Life is filled with risky decisions. Should you take that new job? Should you put in an offer on that house that is just out of your price range? Should you really eat that last piece of cake when you’ve already had two? Companies make big gambles, too. For example, should Lionsgate really invest millions in a sequel to Now You See Me when nary a soul is clamoring for one?
In the wage and hour world, there are few risks more hazardous than the tip credit system. For the unfamiliar, the basic rule is that tips belong to employees, not the employer. Under the Fair Labor Standards Act (“FLSA”), employers may pay tipped employees less than the minimum wage, as long as the employees receive enough in tips to make up the difference. Easy, right? As the saying goes when cooking pasta: Step 1 – Measure the amount of pasta you need; Step 2 – Wrong.
The tip credit system is fraught with potential problems for employers. For example, if an employee does not receive sufficient tips to make up the difference between his direct wage and minimum wage, the employer must make up the difference. Or, when a tipped employee is required to contribute her tips to a tip pool that includes individuals who do not customarily receive tips, the employee is owed all the tips she submitted to the pool and the full minimum wage. Continue Reading