A few years back, some restaurants around the country made headlines by paying their waitstaff more than minimum wage and putting the kibosh on customer tips.
This broke with the traditional way of paying customarily-tipped employees. That is, most employers would pay the minimum-required cash wage of $2.13 for tipped workers under the Fair Labor Standards Act (unless your state requires a higher minimum wage) and use customer tips as a credit against the $7.25/hr. minimum wage obligation to the employee. This is known as, you guessed it, the tip credit.
When using a tip credit, employees keep the tips. But what if you aren’t using a tip credit?
What if you pay your servers more than the minimum wage? Who keeps the tips?
You do! At least, that’s what the Tenth Circuit Court of Appeals recently concluded in Marlow v. The New Food Guy, Inc.:
“Under the clear text of the FLSA, restrictions on employers’ use of tips apply only when the employer uses tips received by the employee as a credit against the employee’s minimum wage. If an employer pays more than the minimum wage without regard to tips, the FLSA does not restrict the employer’s use of tips.”
This is consistent with the purpose of the FLSA, which ensures that workers receive the “minimum standard of living necessary for health, efficiency and general well-being of workers.” (Yes, I understand that $7.25/hour hardly fulfills this purpose, but that’s the law.)
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What about the DOL regulation which states that “tips are the property of the employee whether or not the employer has taken a tip credit under section 3(m) of the FLSA?” Overreach, said the Tenth Circuit:
“The government does not point to any statutory language directing the DOL to regulate the ownership of tips when the employer is not taking the tip credit. The government relies instead on the absence of any statutory directive to the contrary. But as stated by the en banc D.C. Circuit, ‘Were courts to presume a delegation of power absent an express withholding of such power, agencies would enjoy virtually limitless hegemony, a result plainly out of keeping with Chevron and quite likely with the Constitution as well.’”
In other words, check yourself before you wreck yourself. And, if you want to pay servers more than minimum wage, then you can keep the tips. Just remember to pay overtime (time and a half) as you would with any other non-exempt employee who works more than 40 hours in a workweek.
This article first appeared on The Employer Handbook.