According to the Restaurant Opportunities Center of NY, “Whether or not you have legal documents to work in this country, you are protected by most Federal and state Labor laws.” Employers who threaten to report employees to I.C.E. are in violation of Federal law and may be prosecuted.
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Your Server Wage: The Basics
1. The most common and accepted way to pay servers in the U.S. is based on the tip system. Servers earn most of their income from tips received and diners are expected to pay an additional amount of 15- 20 percent for service based on the amount of a meal by leaving a tip. Although the diner is free to leave any amount or nothing at all, it is a common practice and culturally enforced. Most employers are allowed to pay servers a direct special sub minimum wage that is lower than the federal minimum wage.
In other countries and in Europe it is more common for servers to receive an hourly living wage and often they do not expect or receive tips. The federal subminimum cash wage for food servers in the U.S. is $2.13 per hour. States with lower sub minimum wages than the federal ($2.13) include Oklahoma ($2.00), Virginia, and New Jersey ( These states are allowed to take a higher tip credit if they meet certain conditions resulting in a lower cash wage or none at all).
2. On July 24,2009 the Federal minimum wage increased to $7.25
The federal subminimum wage for tipped workers including servers DID NOT increase. It is still $2.13. In fact, the sub minimum wage has not been raised in 20 years. Only the tip credit increased; meaning employers will be able to count an increased amount of tips towards a servers wage. $2.13 + tips = $7.25
3. Why hasn’t the Federal subminimum wage for waiter and waitresses been raised in 20 years?
In 1996, Republican lawmakers sided with restaurant industry lobbyist and froze the subminimum wage at $2.13. If the subminimum wage returned to 50 percent, then waiters and waitresses would earn $3.63 per hour today.
The National Restaurant Association is powerful and has the means to employ powerful lobbyists to persuade your legislators to not support an increase in the sub minimum wage as that would cut into thier profits. Last year the NRA reported that the restaurant industry generated more than 650 billion in sales.
4. What can you do about it?
You can tell your congressman to support the W.A.G.E.S act HR631,(Working for Adequate Gains for employement in services Act) If the bill passed, it would raise the federal minimum wage for tipped workers from $2.13 to $3.75 after 90 days of enactment and $5.00 after one year.
5. Why should you care? Why is $2.13 Mean?
It increases the poverty level in states where it is binding. 19.4% of waitresses and waiters who earn a base wage of $2.13 are living below the poverty rate.
It depletes welfare programs due to more people living in poverty.
It can have a negative impact on Tourism revenues. It encourages a high turn over rate, poor quality service and less investment in the front of the house staff who have first contact with tourists. When front of the house service is valued and recognized for its potential impact on attracting and keeping tourists for repeat visits, state revenue is increased.
Most tipped workers who earn this base wage of $2.13 also have to pay for thier own health insurance and the majority have no benefits. Enhanced benefits such as paid sick time might encourage a waiter or waitress to stay home when they are sick, instead of handling plates of food and jeopardizing Public safety.
The Tip Credit (70% today)
A TIP CREDIT is the total amount of tips an employer may count towards the total applicable minimum wage. The federal tip credit is $5.12. per hr. A employer is allowed to pay servers $2.13 because they are claiming servers will make at least $5.12 an hour in tips. THIS IS WHY THEY ARE NOT REQUIRED TO PAY YOU THE FULL MINIMUM WAGE . $2.13 + tips received(Tip credit) must= the full applicable minimum wage.
*Other states and cities have higher or lower tip credits. In Santa Fe, NM, for Example, where the full minimum wage is$10.25 employers take a higher tip credit. Tipped employees in Santa Fe still only earn a base wage of $2.13. but those servers are supposed to make enough in tips to meet the city minimum wage. If they don’t, under city ordinance, the employer is supposed to reimburse them. Some states such as Virginia and New Jersey, allow employers under certain circumstances to take a full 100% tip credit. This means servers in these states may receive no hourly cash wage at all. States that prohibit the tip credit include: Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington. Servers who work in these states (equal states) receive the same minimum wage as all other workers.
- AN EMPLOYER IS NOT ALLOWED TO TAKE THE TIP CREDIT UNDER THE FOLLOWING CONDITIONS:
WHEN THERE ARE NO OPPORTUNTIES TO EARN TIPS.
Required attendance for staff meetings, training period or any time you must work but are not receiving tips. For example, if your employer requires you to come in on your day off for a staff meeting or to help set up Christmas decorations, they are required to pay you the full applicable minimum wage. Side work can only account for 20% of your shift. Excessive amount of time performing side work forfeits the employers right to the tip credit.
