Four Ways Some Employers Rip Off Their Tipped Employees

There are many ways an employer can take unfair advantage of a tipped employee. These practices are against the law. Workers who earn some of their regular income in tips should know their legal rights and protection, so they can make sure that they are not being ripped off.

Blog Series on Tipped Employees: Part 3

In two previous posts, I explained the state and federal laws that govern how restaurant waiters and waitresses and other tipped employees are supposed to be compensated. Now I’m going to shine the light on some ways that some employers are ripping off their tipped employees.

tips

During 2010 to 2012, the Department of Labor’s Wage and Hour Division conducted almost 9,000 investigations in the restaurant industry. More than 8 out of 10 of those investigations (84%) turned up wage and hour violations. That’s indicative of industry-wide abuse.

Before you continue reading, if you haven’t already, you may want to go back and get familiar with the law and terminology I explained in those earlier posts:

(Who is considered a tipped employee? What is the minimum wage for a tipped employee? Are any employers/employees exempt?)

(How is the tip credit calculated? How does the employer know how much in tips you earned? Are there limits on how an employer applies the tip credit? Is the employer required to explain the tip credit to employees?)

Here are some ways some employers are ripping off their tipped workers.

Scam No. 1. Failure to pay the minimum wage.

The bottom line is: tipped employees are entitled under the law to the minimum wage of $7.25/hour, just like almost all other workers. That wage can be a combination of the base pay the employer must pay to tipped employees and the tips the worker receives. But it has to add up to the minimum, or it is the employer’s responsibility to make up the difference.

For a detailed explanation of how this is supposed to work, read the two FAQs listed above.

Scam No. 2. Claiming the tip credit without proper records.

Some employers pay the base pay, which in Oklahoma is $3.625/hour, and then simply assume that their tipped employees are earning enough in tips to make up the rest of the minimum wage. Such employers claim the tip credit, even though they have not gathered the necessary records to confirm that employees actually are earning the minimum.

According to the National Employment Law Project: “Few employers actually do the active monitoring necessary to make sure that workers always receive enough tips to bring them up to the level of the full minimum wage.”

One too common practice is for employers to estimate tips based on total sales. For example, an employer might calculate 15% of total sales to estimate how much you earned in tips. Not only is that illegal but it is probably unfair, since few customers tip more than 15%, but some customers tip less or not at all.

It is the worker’s responsibility to keep track of his or her tips. But if the employer is claiming the tip credit, it is the employer’s responsibility to collect that information from the worker.

If you are not earning enough in tips to make the minimum wage and your employer is not making up the difference, you are being underpaid. In a civil suit, you could recover the back wages you are owed.

One more note on the above scam. The sloppy practice described above hurts the tipped employee in two ways. First, he or she is not earning the minimum wage. Second, the employer is reporting to the IRS that you are earning the minimum wage, and your taxes are being calculated accordingly.

In a civil suit, you may also be able to recover what you have lost in excessive taxation due to your employer’s incorrect tax filings.

3. Factoring in the tip credit without proper notification

If an employer plans to take the tip credit, the employer must notify the employee ahead of time and explain all the details of how it’s going to work. I discussed this notification requirement in my previous post (see link above).

If an employer does not notify employees about the tip credit, the employees have every right to expect to be paid the minimum wage directly from the employer. In addition, the tipped employees can keep whatever tips they earn.

A couple of recent lawsuits have been brought against two restaurants in New Jersey for taking the tip credit without notifying employees ahead of time (see: World of Beer lawsuit; Counter-Custom Built Burgers lawsuit).

These lawsuits claim that in addition to ignoring the notification requirement, employees did not receive the minimum wage and were not paid overtime pay.

4. Failure to pay overtime.

Federal and state law requires that workers be paid overtime pay of “time and a half” (150% of a worker’s regular hourly wage) for hours worked in excess of 40 hours in a work week.

For example, if your base pay as a tipped employee in Oklahoma is the minimum $3.625/hour, then you minimum wage is $7.25/hour. If you work more than 40 hours, you must be paid at the rate of $10.875/hour (150% of the minimum) for the additional hours.

However, some restaurant employees have reported not being paid at all for their work over 40 hours. That is a clear violation.

The Texas-based franchisee of an Oklahoma Chicken Express restaurant was accused last year of failing to pay overtime pay and was also accused of singling out Hispanic workers for the oversight.

Due to the allegation of “a systematic pattern of discrimination against its Hispanic workers,” the federal Equal Employment Opportunity Commission got involved. The employer paid $15,000 to settle the claims.

tip jar

However, make no mistake, even if no allegation of racism or discrimination is involved, it is against the law to fail to pay overtime pay. Workers may recover the pay they were entitled to through a civil lawsuit.

In this post I have discussed four ways some employers are ripping off their tipped employees. In the final post of this blog series I will discuss four more employer scams against workers who earn tips.

Do You Have Questions for an Oklahoma Employment Lawyer?

If you are a waiter, waitress or other tipped employee in Oklahoma who believes you have not been paid what you are entitled to under the law, you may be able to recover your back pay.

For a free consultation to review the details of your case, contact the employment lawyers of Hasbrook & Hasbrook by telephone (866-416-4737), email (cth@hasbrooklaw.com) or use our website contact form: Contact Us.