I own a restaurant in Louisiana. I pay all of my staff, including waiters $8 or better. Are tips their property or mine?

Rita Risser Chai replies:

Under current law (February, 2018) their tips belong to them. As reported by the Washington Post, the Trump administration proposed in December, 2017, to reverse a rule enacted during President Barack Obama’s administration, which declared tips the property of the workers who collected them. The new rule would apply only to firms that pay tipped employees at least the federal minimum wage of $7.25 an hour and allow compensation sharing through a “tip pool” with workers who usually don’t receive tips, such as cooks and dishwashers.

Not even the Trump administration is proposing that owners be able to take the tips. However, there is another way you can reduce the pay of your employees.

If employees get more than $30 per month in tips, you can use their tips as a credit to offset your minimum wage obligation. This is called a “tip credit.” A tip credit is equal to the difference between the required cash wage (which must be at least $2.13) and the federal minimum wage. Thus, the maximum tip credit that an employer can currently claim under the FLSA is $5.12 per hour (the minimum wage of $7.25 minus the minimum required cash wage of $2.13).

Although taking a tip credit is perfectly legal, as a former waitress I urge you not to do it. Your wait staff works hard for those tips, and they are not getting rich on them. Their tip money could mean the difference between their kids going hungry or being well-fed. The way you can increase your income is to increase your prices. Incidentally, that will have the effect of increasing the tip income of your wait staff. That way, everybody wins.

Posted 02-07-2018

Information here is correct at the time it is posted. Case decisions cited here may be reversed. Please do not rely on this information without consulting an attorney first.


About the Author:

Rita M. Risser Chai is the founder of Fair Measures. An attorney in California for 20 years and now an attorney in Hawaii, she authored the Prentice Hall book, Stay Out of Court! The Manager’s Guide to Preventing Employee Lawsuits. She developed most of the curriculum used by Fair Measures, created the firm’s first website praised in HR Magazine, and wrote numerous articles on employment law including one on best practice harassment prevention training published in the magazine of the American Society for Training and Development (now ATD). She taught Law and Human Resources at the University of California, Santa Cruz, for eight years, and has presented four times at the annual conventions of the Hawaii Society of Human Resource Management.