Tips on Tips: How Business Owners Can Handle Employee Tips

By: Zachary H. Brown, Esq.
Clark, Campbell, Lancaster & Munson, P.A.

Tipping is a clear process that most of us consider second nature at this point. However, the law behind the tip, and how employees and employers utilize the tip, is less clear. Does that tip always go to the employee? Can an employer pay an employee less than the legally required minimum wage based on an employee’s tips? The following are certain legal points that will help business owners navigate the world of tip law.

The basics of tip law are rooted in labor law. Business owners must pay employees a minimum wage based on federal and state law. This wage, at the federal level, is $7.25 an hour, but Florida law requires that employees are paid at least $8.25 an hour. If an employee is a “tipped employee,” then under the Fair Labor Standards Act (FLSA) employers can use a portion of the employee’s tips as a “tip credit,” which means they may reduce the minimum wage owed to an employee up to a certain extent based on the employee’s tips. In Florida, the law allows employers to reduce the minimum wage with a tip credit of up to $3.02 an hour.

However, an issue still arises as to when an employee is technically considered a “tipped employee” or whether he or she is a normal employee for the purposes of minimum wage. For example, an employee who works at a restaurant both as a server and as a host/hostess, but the employee is only tipped for the server job. This makes it imperative for a business owner to keep track of when an employee is receiving tips, so that the tip credit is only applied to the wages the employee earns while that employee is being tipped.

Business owners should also be wary of reducing employee tips based on credit card charges. The idea behind this is that if an employer is charged a 3% service charge on credit card transactions, that employee who is claiming those credit card tips should bear that cost. Thus, it is a common trend that employers will reduce an employee’s tips by 3% as a result of this credit card transaction fee. While the FLSA allows for this deduction at the federal level, Florida law on this matter is still undecided, so reducing employee tips by this amount comes with its fair share of risk.

Mandatory service charges are another aspect requiring close attention by business owners. For example, in restaurants when the party is six people or more, or when room service is ordered at a hotel, customers are used to receiving an 18% mandatory service charge that is already included on the bill. While most of us consider this an automatic tip that will go to the server or employee attending to the customer, it actually is part of the taxable sales price of the food or drinks, and thus the business owner does not have to share this charge with the employee. Only when the mandatory service charge is separately and clearly stated as a gratuity or tip will the employer be legally obligated to give the benefit to the employee.

As always, it is important to consult with a local attorney before making changes on how to handle tips in the workplace.

Zach Brown is an attorney with the law firm Clark, Campbell, Lancaster & Munson, P.A. in Lakeland. Questions can be submitted to thelaw@cclmlaw.com.

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