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Tip Pools – March 2018 Update

The 1.3 Trillion Dollar Spending Bill signed by the President on March 23, 2018 contains a pair of provisions that significantly affect tip-pooling, especially within the restaurant, hotel and bar industries. These provisions entirely negate a Department of Labor (DOL) proposal from late 2017 that would have enabled employers in these industries who paid a full minimum wage to keep some or all of the tips for themselves.

The first provision is that the employer and its managers and supervisors are expressly prohibited from retaining or collecting tips made by employees, regardless of whether or not the employer takes a tip credit. The penalties can be severe for violations – civil penalties up to $1100 per occurrence and damages including the differential lost if a tip credit system was being utilized.

The second provision is that subject to the absolute prohibition on management or supervisory participation, tip sharing is permitted between tipped and non-tipped (examples includes busboys, dishwashers and cooks) employees if and only if the employer is not using a tip credit, ie, paying full minimum wage to all employees. If the tip credit is being taken, tip sharing is not permitted.

Understanding the Tip Credit – Part 2 of 3

The Tip Credit is a popular method of payment used by restaurants, bars, and other businesses. However, a surprisingly large percentage of business owners do not fully understand how to properly apply the Tip Credit in terms of overtime, minimum wage and participation. In this three part series, we will break down each of these components for the proper use of the Tip Credit.

Today we address minimum wage.  In short, any employee in Florida receiving wages subject to the Tip Credit must be paid no less than $5.08 per hour directly from the employer. This rule applies no matter how much the employee receives in tips.

Let’s look at two scenarios:

Scenario A – The employer pays $200 for a 40 hour work week and the employee additionally averages $750/week in tips.

Scenario B – The employer pays $300 for a 40 hour work week and the employee additionally averages $200/week in tips.

In both scenarios, the employee earns well in excess of the Florida minimum wage. Also, the employee in Scenario A earns far more than in Scenario B. However, the employer in Scenario A fails to meet the minimum wage threshold.

The critical issue is that the employer’s contribution must be equivalent to the minimum wage times the number of hours worked. The amount of tips earned by the employee doesn’t matter so long as the employee’s total pay exceeds minimum wage (in Florida, that would be $324/week at the present minimum wage rate of $8.10/hour for a 40 hour week).  Thus, Scenario A fails because the employer is paying only $5.00/hour and not the required $5.08/hour.

Proposed Changes to FLSA Exemptions…Are You Ready?

In July 2015, the Department of Labor (“DOL”) proposed significant changes to the Executive, Administrative, Professional (“EAP”) or “white-collar” exemption under the Fair Labor Standards Act (“FLSA”). The FLSA makes it illegal for an employer to pay under the minimum wage and forces employers to pay overtime to those employees who are (properly) classified as “non-exempt.” The modifications, if they are approved, will increase the salary threshold for those white-collar workers who may now be exempt from overtime laws.

….So, what does this mean for employers??

First, it is important for employers to understand the changes proposed, should they go into effect. Here is an example of how the new rules may affect you, a business owner: Company, Inc. (which is an “employer” within the guidelines of the FLSA) employs an office manager named Robert. Under the current rules, such a position may be exempt under the Administrative exemption (you can read more about that here). In order to be exempt, Robert would have to earn at least $455/week, perform primarily non-manual labor which is directly related to the operations of the employer, and have independent discretion with regard to significant matters. Well, let’s say that Company, Inc. has an employment law attorney on retainer and knows that Robert is properly exempt from overtime. So, Robert works about 60 hours a week and gets paid $500/week, regardless of the hours he works.

If the proposed changes are made, the required salary Robert would have to make could be as high as $970/week. This is a massive increase to Robert’s pay. This is also a massive increase to Company, Inc.’s payroll expenditures. So, if Company, Inc. wishes to avoid paying Robert overtime, they will need to increase his salary from $26,000/year to $50,440.

It is important for employers to understand the “why” as well: the DOL pointed out that the current threshold of $455/week is actually below the poverty line for a family of four. What’s more, the last time any modifications to this part of the FLSA were made was more than 10 years ago, in 2004. Since then, there have been several increases to the minimum wage, yet no changes to this salary threshold. So, it makes sense.

However, if you are a business owner who has questions about whether or not you have to change the classification of some of your employees, need to change the the way some of your employees are paid, or may have to start using a time-keeping system given this new proposed rule, please contact a knowledgeable and qualified employment law attorney within your state.

Holiday Work – Know Your Rights

The familiar signs of December are all around; from the red cups at my favorite coffee shop, to the holiday lights and flags decorating the streets. Generally, the holidays mean parties, family, friends. However, to those who work in retail, the holidays mean extended mall hours, crazed shoppers, over-crowded parking lots, and more time spent fixing shelves and folding clothes.

Given all the extras that come with holidays, retail employees must make sure they are aware of the time they spent working during these coming weeks especially. Federal law mandates that all hours worked over 40 per work-week must be compensated at no less than time and one-half the employee’s regular rate for all non-exempt employees. All those late nights spent recovering the store likely counts towards your weekly hours. Also, if your supervisor asks you to cover or pick up another shift, just make sure that your pay stub reflects all that time. I have seen instances where Employee A covers a shift for Employee B, but Employee A does not get paid because the schedule sheet showed that Employee B worked that day. Don’t always count on your payroll specialist to get your pay right all the time. It is a good practice to mark down your hours worked every day and add them up at the end of the pay period to make sure that you are paid for all hours worked. If you have questions about when your pay period starts, or what days it covers, ask your manager. I know from experience working in the retail industry (especially during the holidays and directly after) can be a fast-paced and hectic environment, but the money you make is important!

The advent of the holidays also means it is high-time for seasonal workers. If you fit that bill, make sure that you understand the difference between an independent contractor and an employee. A lot of employers like to higher temporary or seasonal workers and may end up misclassifying those workers as independent contractors when they are really employees. Generally, an independent contractor will receive a pay check with no taxes deducted. If you receive such a pay check, make sure you fit the bill of an independent contractor.

If you have questions about any of these topics, ask an employment attorney in your state.

Did you Know? Florida’s Minimum Wage to Increase in 2015

Hopefully the first post in a new series, “Did you Know?” which will serve to inform employers and employees about new (or maybe just lesser known) facts about work.

For all our friends in the Sunshine State, the minimum wage will be raised to $8.05 beginning January 1, 2015 and the minimum wage for tipped employees will rise to $5.03. This increase is due to the Florida Minimum Wage Act which authorizes the DEO (Department of Economic Opportunity) to annually adjust the minimum wage based on a variety of factors.

Employers: make sure you visit the DEO and get the latest minimum wage posters which must be displayed for your employees.

Employees: make sure that your new hourly rate is equal to or above $8.05, or $5.03 if you are a tipped employee, beginning January 1, 2015.

If you are in Florida and need assistance or advice regarding minimum wage and/or overtime, contact us!

Disclaimer: Nothing contained in this post is meant to be construed as legal advice. If you require legal advice, contact a qualified attorney in your state. Nothing contained herein is meant to create the attorney-client relationship, and any comments, posts, or replies are not confidential and are not legal advice.