Understanding Your Rights as a Tipped Employee

January 13, 2017

Many Arizona workers who receive more than $30 in tips per month are considered tipped employees, which may include waiting staff, bartenders and cleaning staff. The rights of tipped employees are more complicated than those paid a straight hourly wage or salary.

If you are employed in a profession that largely depends on tips as part of your wages, it is important to know your rights as an employee,as well as the federal and state laws that provide protection to tipped employees.

What is a Tip?

A tip is any amount of money left by a customer as a payment to the employee, rather than the employer, for services provided. A tip must be voluntarily left by the customer, who has the right to determine its monetary value based on the service he or she received.

The customer has the right to decide who he or she wants to tip, and cannot be interfered with by the employer, who is not allowed to set a predetermined value of the tip a customer can leave.

Employers, however, are allowed to instill service charges, which is an extra fee for circumstances like a large party at a restaurant. A service charge does not constitute as a tip for the employee and is instead collected by the employer.

If a customer leaves a tip on a credit card, the employer has the right to deduct the processing fee charged by the credit card company from the tipped amount.

Tip Credits

Under the Fair Labor Standards Act (FLSA), Arizona employers are allowed to claim a tip credit. This allows the employer to pay employees less than the required minimum wage so long as the amount of tips employees bring in makes up the difference.

Arizona’s minimum wage laws requires an employee to be paid at least $10 an hour. Under the tip credit law, employers are allowed to pay tip-based workers $7 an hour based on a $3 credit that is collected from the employee’s tips. However, tip-based employees who work on an established tip-pooled system are exempt from tip credit.

The U.S. Department of Labor requires employers to review the following guidelines with employees before they are legally allowed to use tip credit:

• The cash wages that an employer is paying a tipped employee, which must be at least $2.13 an hour.
• The amount the employer is claiming as a tip credit. This cannot surpass $5.12, which is the difference between the required cash wage and the federal minimum wage ($7.25)
• An employer cannot claim a tip credit that exceeds the amount of tips actually claimed by the employee.
• The employee is the only one who can claim the tips that he or she earned during the working shift, unless there has been a valid tip pool established that only qualifies for tipped employees.
• A tip credit will not be valid unless the employer has explained these rules to the employee beforehand.

Tip Pools

Tips are the property of the employee, and employers cannot force an employee to hand over his or her tips unless a valid tip pool has been established, which the employee agrees to.

Pooling tips or tipping out employees enables an employer to divide the accumulated amount of tips to be shared by a group of employees. Arizona law allows tip-pooling, but employees cannot be forced to surrender an unreasonable amount of their tips or an amount that equates lower than having earned the state’s minimum wage requirements.

Only employees that work on a tip basis can be included within a tip-pool and are not required to share tips with employees who are paid hourly.

Common Problems

Tipped employees may run into a number of common problems with regard to ensuring they receive minimum wage:

• If an employee does not receive a sufficient amount of tips during his or her work shift that equals the state minimum wage requirements, the employer must compensate the difference.
• If an employee is only paid in tips and receives no wages, his or her employer is required to pay the full minimum wage.
• An employer cannot penalize an employee by reducing his or her earnings below minimum wage due to walkouts, cash-register shortages or breakage is illegal. An employer that claims a tip credit must pay tipped employees the federal minimum wage for any non-overtime hours he or she works. Any deductions that an employer makes would reduce the employee’s wages below the federal minimum wage.
• An employer must compensate a tipped employee if he or she contributes to a tip pool that includes non-tipped employees. If a tipped employee is forced to pay a non-tipped employee, he or she must be paid the minimum wage and be reimbursed for the tips that were incorrectly distributed.

An employer must also instill a different set of standards for overtime compensation when he or she applies for a tip credit. This includes:

• If an employer is using a tip credit, any overtime must be paid on the full minimum wage, not a reduced value from the tip credit. An employer is not allowed to take a larger FLSA 3(m) tip credit for an hour of overtime as opposed to a straight time hour.
• Employees must be paid overtime based on a regular rate that includes all service charges, commissions, bonuses and compensation for services provided.

If you are a tipped employee and believe that your rights have been violated, contact the Phoenix employment law attorneys of Phillips Law Group.

Call 1-800-706-3000 to schedule a free consultation by phone. No fees to start your case and no fees unless we win your case.