Posted on 24-Mar-09 by The Timekeeper

Here’s a familiar-sounding story, but with a bit of a twist. From the website of the Bolivar Herald-Free Press in Missouri comes the sad tale of Smith’s Restaurant, which was recently required to pay $34,625 in back wages and $1,485 in penalties following an investigation by the federal Department of Labor.

While there were several alleged violations at issue, the most interesting related to the restaurant’s tip sharing policies.

According to the article, under Missouri law, it’s OK to ask servers to share their tips with “any employee who participates with the server in rendering some personal service to the patron.” But the law doesn’t specify exactly which other employees are eligible, nor does it specify an amount to be shared. Basically, as I understand it, the law says the server and the restaurant owner should hash out between them what the tip sharing arrangement should be.

Now, we’ve covered several stories previously about tip sharing, where either management was keeping tips for themselves (definitely illegal) or forcing servers to share tips with kitchen staff so management wouldn’t have to pay minimum wage to the cooks and dishwashers (also illegal).

But this story isn’t about that.

Law versus Law

What makes this story a little out of the ordinary is that reportedly the restaurant’s owners, Mark and Angie Smith, had consulted with the Missouri labor department and had been told their practices were OK under state law.

The problem? It wasn’t that they were asking servers to share their tips with ineligible employees — the employees who were sharing the tips were hosts/hostesses and bus staff who did help the servers “render personal service to the patron.” The problem was that they were withholding the tip shares from the servers’ paychecks instead of settling up in cash at the end of each shift.

According to the Smiths, they had followed this practice for four years after getting official “blessing” from the Missouri Department of Labor. They were told all they had to do was make sure the servers were aware of the deduction and that the deduction itself was clearly stated on the check stub.

Unfortunately for the Smiths, federal law doesn’t allow businesses to make these kinds of deductions from employee paychecks. And in the world of wage and hour, whichever law is more restrictive or strict “wins.”

The issue came to light during a routine DOL visit to the restaurant in August 2008. The inspector noticed the deduction on a server’s paycheck and questioned it.

And even though state law said it was OK, they had to pay back wages because their policy violated federal law.

(The same sort of thing holds true in the other direction when, for instance, a state passes a law that specifies a higher minimum wage than the federal standard. Workers in that state must be paid at least the state minimum, not the lower federal minimum wage.)

Why? Why? Why?

As an aside: for those of you who might be wondering why the federal law would not allow paycheck deductions, here’s what I think. (Keep in mind, I’m not a lawyer. I don’t even play one on the Internet.) Wage and hour law stipulates that almost all employees have to be paid at least minimum wage. Federal law and most state laws allow a lower minimum wage for tipped staff, as long as their tips are sufficient to bring them over the minimum wage.

If the combination of the lower tipped-employee minimum wage and the actual tips received don’t meet the general minimum wage, the employer has to make up the difference. So usually employees have to keep track of the tips they receive and let their employers know how much they got so the employer can perform the calculations to ensure their total compensation is above minimum wage.

When employees pool tips at the end of the shift, the total tips each server will report will be the amount of tips they actually get to keep after they’ve contributed the tip pool, not the gross amount of tips they might have received. So when their paycheck is calculated at the end of the week, they’ll get the tipped-employees’ minimum, plus a credit for the tips they actually kept, and if the two don’t add up to the “real” minimum wage, the employer will kick in the difference.

But when tip sharing is handled through a paycheck deduction, the employees’ total compensation would most likely be calculated based on the gross tips they received, because the amount of the deduction for the tip pool might not have been figured up yet. When the tip pool amount is subsequently deducted, this could cause some servers’ actual total compensation (wages + actual retained tips) to dip below minimum wage — but the employer would show the employees as making more than minimum wage because the employer is counting gross tips, not what the employee actually gets to keep after the tip pool.

While everyone seems to agree the Smiths were not at all trying to cheat their staff, and that none of their servers made less than minimum wage, an unscrupulous employer could use this to weasel out of paying their wait staff the “real” minimum wage.

All’s well that ends well… sort of…

The Smiths say they’ve discussed the matter with their staff, and have implemented a new policy of settling up the tip sharing in cash at the end of each shift, so all’s well that ends well… but ya know? While it’s great they talked to the state Deparment of Labor, but they probably could have saved themselves tens of thousands of dollars in back wages if they’d consulted with an attorney versed in both federal and state wage and hour laws before they implemented their original policy.

That made for a pretty expensive learning experience. Don’t let yourself get similarly caught unawares.

Related Posts

• An Interesting Distinction
• Tip Your Hat to the Hard Working Waitstaff
• Get Ready for Another Minimum Wage Increase
• Kansas Raises Minimum Wage

No Comments

No comments yet.

Comments RSS TrackBack Identifier URI

Leave a comment