Search This Blog

Friday, September 26, 2014

Tip Credits Can be Complicated

By: Tommy Eden

Leonzo Alvarado, a car wash attendant for Five Towns Car Wash, Inc. ("Five Towns") in New York claimed that Five Towns improperly benefited from the Fair Labor Standards Act tip credit because he claimed three supervisors improperly shared in the tip pool. Alvarado also claimed the Five Towns violated the FLSA by failing to inform him that a tip credit would be applied to his wages. Employers may pay tipped employees as little as $2.13 an hour if the employee makes enough in tips to reach the $7.25 minimum wage, but employers must provide advance notice to employees.

The Federal District Judge was unable to find clear evidence that that the car wash failed to provide Alvarado with proper tip credits notice or that the 3 others persons included in the Tip pools were supervisors, and found that such were fact questions were jury issues. The case is Alvarado v. Five Towns Car Wash.

Common Sense Counsel: This is a great case to review DOL Tip Credit regulations.
Tipped employees are those who customarily and regularly receive more than $30 per month in tips. Tips are the property of the employee. The employer is prohibited from using an employee’s tips for any reason other than as a credit against its minimum wage obligation to the employee (“tip credit”) or in furtherance of a valid tip pool.

The requirement that an employee must retain all tips does not preclude a valid tip pooling or sharing arrangement among employees who customarily and regularly receive tips, such as waiters, waitresses, bellhops, counter personnel (who serve customers), bussers, and service bartenders. A valid tip pool may not include employees who do not customarily and regularly received tips, such as dishwashers, cooks, chefs, and janitors.

Tip FLSA Credit Requirements. The employer must provide the following information to a tipped employee before the employer may use the tip credit:
1) the amount of cash wage the employer is paying a tipped employee, which must be at least $2.13 per hour;
2) the additional amount claimed by the employer as a tip credit, which cannot exceed $5.12 (the difference between the minimum required cash wage of $2.13 and the current minimum wage of $7.25);
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.

Dual Jobs are those when an employee is employed by one employer in both a tipped and a non-tipped occupation, such as an employee employed both as a maintenance person and a waitperson, the tip credit is available only for the hours spent by the employee in the tipped occupation. Knowing the regulations is your best tip to say out of court.

Tommy Eden is a partner working out of the Constangy, Brooks & Smith, LLP offices in Opelika, AL and West Point, GA and a member of the ABA Section of Labor and Employment Law and serves on the Board of Directors for the East Alabama SHRM Chapter. He can be contacted at or 334-246-2901. Blog at and follow on twitter tommyeden3