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The Fair Labor Standards Act (FLSA), also known as the "Wages and Hours Bill," is a national statute that, since 1938, has established and regulated minimum wage, employment of minors, overtime and a number of other labor issues. Among the stipulations of the Fair Labor Standards Act and its subsequent amendments are legally binding requirements about employee tips.
Employees whose primary source of income comes from tips, as well as employers of tipped employees, should familiarize themselves with the "tips provision" of the FLSA. Should an employer violate this tip provision, employees are advised to speak with an experienced labor attorney as they may be entitled to compensation for past wages, lost wages and employer negligence.
According to the Fair Labor Standards Act, an employee who earns a significant portion of his or her income through tips is referred to as a "tipped employee." To be considered a tipped employee, workers need to earn at least $30 per month in tips.
For such employees, employers are only legally required to pay a base hourly rate of no less than $2.13 per hour. However, employers must comply with all of the provisions of the FLSA's tip credit allowance in order to legitimately pay their employees such a low base hourly wage.
Employers can use the tip credit allowance if they:
• can prove that all employees earn at least minimum wage when direct hourly wages are added to earned tips
• let employees keep all tips they earn (unless the employees are part of a valid tip pooling system)
• tell all affected employees about the tip credit system (i.e. the low hourly direct wage plus their earned tips) before implementing it
Keep in mind that, effective July 24, 2008, the national minimum wage was set at $6.55 per hour (On July 24, 2009, minimum wage will raise to $7.25 per hour). If these employees' tips don't average out to at least minimum wage when added to their low base hourly rate, then employers are obligated to pay the difference – so that employees are still earning minimum wage.
Along with the above stipulations, the Fair Labor Standards Act also includes provisions for certain, special situations, including:
• multiple jobs: Employees who work more than one job are only affected or governed by the FLSA's tip credit allowance when they are working in the tipped occupations. So, for example, if a bartender also manages the bar in which he works, the tip credit only applies when he works as a bartender, not a manager, as the managerial position doesn't allow him to earn wages from tips.
• service charges: Any service charge added to a bill is not considered to be a tip, as it is part of the employer's gross income. If employees aren't tipped when a service charge has been imposed, employers are required to pay employees the full minimum wage rate, along with overtime, if applicable.
• tip agreements: It is illegal for an employer to arrange that employees give him or her any part of their tips. According to the Fair Labor Standards Act, an employee's tips are entirely his/her own, and any arrangement forcing employees to turn over portions of their tips to the employer is illegal
Any violation of the tip provisions set forth in the Fair Labor Standards Act can be grounds for a lawsuit. In addition to failure to pay tips, common FLSA tip violations may include:
• forcing employees to work for tips only (with no base hourly rate)
• illegally garnishing wages (either tips or the base direct pay) due to register shortages, glass breakages, etc.
• paying an employee the base hourly rate of $2.13 even though he/she isn't legally considered a "tipped employee"
• not paying employees the difference when tips and the base hourly rate don't average out to minimum wage
Because employers may violate the FLSA's tip provisions in a number of other ways, it's important that any employee who suspects that he or she has been victimized by such unfair practices meet with an experienced FLSA attorney. By talking to a labor lawyer, employees can find out if they have a legal claim, as well as how much compensation they may be entitled to receive.
Set up a consultation with a seasoned labor attorney today and learn more about your legal rights and options.
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