When Can Employers Pay a Lower Minimum Wage to Tipped Employees?

In the restaurant business it is common for servers to be paid less than the $7.25 per hour federal minimum wage. Instead, servers are commonly paid as little as $2.13 an hour with the difference between the $2.13 per hour and $7.25 an hour made up through customer tips. Not all states allow this. In Georgia restaurants owners are allowed to pay the servers less than the federal minimum wage and make up the difference through the tip credit. The maximum current allowable tip credit is $5.12 an hour (the difference between the regular federal minimum wage of $7.25 an hour and the minimum wage for servers of $2.13 an hour). The minimum wage for tipped employees in Georgia is $2.13 an hour.

Many servers and owners are not aware that for the owner to legally use the tip credit, they must first provide certain information to the person who they are planning to pay less than $7.25 an hour.

The employer must provide the following information to a tipped employee before the employer may use the tip credit to make up the difference between the minimum wage for tipped employees and the federal minimum wage of $7.25:

  1. The amount of cash wage the employer is paying a tipped employee, which must be at least $2.13 per hour;

  2. The additional amount claimed by the employer as a tip credit, which cannot exceed $5.12;

  3. That the tip credit claimed by the employer cannot exceed the amount of tips actually received by the tipped employee- Some restaurant owners will ask employees to record a minimum amount of tips per hour even if they didn’t receive that amount in tips.;

  4. That all tips received by the tipped employee are to be retained by the employee except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips; and

  5. That the tip credit will not apply to any tipped employee unless the employee has been informed of these tip credit provisions.

The employer may provide oral or written notice to its tipped employees informing them of the above items. An employer who doesn’t provide the required information cannot use the tip credit provisions so they must pay the tipped employee at least $7.25 per hour in wages and allow the tipped employee to keep all tips they received in a shift.

What kind of notice is permissible? Oral or written notice is acceptable. Employers only need to “inform” tipped employees about the tip credit, not “explain” it. Courts have written that to “inform” requires less effort than to “explain”. Some courts have found it sufficient for an employer to write in a handbook that they plan on using the tip credit for tipped employees in order to abide by the minimum wage requirements under the Fair Labor Standards Act. Many of these court decisions were made before May 29, 2012 when the D.C. District Court upheld the Department of Labor regulation explained above (i.e.the five items required in the notice). It is possible that the form or amount of information that was previously acceptable may no longer be enough for the employer to legally take the tip credit. For instance in Perez v. Prime Steak House Restaurant Corp.(Dist. Court, D. Puerto Rico 2013), a case that was decided after the rule change, the court wrote “As the First Circuit Court of Appeals reasoned, to meet the statute’s requirements, defendant PSHRC likely needed to provide additional information besides the mere existence of the tip credit in order to inform its employees of section 203(m)’s provisions.” This might indicate the information the employer is required to give tipped employees in order to claim the tip credit has become broader and more in-depth than before.

If you are a server receiving tips as part of your pay but you were never informed of the tip credit then you are potentially being paid improperly. Even though the minimum wage for tipped employees is less than the federal minimum wage, an employer can not pay the lower minimum wage for tipped employees if they don’t properly inform the tipped employees as per the Department of Labor regulation. It is worth speaking with an attorney familiar with wage and hour issues about your situation. If you are a server in Georgia please contact attorney Benjamin Kandy at (678) 824 2251 or ben@bkandylaw.com.

There are additional requirements for an owner to legally use the tip credit to make up the difference between the federal minimum wage and the minimum wage for tipped employees. These requirements will be touched on in future articles.

As always this information does not constitute legal advice and does not create an attorney-client relationship between the reader and attorney Benjamin Kandy.  Please see our disclaimer for more information.

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