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Employer Withholding Tips (Legally Explained in 2024)

In the United States, employers are generally not allowed to withhold tips from employees who earn them. Tips are considered the property of the employee who receives them, according to the Fair Labor Standards Act (FLSA).
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Tip Laws

From a federal perspective, tips are considered the property of the employee who receives them. However, federal wage law allows employers to count a portion of an employee’s tips towards meeting the minimum wage requirements under the FLSA. This means that employers can pay tipped employees a lower cash wage as long as the tips make up the difference in reaching the minimum wage.

According to the WageClaim – Despite the fact that the tips are the sole property of the employee, federal law also allows management to force employees to be in tip pools [1].

However, there are limitations on who can participate in tip pools. Only employees who customarily and regularly receive tips can be part of a tip pool.

In a recent case, the Ninth Circuit Court of Appeals ruled that the rules regarding who can share in a tip pool do not apply if a tip credit is not being taken by the employer. This ruling is particularly relevant in states like Oregon, which prohibit employers from taking a tip credit.

What is the Fair Labor Standards Act (FLSA)?

The Fair Labor Standards Act of 1938 29 U.S.C. § 203[1] (FLSA) is a United States labor law that creates the right to a minimum wage, and “time-and-a-half” overtime pay when people work over forty hours a week.

Among its provisions, the FLSA establishes the right to a minimum wage and requires that employees be paid “time-and-a-half” for any hours worked beyond forty in a single week.

Additionally, the FLSA prohibits the employment of minors in “oppressive child labor.” This law applies to employees involved in interstate commerce or employed by an enterprise engaged in commerce or the production of goods for commerce, with some exemptions available to employers.

The FLSA was passed by the 75th Congress and signed into law by President Franklin D. Roosevelt in 1938.

What Happens if an Employer Violates Tipping Laws?

Employers who violate LC 351 are subject to penalties, including potential misdemeanor charges. This can result in up to sixty days in jail and/or a fine of up to $1,000, for failing to comply with tip laws.

Gratuity laws mandate that employers maintain meticulous records of tips. It’s crucial for them to accurately document all tips received, whether directly from customers or indirectly through employees.

Adhering to tip laws is crucial for employers, as violations can lead to significant legal consequences. Keeping detailed records is highly advisable.

What to do if Your Boss is Stealing Your Tips

Just as business owners are devising unique methods to withhold tips, employees must find ways to reclaim them. For instance, an employee could file a wage claim, arguing that tips should be classified as wages.

While this goes against federal law, it opens up various options if successful under state laws. The employee might recover penalty wages or assert that deductions from tips were unlawful, leading to entitlement to damages.

In a suitable case where the employer is non-compliant with other wage laws, combining the tip claim with that of other violations could reduce the risk of litigation. Alternatively, the employee could file claims for tip conversion (theft of tips). Under specific circumstances, an employee might be able to structure the tip conversion case to ensure their attorney fees are covered.

Also Read: How Much Does A Waitress Make An Hour Without Tips?

U.S. Tipping Statistics

  • In the United States, the average tip is approximately 18%.
  • California stands out as the state with the highest tipping rate, around 23%, while Illinois has the lowest average tip at roughly 14%.
  • During the holidays, Americans tend to be more generous with their tips, averaging around 20%.
  • Despite these averages, many Americans are feeling tipping fatigue. A survey found that about 63% of Americans believe that too many establishments are requesting tips, and nearly 48% express fatigue from being consistently asked to tip.

Source: USA TODAY [3].

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See all related hourly worker wage dispute lawsuits our lawyers covered so far.

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If you or a loved one was involved with these matters, you should contact our law firm immediately for a free case evaluation. You may be entitled to a settlement by filing a suit and we can help.

References:

1. https://www.wageclaim.org/what-happens-if-your-employer-is-stealing-your-tips/
2. https://en.wikipedia.org/wiki/Fair_Labor_Standards_Act_of_1938
3. https://www.usatoday.com/money/blueprint/credit-cards/tipping-statistics-in-the-us/

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