Are Tips Illegal in the United States?

Are Tips Illegal in the United States?

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Are Tips Illegal in the United States?

Are tips illegal in the US? The answer is only if the recipient of a gratuity fails to report the extra income. According to the legal standards established by the United States Congress and enforcement by the Internal Revenue Service, workers that receive tips must report 100 percent of the gratuities as income. Receiving tips in the United States is a legal act that is common in the bar, hotel, and restaurant industries.

Although receiving tips constitutes a legal act in the United States, customers are not obligated to leave a tip unless a business requires a gratuity under special circumstances. For example, many restaurants automatically add gratuities to checks of parties of a certain size.  Chains such as Olive Garden and Outback Steakhouse allow servers to tack on a gratuity for parties that reach a minimum number of customers.

Employers that withhold wages, including tips, violate a federal employment law. Despite harsh penalties for wage theft, far too many businesses continue to steal the hard-earned money that should go to employees. Wage theft in the United States is valued at billions of dollars per year, and some of the theft comes in the form of stolen tips. If your employer withheld wages that you deservedly earned, you should contact an experienced employment attorney to resolve your legal complaint.

At Morgan & Morgan, our team of highly-rated employment lawyers has helped clients recover stolen wages. We conduct in-depth investigations that involve reviewing the wage and hourly documents businesses must store onsite according to federal employment law. For clients that accuse their employers of stealing gratuities, Morgan & Morgan follows a paper trail that leads to evidence demonstrating an employer withheld tips that should have gone to one or more workers.

Schedule a free case evaluation with one of the wage theft attorneys at Morgan & Morgan to get back the money you rightfully earned in tips.

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Get answers to commonly asked questions about our legal services and learn how we may assist you with your case.

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  • Does State or Federal Law Require Tipping?

    Since we know that tips are not illegal in the United States, are there laws on the books that regulate gratuities? Tipping is not legally enforceable in the United States, as it is considered a voluntary act of showing appreciation for the service provided by a worker. This means it is up to each customer to decide whether to tip, as well as how much to leave as a gratuity. According to the Emily Post Institute, proper tipping etiquette includes leaving a pre-tax percentage between 15 and 20 percent of a bill.

  • What Are Tip Credits?

    Under federal law, employers operating in a service industry can pay tipped employees less than the federal minimum wage of $7.25 an hour.  However, some states have enacted legislation that sets the minimum wage at a higher rate, with employers also permitted to pay tipped workers less than the state minimum wage. The difference between the state or federal minimum wage and what employers are allowed to pay tipped employees is called a tip credit.  Federal law has established a maximum tip credit of $5.12, which means tipped employees can earn an hourly wage as low as $2.13. Some tipped employees mistake the lower the legally required minimum wage paid to tipped employees as a form of wage theft.

  • What Is Tip Pooling?

    Federal employment law permits employers to require tipped workers to participate in a tip pool, which means every tipped worker contributes all tips into a general pool that an employer divides equally among employees that receive gratuities. To attract more employees, some restaurant chains share tip pooling revenue with non-tipped workers. For example, a restaurant might share the money contributed to a tip pool with cooks that earn just an hourly wage.

    The longstanding debate about whether tipped employees should contribute to a pool that pays out to non-tipped employees mostly ended in 2018. By amending the Fair Labor Standards Act (FLSA), the United States Congress gave employers with tipped employees the opportunity to establish tip pools if they do not take a tip credit and paid tipped workers the federally mandated minimum wage.

  • Is Deducting Credit Card Processing Fees Legal?

    Although tips belong to the workers that earn them, another interesting question arises because of the growing practice of employers deducting the value of credit card fees from each tipped employee’s income. Federal courts and the Department of Labor (DOL) have repeatedly allowed employers to deduct credit card processing fees from tip income.  The key is to ensure a tipped worker earns minimum wage after deducting credit card processing fees. 

    However, some states such as California have enacted more restrictive laws that prohibit employers from deducting credit card processing fees from a tipped worker’s income. If you work in the hospitality industry and your employer subtracts credit card proves fees from your tip income, you should contact one of the employment attorneys at Morgan & Morgan to determine whether your employer is following state law. Morgan & Morgan has a national presence, which means we are fully familiar with each of the wage and hourly laws passed at the state level.

