Restaurant/Bar Industry: Arizona Employee Questions Employer’s Illegal Tip Policy

Kayla Moreland , May 14, 2015

Last week, an Arizona news column reported about a restaurant that requires its employees to donate their tips to charity one day a month.  Can employers have this much control over employees’ tips?  Under Arizona wage statutes, the answer is no.  But aside from violating Arizona state law, this practice could also violate the Fair Labor Standards Act (“FLSA”).  It all depends upon whether a “tip credit” system was used.

Here’s a little background information on “tip credits.”  Under the FLSA, tips are the sole property of the employee.   Covered employees must make at least $7.25 per hour, the federal statutory minimum wage.  Provided certain conditions are met, employers may pay “tipped employees” at an hourly rate that is less than the federal minimum wage by crediting a portion of employees’ tips against their minimum wage obligations.  The difference between the required cash wage (at least $2.15) and the federal minimum wage is the maximum tip credit an employer may claim.  If the employee’s tips and wages combined do not meet at least the hourly federal minimum wage, the employer must make up the difference.

So if an employee’s hourly rate is below $7.25, any income from tips would supplement the hourly rate to raise it to the federal minimum wage requirement.  It would be unlawful for an employer to withhold tips in this situation because it would result in the employee being paid less than minimum wage.  However, employers may divert an employee’s tips when an employee’s hourly rate is equal to or greater than $7.25.

Some states, like Ohio, have chosen to increase the minimum wage above the federal requirement.  Ohio’s current minimum wage is $7.95 per hour for non-tipped employees and $3.98 per hour for tipped employees.  This wage rate applies to the employees of businesses with annual gross profits greater than $292,000 per year.

Source: Georgann Yara, When boss dips into tips, it raises a red flag (September 6, 2014) http://www.azcentral.com/story/money/business/career/2014/09/06/tips-wages-state-federal-law/15216185
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