Jobs in the restaurant industry are some of the lowest paid jobs in the US. Food preparers, cooks, hostesses, bartenders and waitresses make very little in terms of actual wages from their employers.
So why do people work these jobs? Tips or gratuities these workers get from their customers enables them to make a living. But there's more involved with tips than meets the eye.
Where There's Money, There Are Laws
It shouldn't come as a surprise that there are federal and state laws on how tips need to be handled - by both employers and employees. The main laws deal with tip crediting, tip pooling and tip reporting.
Following these laws can get complicated, and state laws are different from state to state. It's important to talk to an attorney to make sure you're doing things properly when it comes to tips.
Tip Crediting
Employers usually have to pay their employees the minimum wage set by the federal and state governments. However, federal law and most states let employers pay less than the minimum wage to employees who receive tips. This is called a tip credit.
Minimum Wage Still Applies
To get the tip credit, workers must receive enough in tips so they end up receiving at least the minimum wage. If they don't, the employer has to pay them the difference.
Employers who want to take tip credits must tell their workers well in advance before actually paying them less than minimum wage.
Amount of Actual Wages
Under federal law, an employer must pay at least $2.13 an hour in direct wages to employees who make tips.
State laws are different on the maximum amount of tip credit an employer can receive and the minimum amount of direct wages workers must be paid. For example:
- In some states, such as Alaska and California and Oregon, employers can't take any tip credits
- In states like Illinois and Massachusetts, employers get credits only if workers' wages plus tips are at least $.50 more than minimum wage
All for One and One for All?
Many employees help each other make more tip money by sharing or pooling their tips.
Tip Sharing
Tip sharing is when two workers share tips earned while serving their specific customers. For example, a waiter and a busboy may share the tips earned while servicing a table or a set of tables.
Tip Pooling
Tip pooling is where a portion of all tips from all workers is pooled together and redistributed to everyone. This way all workers profit from servicing all customers. So, a waiter who serves fewer people than other waiters on a "slow" night still gets a share of the night's business.
A potential problem with tip pooling is that it may financially hurt workers who give the best service. Every service employee, even the bad ones, get some of the tip money. So, there may be less of an incentive to do a good job.
More Legal Rules
Tip pooling also means more rules for employers to follow. Federal law and many state laws allow employees to pool their tips. Employers can even make tip pooling mandatory. There are certain restrictions, though:
- Employees only have to pay a customary and reasonable amount of tips to the pool
- Usually only workers who customarily receive tips can belong to a tip pool, which excludes behind-the-scene jobs such as dishwashers, janitors and cooks
- Employers are never entitled to belong to a tip pool
Next: Tip Reporting