WHEN TIME PERFORMING SIDEWORK TAKES UP MORE THAN 20 % OF THE SHIFT.
Your main role must be waiting tables. If your employer requires to spend excessive amounts of time performing various duties such as cleaning, office work, ect, they are in violation of taking the tip credit.
Tip Credit History
1966 The Tip Credit is created. In 1966, the Tip credit was 50%. In 1980, the tip credit is reduced to its lowest rate at 40 percent. In 1996, the tip credit is frozen at 50% of the regular minimum wage, which was $4.25. Today, Allegretto & Fillion (2009) report that the subminimum wage is ate the lowest share of the regular Federal minimum wage on record at just 29.4%. In Santa Fe, New Mexico who has the highest minimum wage in the U.S (10.25) waiters and waitresses still only earn a base wage of $2.13, the tip credit is even higher aprox 80% . If the tip credit returned to 50 percent, then the federal subminimum wage for waitresses and waiters would be $3.63 today instead of $2.13 per hr.
When the U.S Dept of Labor states “If an employee’s tips combined with the employers direct wages do not equal the minimum hourly wage, the employer must make up the difference”, it only applies to the work week, not just the day you failed to make minimum wage.
(Federal min wage )$7.25 x 7 = $50.75. (daily) or $7.25 x 30 hrs = $217.50 (weekly) In Santa Fe, for example if you worked 30 hours, you must have earned at least $307.50 for the week combining tips and wage. $2.13 +$7.73 (tip credit) = $10.25. If not, the employer must reimburse you. (The Santa Fe City living wage law is rarely enforced by City Officials for tipped workers)
Overtime on subminimum wages is determined by multiplying the employee’s regular rate of pay by 1.5 and then by subtracting the hourly tip credit. The employee’s regular rate of pay can never be less than the full applicable minimum wage rate. Example $7.25(Fed min wage rate or applicable min wage rate) x 1.5 minus $5.12 (Tip Credit) = overtime hourly rate for servers who receive sub minimum wages.
Vacation pay is considered a “Benefit” and not covered or enforced by Federal/state wage and hour laws. You can file a discrimination case, however, if your employer elects to only provide vacation pay to employees of a certain ethnic background or gender who perform the same job.
The following ways a employer can legally deduct or reduce a servers cash wage or tips include:
- requiring servers to contribute to a tip pool
- deducting a percentage from a server’s credit card tips to cover the cost of credit card processing fee.*Some states prohibit this
- Tip Credit
- Taxes-such as FICA, State
- Any other deductions must be approved by you first
The three most common ways a employer may illegally deduct or reduce a servers wage include:
- Requiring tipped employees who receive a sub minimum wage to participate in a invalid or illegal tip pool. For example, a tipped employee is forced to share tips with non-tipped workers such as dishwasher, cooks, and janitors. These workers usually are not required to report these tips but you may still end up paying income taxes. For more info search: FLSA fact sheet #15 for tipped employees. The Department of Labor just released a revised version of the Fair Labor Standards Act Fact sheet#15 for tipped employees March, 2011.
- Requiring server’s to pay the bill for customers who walk out,mistakes on bills, food sent back and breakages that bring the servers wage below min wage. for example, if a walkout occured and the bill was $200, the owner could not make the server pay the entire amount. Under the revised FLSA fact sheet #15, the employer may in some cases only withhold an amount that does not bring the servers wage below the federal minimum wage of $7.25.
- Requiring tipped employees to surrender wages/tips/earnings to the owner or a manager. Some restaurants may require contribution into a “error account”, meaning that you pay ahead of time for any mistakes you may incur and they keep these tips locked away in the office or safe. Tips are not allowed to become the property of the owner, manager. They must be shared with a tip pool not stored in a safe for future use.
- All of these deductions can be challenged and recovered through the Department of Labor or an attorney. In some states that have treble laws, a server may collect three times the amount in lost wages if the employer challenges the claim in magistrate court.
FILING A WAGE CLAIM:
*You have up to two years in most states to file a claim under the statute of limitations. Some states like New Mexico allow three years to file a claim. – This means ,if you do not want to risk losing your job by making a wage claim, you can wait until you have moved on to another job to make your claim. But you should keep good records, testimonies from other workers, a log of dates and times and any correspondence of email with your employer for when you are ready to file a claim.
You can also hire an attorney who in some cases, may be able to go back six years, while the state in most cases will only award wage claims that go back two years.
File with the Federal Wage and Hour if your state does not have a minimum wage law.
File with the State Wage and hour if the state has equal or more powerful protections than Federal Wage and Hour.