  • Are Mandatory Service Charges Illegal in the United States?

    Mandatory service charges represent a percentage of an entire bill that goes towards paying for a service. The most common examples of when an employer adds a mandatory service charge include catered events, private parties held offsite, and large parties of a minimum size at a restaurant. According to federal law and the statutes passed in many states, mandatory service charges are not considered tips. Even if a customer believes a server is receiving a mandatory service charge and does not leave a tip for the total bill, an employer can keep 100 percent of the value generated by the mandatory service charge.

    Some legal experts have argued mandatory service charges that do not cover a worker’s tip should be considered a form of wage theft.

  • What Is Wage Theft?

    The United States federal government passed the FLSA in 1938 to create a minimum wage and establish a definition for overtime. Many states have exceeded the legal precedents set by the FLSA by increasing the federal minimum wage and allowing workers to earn overtime wages for more than eight hours on the job during a 24-hour period.

    Paying Below Minimum Wage

    This is a common issue that arises for tipped workers, especially in states that have raised their minimum wages considerably higher than the $7.25 established at the federal level. With credit card transactions representing most of a tipped employee’s gratuities, credit card transactions produce a paper trail that allows our team of employment lawyers to determine whether a client has received income below the minimum wage.

    Failure to Pay Overtime

    Employees must receive one and half times their wages for working more than 40 hours per week, which is the overtime minimum established by federal employment law. Some states require employers to pay workers overtime for putting in more than eight hours per day. This means a worker does not have to reach the federally mandated 40 hours per week threshold to receive overtime pay.

    Working Off the Clock

    As one of the most common types of wage theft, working off the clock is particularly prevalent in the restaurant industry. One common example concerns “cutting” a server, which means the server no longer has to wait on customers. Then, an unexpected rush happens after the server clocks out and the server’s employer demands the server stick around to help handle the unexpected business volume.

  • What Should I Do if My Employer Steals My Tips?

    If tips generate a significant percentage of your income, you cannot afford to have your employer dip into a tip pool or reduce the amount of money on your paycheck. You must be proactive and act with a sense of urgency by contacting an experienced employment lawyer. Chances are you are not the only tipped employee experiencing a decline in income because of tip theft. You should ask your co-workers whether they suspect your employer is stealing gratuities from them. Power in numbers is an appropriate term to use when discussing the ramifications of wage theft of any kind.

    Knowing how to address wage theft starts by asking your employer to pay you what the company owes. Sometimes, employers simply make payroll mistakes and all a worker has to do is notify the employer about the discrepancy in wages. Make sure to keep detailed records of your tips for each shift that you work. Separate the source of tips between cash and credit card charges. Document the dates and hours when you worked as well.

    If you do not make any progress with your employer, you should file a complaint with the Wage and Hour Division (WHD) of the DOL. The WHD enforces the provisions written into the FLSA.

  • Why Should I Hire an Employment Attorney?

    Hiring an employment lawyer delivers several benefits, starting with your employer might take your complaint more seriously. When an employment attorney gets involved with a wage dispute, many employers soften their stances to resolve a wage dispute. A state-licensed lawyer understands the employment statutes that are unique in the state where you live. Differences in tip credits and tip pooling statutes require the legal support of an employment attorney who decides whether to refer to state or federal employment laws when litigating your case. 

    Before you file a complaint with the WHD, your legal counsel ensures you submit the most persuasive evidence. You should submit copies of every paycheck, timekeeping records provided by your employer, and any documentation that describes a tip pooling arrangement. Statements made by your co-workers can strengthen your stolen tips case against your employer. When the time comes to file a complaint with the WHD, your legal counsel recommends the best filing option. With the COVID-19 pandemic appearing to wane, you might have the opportunity to file a complaint in person.

    If you decide to file a civil lawsuit that seeks monetary damages, your employment attorney guides you through the litigation process.

  • Contact an Employer Attorney at Morgan & Morgan

    The first time you experience wage theft that involves your hard-earned tips, you must inform your manager about the discrepancy. If you do not take immediate action, you can expect your employer to continue withholding your tips until you contact an experienced employment lawyer. At Morgan & Morgan, we have spent more than three decades helping clients recover the money lost because of wage theft.

    Schedule a free case evaluation today to get the compensation you deserve.

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