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Wage Theft in Restaurants

By Josef Buenker on March 22, 2018

            Restaurants are notorious for violating the Fair Labor Standards Act (“FLSA”).  Many restaurants violate both the minimum wage and overtime requirements of the FLSA, and do so in a number of different ways.  Both “front-of-the-house” employees such as servers and “back-of-the-house” workers like cooks can be victims of wage theft.

Tipped Employees

            Tipped employees like waitstaff/servers are routinely underpaid due to FLSA violations by their employers.  Under the FLSA, using the “tip credit,” employers are only required to pay tipped employees $2.13 per hour for the first 40 hours they work, as long as the employee receives enough tips to make a total of at least the minimum wage of $7.25 per hour for the workweek. Many restaurants don’t keep track of the tips the employees receive, so they don’t have a system in place to ensure that the employees make at least the minimum wage. This can become a problem for the employer because the employer has the obligation to keep track of wages and tips.

Tip Credit Issues

            In order to take advantage of the tip credit and pay employees less than minimum wage, employers are required to keep records of the tips and compensation paid to employees. If an employer does not keep track of tips received by employees, the employer could lose the tip credit and owe minimum wage pay to tipped workers for all hours worked; this can be devastating to the employer.  The purpose of this rule is to ensure that tipped employees actually earn at least the FLSA-required minimum wage. In addition, tips belong to the employee who earns them, unless there is a valid tip pool (see below).  If the employee does not get all of her tips, then the employer can lose the right to take the tip credit and may have to pay the employee minimum wage for all hours worked.

Time Spent Doing Non-Tipped Work

            Employers are only allowed to require tipped employees who are paid sub-minimum wages to perform a certain amount of “non-tipped” work, such as a waitress who is required to help clean up the dining room after the lunch rush or to set tables for the next customer.  The general rule is that the employer cannot require the employee to spend more than 20% of her time doing non-tipped work. The employer should pay the employee at least minimum wage pay if this type of work exceeds 20%.

Tip Pools

            The FLSA’s requirement that an employee must keep all tips does not preclude a valid tip pooling or tip sharing arrangement among employees who regularly get tips, such as servers, counter personnel (who serve customers), busboys and the like. A valid tip pool cannot include employees who do not customarily and regularly received tips, such as dishwashers and cooks. The Department of Labor’s requirements for a valid tip pool are:

The employer must provide the following information to a tipped employee before the employer may use the FLSA 3(m) tip credit:

  • the amount of cash wage the employer is paying a tipped employee, which must be at least $2.13 per hour;
  • 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);
  • that the tip credit claimed by the employer cannot exceed the amount of tips actually received by the tipped employee;
  • 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
  • that the tip credit will not apply to any tipped employee unless the employee has been informed of these tip credit provisions.

If all of these requirements are not met, then the employer may be forced to pay employees the difference between the hourly rate they were paid and the minimum wage for all hours worked.

Overtime for Tipped Employees

            A very common problem encountered by tipped workers is that the employer pays them overtime pay based on the tipped employee wage of $2.13 per hour.  The FLSA, however, requires the employer to pay overtime to tipped employees based on the minimum wage. 

Salaried Workers

            We have seen many instances of kitchen workers who are paid a salary and work in excess of 40 hours per week.  In extreme cases, we have represented workers in restaurants and food trucks who worked in excess of 70 hours per week for as little as $400.  Workers such as dishwashers and cooks who are paid a set salary for all hours worked, and who work more than 40 hours per week are entitled to receive overtime pay.

Managers/Supervisors

            The restaurant industry has had more than its share of employees called “assistant managers” or “shift supervisors” who were designated as exempt, salaried employees.  While a manager of a restaurant who is in charge of the location and has authority to hire and fire employees would likely be an exempt employee, a worker who does not have that type of authority is probably entitled to receive overtime pay.

            If you are a restaurant worker and believe that your employer may not be paying you correctly, contact and attorney knowledgeable in wage and hour laws to evaluate your situation.

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