If you live in New Mexico, the only state in the nation that has a binding state law of $2.13, File with Federal Wage and Hour. Although New Mexico matches the Federal subminimum wage, it does not match the protections offered under Federal law and does not prohibit employers from requiring tipped employees from sharing tips with back of the house employees. New Mexico does not enforce FLSA Standards.
FILING FOR UNEMPLOYEMENT
If you file a wage claim and quit your job before you find another job, you may be able to claim unemployment insurance.
To qualify for unemployment insurance you need to prove: You quit for “Good Cause”.
- You must prove that you tried to reconcile the situation with your boss. For example, if the employer is requiring you to contribute to an illegal tip pool as a condition for employment, You need to prove that you raised your concern over the illegal practice and your boss still refused to change the practice. Correspond through email if possible- This establishes correspondence.
Although you may receive a letter of determination that your claim does not constitute good cause, do not give up. Appeal. Many state officials do not thoroughly understand the FLSA and will make a quick judgment. Its up to you to hang in there and make sure they do. Every states is different. You should contact them to find out what they consider valid reasons for quitting. And even if you do find another job while waiting on the appeal, you may still be able to collect on the weeks you certified if you win.
Your Tips: the Basics
1. Service charge vs. tip.
- When a service charge is added to a customers bill, full payment is expected and required from the customer. Tips are strictly voluntary and nonenforceable. Patrons can choose to leave a tip or not, for any amount they choose.
- Any currency/monies recovered or received from a service charge are property of the employer/restaurant and and any monies a server receives from a service charge is recognized as a “commission” rather than a tip and is reported as income.
- Any tip provided by the customer and intended for the server is considered the property of the server and any monies a server receives from a customer is defined as a tip or a gratuity.
So basically, an automatic service charge belongs to your employer and they can choose how much they want to share with the server. They may even choose not to share anything. (if this is the case, they must pay the full applicable minimum wage, not a subminimum wage)
A tip however, even if wait staff is required to participate in a tip pool is still considered the property of the server. Some in the industry believe an automatic service charge would help eliminate financial risk for servers. This however, would only be true if servers are guaranteed a certain percentage or commission, otherwise employers might not disburse any of the service charge to wait staff.
2. Credit Card Tips
- Employers are allowed to charge servers a fee to receive credit card tips by deducting a processing fee. The industry standard is three percent, which means where the policy is practiced, a server may only collect $19.40 out of each $20 in tips.
- California (CA Labor Code Section 351) PROHIBITS THIS DEDUCTION
- Colorado (Mininimum wage order 29) Only allows this deduction if the employer pays the FULL min wage of $7.78 Otherwise the practice invalidates the tip credit and if the employer chooses to pay the sub minimum wage of $4.76, they CANNOT also take a deduction for credit card processing fees.
- Unlike cash tips which are received on the same day, employers are allowed to postpone disbursing credit card tips until the next scheduled pay period.
Statements issued by the U.S. Dept of Labor from Opinion letters dated March 28th, 1977 and February 26, 1998- FLSA sS 3(m) and FOH3OdO5
“Where tips are charged on a credit card, it is the position of the Wage and Hour Division that the tips due the employee must be paid to the employee not later than the next regular pay day and may not be held by the employer while the employer is waiting to be reimbursed by the credit card company.”
“An employer may deduct an average standard composite amount for tip liquidation, rather than individually calculating the precise charge for each transaction, so long as the total amount collected reasonably reimburses the employer for no more than the total amounts charged by the credit card companies attributable to liquidating credit card tips. Any employer attempt to deduct an average standard composite amount for tip liquidation that exceeds such expenditures is not acceptable.”
A tip pool is an arrangement where a directly tipped employee (waiter or waitress) agrees to contribute a portion of your tips to support staff such as the bus person, host or bartender that are not directly tipped. The Pool House traditionally only includes tipped employees who are directly involved with service such as food runners, waiters, waitresses, host, bartenders, and buss persons. Listed below are some of the most common methods for pooling tips. Regardless of what type of pooled house the employer may use, tipped employees must be informed of the tip pool practice before they start working.
- Tip Pool Method #1 Tip Sharing: This method is to require wait staff to contribute or share a agreed upon percentage amount portion of their tips based on actual tips received and/or sales. Ex. Server agrees to a tip out amount of 15% to busser based on actual tips received If a server made $100 in tips, they must at least tip out 15 percent of tips to a buss person. In this scenario, the server can elect to tip out more but they can not fall below the agreed upon amount to be disbursed among the staff. The server also provides the employer with the amount of tips they received after tip out and the amount disbursed. The servers are provided with the daily sales information and know exactly how much food/wine they sold. They retain tips and surrender only the tips required by the tip pool. This is by far the fairest and best tip pool arrangement for both the food server and employer.
