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Are You Having Restaurant Wage and Hour Problems?

The following is another great piece written by our good friend Allan H. Krystal. Alan is a terrific resource for small business owners. Please visit his website at www.alankrystallaw.com

Are You Having Restaurant Wage and Hour Problems?

{2:03 minutes to read} A key issue facing restaurant owners is avoiding wage and hour problems, especially when it comes to tips. A tip is defined as a voluntary payment from a customer in which he or she has the unrestricted right to determine the amount, and who receives payment. A tipped employee is one who is primarily engaged in the serving of food or beverages.

An employer is permitted to pay their tipped employees less than the minimum wage and apply their tips to fulfill the minimum wage requirement. This is known as a tip credit.
In order to apply this credit, the employer (or supervisors with authority over management decisions) must:

  • Notify each employee of the tip credit policy
  • Prove that each week, the payment of wages plus an employee’s tips equal or exceed the federal minimum wage per hour
  • Not take credit for any tips received by the employee

Tip Pooling

In many restaurants, employees engage in tip pooling, which involves all (or a portion of all) the tips collected from directly tipped staff, to be put into one large “pool” and redistributed among a larger group of employees. Tip pooling ensures that all staff members are fairly compensated for their work. Neither management nor the employees can make new hires participate in the tip pool, and existing employees can opt out at any time. An employee must be able to keep at least the full minimum wage.

Tip Sharing

Tip sharing is when directly tipped employees share their tips with other workers who provided direct customer service. When employers require tip sharing, the employer may set the percentages of tips shared among food service workers, but employees must handle the transactions themselves. When employees form a tip share on their own, the employees may set the percentages of the tips shared.


If an employee works over 40 hours, they are entitled to overtime for excess hours. Overtime must be paid at full minimum wage, not the reduced cash wage. Tip credit should be applied to overtime as it is to all hours worked.