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FLSA regulations now govern what constitutes a mandatory service charge and what should be a tip that is owed to employees.
Wage and hour lawsuits have been a persistent issue in the world of employment, but legal experts have noticed a disturbing trend among restaurant employees. Lawsuits alleging wage and hour violations have been increasing throughout the years, but employers in the states of Massachusetts, New York and California have been experiencing lawsuits by employees accusing their managers of establishing tip pools, and improperly distributing tips from mandatory service charges.
It has become such as large problem that the Wage and Hour Division of the U.S. Department of Labor has adopted more aggressive policies  to combat these violations. This means a variety of changes will be taking place in the service industry world, including stricter rules regarding proper tip pooling. Violations of these rules could include bad legal exposure and financial penalties.
Additionally, the service industries must not only comply with all regulations under the Fair Labor Standards Act of 1938 (FLSA), the industries must also comply with minimum wage requirements and provide proper treatment and disbursement of employees’ tips and mandatory service charges. Essentially, under the FLSA, employers must comply by not taking any portion of their employees’ tips for their own benefit, and an employee can no longer consent to sharing their tips with their employers.
Overview of FLSA Regulations
The FLSA also now regulates service charges, but officially distinguishes them from tips. The FLSA defines a tip as ‘a sum paid by a customer as a gift or gratuity in recognition of some service performed.’ While a service charge is defined as ‘the payment of a charge, if any, made for the service,’ according to the FLSA. Additionally, a service charge is a minimum fee that establishments may charge parties of customers or special occasion setups.
For example, the service charge for a banquet may increase the total cost 10 to 20 percent, in which case most customers assume the additional charge will cover the servers’ tips. However, more often than not, this is not the case, as a compulsory charge differs from a tip by several distinctions according to the FLSA. These distinctions are:
- There is no customer discretion: A compulsory service charge is a required payment, and a customer has no influence on deciding the amount, whether to pay the charge or not, or who receives the payment. This payment completely belongs to the employer.
- A compulsory service charge is part of the employer’s gross receipts, which means that the employer may choose to retain the gain or distribute all or part of it to employees. Therefore, service charges are not counted as tips, but customers are often not informed about this policy to retain their patronage.
Additionally, if service charges are distributed to employees, the employer may not count it as tips received, and can actually be used to satisfy the employee’s minimum wage and overtime requirements under the FLSA. However, if an employee receives no portion of the service charges, as well as no tips, the employer must pay the employee the entire minimum wage and required overtime.
Because compulsory service charges are considered property of the employer, it is typically considered a non-discretionary payment when he or she distributes the service charge amount to its non-exempt employees.
File a Service Charge Lawsuit Today
If you believe that you or a loved one have not been fairly compensated by your employer, you have legal options. Please visit the Service Charge Wage & Hour Class Action Investigation. There, you can submit your claim for a free legal review and if it qualifies for legal action, a skilled employment lawyer will contact you for a free, no-obligation consultation. You will be guided through the litigation process at no out-of-pocket expenses or hidden fees. The employment lawyers working this investigation do not get paid until you do.
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3 thoughts onNew FLSA Service Charge Requirements Affect Employee Tips
FYI to all servers if you are spending more than 20% of your time doing side work or non tipped work you should be paid minimum wage for that time
I think it’s sad that experts feel an employee demanding their wages they earned is a disturbing trend. I am one of those employees who has contacted an attorney to get the back wages I am owed, yes I said it OWED I worked hard for that money and the real disturbing trend is more and more employers think they have a right to steal my wages. It is also sad in order to get paid I have to sue for that money. But that’s Business, as an employee my business is the selling of my time and labor that is my product. I like all business have to protect my interest so yes I will fight for my wages. When employers start acting with integrity and following the contract they have with the employee, correct payment for work is the contract then you will see the law suits drop or employees start requiring payment up front.
I think it’s sad that experts feel an employee demanding their wages they earned is a disturbing trend. I am one of those employees who has contacted an attorney to get the back wages I am owed, yes I said it OWED I worked hard for that money and the real disturbing trend is more and more employers think they have a right to steel my wages. It is also sad in order to get paid I have to sue for that money. But that’s Business, as an employee my business is the selling of my time and labor that is my product. I like all business have to protect my interest so yes I will fight for my wages. When employers start acting with integrity and following the contract they have with the employee, correct payment for work is the contract then you will see the law suits drop or employees start requiring payment up front.