- Tip Pool Method #2 requires wait staff to contribute a portion of tips BASED ON TOTAL FOOD SALES. Ex Server sold $1000 in food and beverage sales and or required to tip out 5 percent of those sales. This method is not ideal. If a customer fails to tip, the waiter still is forced to tip out the busser/food runner on sales, not actual tips received or a percentage which means the server assumes the risk solely, not the support staff. EX. A percentage of tips are deducted automatically from Credit Card sale amounts not actually credit card tip amounts.Although beneficial for the employer, it does not fairly meet the compensation of the servers. Also, it can cause headaches if the server fails to make minimum wage due to a bad tip. Another example. Once I worked at a casino which gave away $500 dinner vouchers to its loyal gamblers. Some of these diners came in with the vouchers, ran up the bill, but then did not tip out on $500. Sometimes these diners left only.$10. I was still required to tip out a 15 % rate. ( Assuming I made $100, I owed the bussers $20 dollars even though I only made $10. I lost $10) The result. These type of diners were avoided like the plague and often received the worst service imaginable. Angry and dissatisfied, they wrote searing, awful reviews on trip advisor. My advice: Don’t put your servers in this position. If someone doesn’t tip properly, at least allow for adjustments and share the risk of business with everyone. The servers should not be the only ones who assume the burden of a bad tipper.
- Tip Pool Method #3 Employer may require waitstaff to surrender all tips to a general tip pool where a manager counts tips and then disburses them among wait staff and other workers such as bussers, food runners or hosts/hostesses. This arrangement can work well in a small family type setting. If the employer is trustworthy and the servers trust one another this method can work well. Tipped employees are encouraged to work more as a team. This arrangement is not recommended for large restaurants. In this situation, servers lose their say in how much they want to tip out and can lose the incentive to sell high end bottles of wine if they must share the success of the sale/higher tip amount with the entire staff. Often these types of tip pools are more prone to illegal deductions and coworkers may pocket some of their tips instead of surrendering them. Also, its common for resentment to build among staff who consistently sell more than other servers.
Tip Pool Restrictions:
Tip Pool Restriction #1 According to Fact Sheet #15, The U.S. Department of Labor states, “Tipped employees may not be required to share their tips with dishwashers, cooks, chefs, and Janitors.
This tip pool restriction however under does not apply to employers who do not take a tip credit and /or where state law prohibits a sub minimum wage for servers THIS IS NO LONGER TRUE!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
ON FEBRUARY 29, 2012 THE US DEPT OF LABOR ANNOUNCED THAT MANDATORY TIP POOLING WITH BACK OF THE HOUSE EMPLOYEES IS PROHIBITED REGARDLESS IF THE EMPLOYER ELECTS TO TAKE THE TIP CREDIT OR NOT. FIELD ASSISTNACE BULLETIN NO 2012-2 FROM THE DEPT OF LABOR STATES:
“Tip pool restrictions should be enforced uniformly across the country including in states covered by the ninth circuit.”
Previously in the 2010 decision Cumbie vs Woody Woo, the 9th circuit court of appeals ruled that tip pool restrictions did not apply to employers who did not take a tip credit. NOT ANYMORE! States previously impacted by this ruling include: California, Nevada, Washington, Oregon, Alaska, Idaho, Montana, Hawaii, and Arizona
Employers who do elect to take the tip credit and pay their tipped employees a special sub minimum wage are not allowed to also require tipped employees to subsidize the wages of non-tipped workers. When employers do require tipped employees to share tips with non-tipped, employees, the tip pool becomes invalid and illegal. Such a tip pool allows the employer to pay as little as $2.13 pr hr. They enjoy paying a low wage and a lower fica rate for the non-tipped employees. When tipped employees subsidize the wages of the dishwasher for example, the employer can get away with paying the non-tipped worker the regular minimum wage, instead of a living wage; thus reducing the amount of FICA contributions they will need to make for the non-tipped worker.
Tip Pool Restriction #2
In all 3 methods, including employers who do not take a tip credit, tips are the property of the tipped employees, not the owner. In other words, the owner or management may not keep tips for any other purposes than for disbursing among as tips to the tipped employees in a valid tip pool This means they can not set aside a certain amount of tips to be used later for errors of the pool house or other purposes. Please visit www.DOL.gov. and search for FLSA Fact Sheet #15 for more info. Also see Field Assistance Bulletin NO 2012-2 @ US dept of Labor
Tips are recognized by the I.R.S. as supplemental pay, subject to full taxation like any other wage. These days the I.R.S. uses documented credit card tips as a mirror, or tool to compare what they believe your reported cash tips should be. In other words, if your credit card tips are normally around 15%, you should be reporting 15% of your cash tips to stay out of the IRS radar. If you report lower cash tips than your credit card tips, you or your employer may be audited and required to pay the difference based on their estimates.
