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Is Your Employer Committing Wage Theft by Withholding Your Tips?

By June 5, 2018 January 15th, 2021 Employment Law, Doc's Corner
employer withholding a workers wage, Ramos Law

Have you worked hard to only have your employer take your tip? In March 2018, Congress amended the Fair Labor Standards Act (the law that governs payment of overtime and wages) to prohibit employers from keeping tips received by employees for any purpose including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit.

What is the Fair Labor Standards Act?

Workers’ rights in the United States are governed under the Fair Labor Standards Act (FLSA) first established in 1938. This law established rules for both employees and employers, including wage laws as they relate to labor.

Tipping and what employers are allowed to do with tips has been a recent hot-button issue in the news. Many companies have considered new policies relating to tips, such as doing away with tipping policies in order to raise employee wages. They might make up for the change in tipping policy by raising the prices on food, which can bring up a wide variety of opinions from patrons and other business owners.

Other company policies may include pooling all tips together and distributing the amount to all of the employees that worked during that shift. This might include supervisors, managers, and owners that do not normally collect tips receiving a portion of the tips. This might allow for employers to use a tip credit under the law.

What is a Tip Credit?

A tip credit occurs when an employer uses a portion of the tips an employee earns towards their hourly rate of pay, in essence allowing the employer to pay them less than the minimum wage if they can earn enough tips to make up the difference.

In Colorado, for instance, the current minimum wage is $10.20 per hour. If the employee earning tips makes above that amount in a given period, the employer may use the tips earned towards their hourly pay, thus using a tip credit. However, if an employee does not make that amount with tips, the employer is required to pay them their regular hourly rate of at least the minimum wage (or more if their contract has a higher pay).

When Can Employers Deduct Credit Card Processing Fees from an Employee’s Tips?

Under the Fair Labor Standards Act (FLSA), Colorado, in situations where tips are charged on a credit card and the employer is required to pay the credit card a percentage on each sale, employers can deduct credit card processing fees from an employee’s tips, but cannot simultaneously claim the employee tip credit.

Are Service Charges Tips?

According to the IRS, automatic gratuities/service charges for large or private parties are not tips. In Colorado, employers can retain the service charge, as it is a contract between the customer and restaurant, or share the service charge with the staff. However, if it is shared with the staff, then it must be categorized as wages instead of tips, and, as a result, must have Social Security and Medicare withheld on these amounts.

Can Employers Legally Deduct Restaurant Expenses from Employee Paychecks?

There are a few circumstances where it is legal for employers to deduct restaurant expenses from an employee’s payroll, including deductions for taxes or wage garnishment or to repay the cost of items stolen by an employee. However, outside of these deductions, it is illegal for an employer to deduct the cost of uniforms, customer walkouts, meal mistakes, glass or plate breakage, or other customer-related mistakes from an employee’s tips.

Rules Regarding Tip Wages

The fact sheet released with this FLSA change makes it clear that, even if a tip pool is part of the company policy, “tips are the property of the employee whether or not the employer has taken a tip credit.” The fact sheet further states that an employer cannot use an employee’s tips for any reason other than as a “credit against its wage obligations to the employee, or in furtherance of a valid tip pool.”

Colorado Employment Laws

Under Colorado state law, an employer can take a tip credit on the tips you receive in the capacity of your job. Employees are only required to hand tips over to them if:

  • The tips are part of a tip pool

If an employer in Colorado does use a tip pool and the tips are shared with employees who do not normally receive tips for their work, such as kitchen staff, a tip credit cannot be claimed at the full minimum wage (or whatever hourly wage has been negotiated with employees above that amount) must be paid.

Contact a Colorado Employment Law Attorney

If you have questions about your wages and want to know if a current or recent employer has been violating wage laws, thus leading to wage theft give us a call! The attorneys at Ramos Law are committed to preventing wage theft and taking cases to court if it is made evident in our consultations with employees questioning their employer’s labor practices.

Colleen T. Calandra, JD, LLM

Colleen T. Calandra, JD, LLM

Colleen Calandra is a Denver employment law attorney offering assistance for employees in cases such as workplace discrimination, unpaid wages and wrongful termination.
Colleen T. Calandra, JD, LLM

Latest posts by Colleen T. Calandra, JD, LLM (see all)

  • Colleen T. Calandra, JD, LLM

    Colleen T. Calandra, JD, LLM

    Colleen Calandra is a Denver employment law attorney offering assistance for employees in cases such as workplace discrimination, unpaid wages and wrongful termination.
    Colleen T. Calandra, JD, LLM

    Latest posts by Colleen T. Calandra, JD, LLM (see all)