In recent months, a number of high profile restaurant chains and celebrity chefs have been hit with class or collective action claims alleging minimum wage and other violations involving tipped wait staff. While most of these cases have been concentrated in California and New York, North Carolina and South Carolina food service employers should be aware of rules governing how wait and related staff are compensated.
These cases generally involve two restaurant practices: Tip credits and tip pooling. Tip credits refer to the employer's ability to count tips received by the server to bridge the difference between the cash minimum wage for servers ($2.13), and the applicable federal minimum wage ($7.25) owed to these employees. Employers are entitled to count tips as "credit" toward the full minimum wage if they follow certain rules with regard to tipped wait staff.
Most importantly, the wait staff must be entitled to retain all tips received. The employer cannot claim part or all of their tips, and in many states, only limited tip pooling (see below) is allowed. Tip credits only apply to discretionary gratuities left by customers, and not to any mandatory service charge added to the bill.
Tip pooling refers to the practice of wait staff sharing a portion of tips for distribution among themselves, or to hostesses, bartenders, bussers or other qualified restaurant employees. In North Carolina, tip pooling arrangements are limited to 15% of the tips received by the employee. South Carolina does not limit the pooled amount. Also, the restaurant cannot require the wait staff to pool tips for distribution to cooks, dishwashers, janitors or other "back of the house" personnel. The employer must maintain accurate records of pooled tips.
Many recent federal and state lawsuits involving tipped employees allege loss of the tip credit toward minimum wage, often claiming that the employer improperly claimed entitlement to all or a portion of the employee's tips. Others allege illegal tip pooling arrangements exceeding statutory limits, or requiring distribution to ineligible employees.
Food service employers should thoroughly train management on tip credit and tip pooling requirements and limitations. Restaurants found to be in violation of these laws face lawsuits claiming entitlement to double the amount of wages owed, interest, attorneys fees and costs.