The United States Department of Labor recently amended its tip credit notice regulations to require employers to inform tipped employees of certain tip credit information. It is critical that all employers, including restaurants, that pay employees earning tips a direct wage that is less than the federal minimum wage ($7.25 per hour), follow these new Regulations.
The potential penalties or damages for failing to comply with these Regulations can be very significant. Most notably, failure to comply can result in a restaurant having to pay employees the difference between $7.25 per hour and the sub-minimum wage paid to the employees for every hour they have worked within the last two-three years. In other words, failure to comply can result in required back payments of $5.12 per hour to every tipped employee for up to three years.
The new Regulations require employers intending to take advantage of the “tip credit” provision to inform their employees that they intend to use the “tip credit” before doing so. This means that during orientation or at the beginning of each tipped employee’s employment, you must specifically inform the employees you intend to take advantage of the “tip credit.” You should use the words “tip credit” specifically and advise the employees they are being paid a wage rate lower than the applicable federal minimum wage. You should also advise all tipped employees that in any week in which their tips do not make up the difference between the direct wage they are being paid and the applicable minimum wage, the restaurant will make up the difference.
The new Regulations also require employers to inform their employees of other specific information in order to take advantage of the “tip credit” and pay employees a sub-minimum direct wage, including:
- the hourly rate the employer is paying each tipped employee (which can be as low as $2.13 per hour);
- the specific amount the employer is retaining as a credit against tips received (which can be as high as $5.12 per hour);
- that the additional amount claimed by the employer as a tip credit may not exceed the value of the tips actually received by the employee;
- that the tip credit shall not apply with respect to any tipped employee unless the employee has been informed of the tip credit provisions; and
- that all tips received by the tipped employee must be retained by the employee except for the pooling of tips among employees who customarily and regularly receive tips.
The new Regulations also clarify that an employer is prohibited from using its employees’ tips for any other reason than as a “tip credit” or a legitimate “tip pool.” Tips are the property of the employees regardless of whether the employer has elected to use the “tip credit.”
As a result of these changes, employers who take advantage of the FLSA’s “tip credit” provision (which includes any restaurants where any employees earn tips and are paid a direct wage of less than $7.25 per hour) must review their notice protocols and “tip pool” arrangements to ensure compliance with the final rule.
Jackson Lewis LLP, a nationwide law firm which specializes in workplace law on behalf of employers, has recently joined the GRA as its designated labor and employment law counsel. They will be providing regular articles to GRA which will assist Georgia restaurant owners navigate through the sometimes difficult workplace law issues unique to our industry. As part of Jackson Lewis’ services to GRA, they have also set up a hotline which will enable GRA members to talk through employee relations issues with an attorney, at little or no cost. Feel free to call Ed Cherof or Eric Magnus at (404) 525-8200.