Tip Credit Notice


Let us start by telling you what happens if you don’t give your tipped employees notice that you are a taking a tip credit.

The tip credit that you’ve been taking ($3.02 per hour in Colorado and up to $5.12 per hour in other states) will be voided for at least the last two years. An example:

Bill’s Steakhouse, located in Colorado, employs 25 employees (servers, bussers, and bartenders) who are paid a cash wage of $4.98 per hour and receive tips. The state minimum wage in Colorado is $8.00 per hour so Bill is taking a $3.02 tip credit per hour for those employees.

Bill does not inform his employees (verbally or in writing) of the five things they are required to be informed of as tipped employees. He assumes that they know they are tipped employees since they get tips.

The U.S. Department of Labor investigates and tells Bill that since he did not inform his tipped employees of the five tip credit provisions he cannot claim his tip credit and retroactively takes it away from him. 

If Bill’s employees worked an average of 30 hours per week for the last two years he will be required to pay the following:

25 employees * 30 hours * $3.02 (the tip credit) * 104 weeks = $235,560.00 in back wages and $235,560.00 in liquidated damages = $471,120.00 

So Bill is out almost half a million dollars. Keep in mind that he did not cheat his employees out of any wages or pay them less than he was supposed to.

Just in case you think that the U.S. Department of Labor and/or the courts would never actually enforce this – think again:

The section 3(m) requirement that the employer “inform” its

tipped employees of the provisions of section 3(m) prior to taking a

tip credit has been strictly enforced by the Department and by the

courts. Courts have disallowed the use of the tip credit for lack of

notice even “where the employee has actually received and retained

base wages and tips that together amply satisfy the minimum wage

requirements,” remarking that “[i]f the penalty for omitting notice

appears harsh, it is also true that notice is not difficult for the

employer to provide.” Reich v. Chez Robert, Inc., 28 F.3d 401, 404 (3d

Cir. 1994) (citing Martin v. Tango’s Restaurant, 969 F.2d 1319, 1323

(1st Cir. 1992)). 

(76 Final Rule Page 18839 April 5, 2011)

 Employers who claim a tip credit are required to inform tipped employees of the following five provisions:

1) the amount of cash wage the employer is paying a tipped employee

2) the additional amount claimed by the employer as a tip credit

3) that the tip credit claimed by the employer cannot exceed the amount of tips actually received by the

tipped employee;

4) that all tips received by the tipped employee are to be retained by the employee except for a valid tip

pooling arrangement limited to employees who customarily and regularly receive tips; and

5) that the tip credit will not apply to any tipped employee unless the employee has been informed of these tip credit provisions.

The Labor Brain has a tip credit notice in English and Spanish that employers may fill in with their specific cash wages and tip credit amounts. If you’d like one please send us an email at info@laborbrain.com and we’ll be happy to send you a free copy.

We hope you found this week’s tip helpful and informative. Please pass it along to anyone you think might be at risk as a result of not giving tip credit notice. Follow us on facebook to get the next Tip of the Week on your newsfeed!

Link: https://laborbrain.com/tip-of-the-week-tip-credit-notice/

–      By Kalen Fraser

The Labor Brain Inc. is not a law firm and its employees do not practice law or provide legal services.  The information provided on our website,  in email correspondence with representatives of The Labor Brain, and at outreach events is for informational and educational purposes only.  The information provided is not a substitute for the advice of an attorney.