Restaurant owners are constantly faced with new challenges when it comes to complying with state, local, and federal regulations. Recently, the Department of Labor changed the requirements relating to minimum wage and compensation for tipped workers. Compliance with the new federal requirements for tipped workers is important as each violation may result in a $1,162 penalty.

Currently in Pennsylvania, a business owner must pay all their employees at least the minimum wage of $7.25. But businesses that employ “tipped-workers” are only required to pay those workers $2.83 directly. The remaining $4.42 may be collected by the worker as tips, and the employer can take credit for that amount to show compliance with minimum wage standards. Under the new Final Rule, an employer can only take a tip credit for work that was either tip producing or work that directly supports tip-producing work.

What is a Tip?

Whatever amount the customer leaves over and above their bill (plus tax) is considered a tip. Some restaurants tack on a mandatory service charge on bills for large tables, private parties, or catered events. Mandatory service charges are not considered a tip, and employers may keep this amount. For tax purposes, any amount paid out from the mandatory service charge to employees is considered a wage and not a tip.

What is Tip Producing Work?

The distinction between tip-producing work and non-tip-producing work is simple. Tip-producing work is defined by the DOL as “all aspects of the work performed by a tipped employee when they are providing service to customers” from which they are receiving tips. To illustrate, tip-producing work for a bartender might include, recommending/making drinks, conversing with patrons, and changing the channel on the bar TVs. Conversely, non-tipped work might include cleaning bathrooms, sweeping the parking lot, or painting. An employer may take a tip credit for any time sent spent on tip-producing work.

In certain circumstances, an employer may also take a tip credit for time an employee spends completing work that directly supports tip-producing work. This is work that is performed in preparation for tip-producing work. Again, using a bartender as an example, directly supporting work might include wiping down the bar, cutting fruit before customers arrive, and filling drink dispensers. An employer may only take a tip credit for directly supporting work where 1) the work does not constitute more than 20 percent of that employee’s hours worked during the workweek, or 2) the work does not exceed thirty consecutive minutes of the worker’s time.

How does Tip Pooling Work?

Employers may require tipped employees to pay their tips into a “tip pool” that is shared among the tipped workers. But, if the employer is claiming a tip credit to comply with minimum wage requirements, then only employees who regularly receive tips can be part of the tip pool. That means that under Pennsylvania law, employees cannot be required to share tips with other employees who do not typically receive tips, such as dishwashers or cooks (unless the employer does not claim a tip credit and pays each employee the minimum wage directly).

Likewise, managers and supervisors are prohibited from receiving tips that have been paid into a tip pool (even if they are required to contribute to that tip pool). Managers or supervisors are only permitted to retain a tip when they receive the tip directly from customers based on the service provided directly and solely by the manager/supervisor.

If you have questions regarding your company’s tipping procedures click this link or call and schedule a consultation with Cozza Law Group PLLC today!