Tips are considered wages, court decides

Employers in the service industry should consult with an employment lawyer before requiring workers to pool their tips. That’s because the laws regarding tip pooling can be complex and employers who engage in certain tip-pooling practices run the risk of violating the federal Fair Labor Standards Act and state wage laws.

This happened recently in South Carolina. Zen 333, a restaurant in Charleston, didn’t allow bartenders or wait staff to take tips directly from customers. Instead they had to put them into a tip pool that was divided among the staff. Servers also had to contribute 4.5 percent of their gross food and alcohol sales directly to “the house” and 3.5 percent of their alcohol sales to the bartenders, who in turn had to contribute a percentage of their alcohol sales to “the house.” According to bartenders and waiters, the restaurant’s owners would withdraw these mandatory contributions from the tip pool and if the cash tips didn’t cover those contributions they’d take the difference from credit-card tips.

The bartenders, who were paid $40 plus tips for all shifts worked, and the servers, who were paid $2.25 an hour plus tips, took the restaurant to court, claiming that this practice violated FLSA and the state wage law because it resulted in them not being paid the wages they earned.

The restaurant tried to have the case dismissed, arguing that tips don’t count as wages.

But a federal judge disagreed, deciding that because tips are payment for work they clearly count as wages. Now the employees will be able to bring their case before a jury.

It’s important to note that a decision like this does not mean employers can never use a tip-pooling arrangement, but they do need to talk to an attorney to make sure that the particular arrangement they choose doesn’t run afoul of the law.