.5 million Americans, according to The New York Times, and a considerable number work for franchisees.
Employers face harsh penalties if they violate the legal requirements of paying tipped workers, says Britt Waterman, senior associate attorney with myHRcounsel. Subscription-based myHRcounsel offers business owners 24/7 on-demand employment law and business advice, from hiring and firing, policies to payroll, so that franchisees and other employers can avoid traditional hourly legal fees.
Keys for Employers on Tipped Workers
Waterman lays out the following basics and gives some initial advice about managing tipped workers:
- By law, each employee must report tips to his or her employer.
- Companies should also have a policy that employees disclose 100% of tips, and myHRcounsel can assist in setting up that policy.
- There are ways to uncover and deal with underreporting of cash tips, and myHRcounsel can advise employers on that issue.
- Tips aren’t included in calculating the regular rate of pay but can be used to reach minimum wage and overtime obligations, a practice known as a tip credit, which is allowed in some states but not others. The federal minimum wage of $7.25 an hour applies everywhere in the United States, although several cities and states have set their minimum wages higher.
- If employers apply a tip credit to wages, they must disclose to employees that they will do so. But Waterman says that disclosure shouldn’t be in the employee handbook (handbooks are a myHRcounsel specialty). “Instead, employers should have a separate, standalone policy for all employees who receive tips for them to review, sign an acknowledgement, and keep a copy for themselves” – and myHRcounsel can help employers properly craft that policy.
- Tip sharing is allowed under federal law, but it affects how employers set up minimum-wage pay for their employees. “If traditionally non-tipped employees – for instance, cooks, dishwashers and cleaners – are participating in the tip pool, the employer must be paying all of the employees at least the full minimum wage” before tips are applied.
Exempt Employees, Overtime and Tips
Tip rules are different for nonexempt and exempt employees. “For example, managers and supervisors – these are the usual exempt employees in a business where employees receive tips – are not allowed to keep tips unless the service is provided directly and solely by them,” Waterman says.
Overtime compensation for tipped workers further complicates the payroll picture, and lawyers at myHRcounsel can ensure their subscribers handle it legally. “Knowing what is included in the regular rate of pay [before overtime is triggered] and what is not is critical to our clients to avoid overtime violations,” she says.
Consequences of Mistakes
Tipping regulations have fine points and exceptions that vary by location and situation. And those regulations can shift with the political winds. The onus is on the business owner to stay up-to-date and follow all legal aspects of tipping. Making even a single mistake that violates the federal Fair Labor Standards Act or state labor laws can end up being costly, time-consuming and stressful.
One bad move by an employer can prompt a prolonged investigation, Waterman warns. “When an employer violates federal or state wage and hour law, the federal or state Department of Labor does not investigate the one reported violation. The DOL throws open your books for the last three years and scrutinizes every entry you’ve made.”
How myHRcounsel Can Help
“myHRcounsel’s staff of licensed lawyers knows the laws in all 50 states,” she says. “Subscribing to our on-demand human resources and employment law advice from licensed attorneys can help employers avoid crippling fines from innocent mistakes dating back for years.
“Employees are increasingly savvy when it comes to the law and their rights, and they are more and more frequently reporting employers to government agencies when they feel their rights have been violated. myHRcounsel has the experience to help with employee relations issues before a disgruntled employee starts Googling enforcement agencies. We have the knowledge and experience to promote harmony between employers and employees. Service packages start at $129 per month. For details, visit https://myhrcounsel.com.