Rather than auditing individual servers, however, the IRS these days seems to prefer treating the restaurant as one unit. Employers are understandably more nervous and you should expect stricter tip reporting policies as they face potential liabilities if you under report. As a food server, you should also have access to information that shows the amount of your total gross daily food and drink sales even if an employer automatically declares daily tips for you. As an employee, you have the right to know the amount declared, what portion was contributed to a tip pool and what amounts were deducted for credit card processing fees.
Also, you should be keeping your own daily record of both cash and credit card tips, the amount and any names of people you contributed a portion of your tips to and any credit card processing fees that were deducted from your tips. This documentation should help in case you are in disagreement with what your employer has claimed for you or if you face an audit. Remember, your total declared tips are the amount after tip out and credit card processing fees.
Total reported cash tips + credit card tips minus tip pool, minus credit card processing fees = your total reported tips subject to tax.
Under reported Tips
Allocated tips are an additional amount of tips determined by your employer and applied to each server/employee for tax purposes whose reported tips fall below the required percentage. This means at the end of the year, when you file your income taxes, you will have to report the allocated tips and are liable for any taxes owed.
Over reported tips: If your employer is reporting a higher amount of tips than you actually received, you have the right to dispute it. Some employers who take illegal deductions from tipped employees such as forcing a tip out to the dishwasher will not require the dishwasher to report the tips they receive. Instead, they simply report that the server did receive those tips and the server/tipped employee is responsible for paying a higher tax amount. You can contend this by keeping a daily record of tips received and reporting these practices to the IRS if the employer fails to make the corrections.
What should I do if my employer reports a higher amount of tips than I actually receive?
You should first point out the mistake to the employer. At this point it is very important that you keep track of your tips. If you notice your employer is consistently over-reporting tips you especially need to be keeping track.
Go to the IRS Web site. Download and print Publication 1244, Form 4070 and 4070A . This is the official document you should use to record your tips. If the employer refuses to stop over-reporting your tips, you can download Form 3949-A. This document is called a Information Referral and will alert the IRS that the restaurant is providing false information. (You can be anonymous and not reveal your identity if you choose) This may spark a investigation by the IRS or prompt an audit.
Meanwhile, its important that you and fellow co-workers document your tips. When you receive your W-2 form at the end of January and it shows a incorrect amount for total tips earned, you can download Form 4852. W2 correction form. Fill it out and submit it to the IRS. The employer will also receive a copy. If they disagree and assert that their records are indeed correct, you will then mail your documented tips from form 4070 to challenge their claim. Any other receipts, documents you receive showing tips also keep. Co-workers who also follow the same steps will help prove your tip income.
You can also contact the Tax Advocacy at 877-777-4778.
Tip History: A snap shot
1942 Supreme court affirms tipped employees have exclusive rights to their tips.
1965 Congress includes tips in FICA withholding calculations with no employer contributions.
1966 The Tip Credit is created. In 1966, the Tip Credit is 50%, From there it varies from 40% to 50%
1977 The DOL releases an opinion letter, that stated that the Department did not question the practice of deducting credit card processing fees from a servers credit card tips.
1988 Restaurants are required by law to pay their own share of FICA taxes on the total reported tip income of their wait staff.
2002 On June 17th, 2002, United States vs Fior d’ Italia, the Supreme Court asserted that the IRS could charge FICA tax on an estimate of aggregated tips. Basically, A San Francisco restaurant is forced to pay over $20,000. in FICA taxes for the waitstaff, whom the IRS believes under reported their cash tips by examining thier credit card tips and making a comparison. Even though the wait staff reported 10% for cash tips, their credit card tips averaged 15% and the restaurant was penalized for the difference.
2006Dept of Labor releases a fact sheet that reaffirms employers are allowed to deduct credit card processing fees from a servers credit card tips.
2009 The Federal tip credit rises to $5.12 and exceeds 70%- The highest in its history.
2010 February, The Ninth Circuit Court affirms: Tip pooling restrictions only apply to Employees who claim a tip credit.
2012, February 29th. The US Dept of Wage and Hour rules that the Ninth Court affirmation is invailid and that mandatory tip pooling with back of the house employees, reqardless if a tip credit is taken or not is prohibited under the FAIR LABOR STANDARDS ACT