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A 'Tip' for Restaurant Employers: Be Kind to Your Servers

Bloomberg BNA—William Welkowitz

We’ve all heard the phrase “That’s above my pay grade,” when someone explains that a particular task or duty is handled by someone who is higher up on the organizational food chain, and therefore also usually paid more.

But when the higher ups expect someone to perform a task that is considered “above their pay grade,” does their pay need to reflect that? That is the issue frequently confronting restaurant owners when it comes to paying their “tipped” employees--namely the wait staff and bartenders.

Who is a “Tipped” Employee?

Under the Fair Labor Standards Act, employers are generally required to pay every employee at least the federal minimum wage for all hours that employee works (29 U.S.C. § 206(a)). One exception to this rule deals with “tipped” restaurant workers. Restaurant owners may pay less than minimum wage (but at least the federal “tipped” minimum wage) as long as the wages plus any tips the employee receives all add up to at least the federal minimum wage for all hours worked (29 U.S.C. § 203(m)).

Sally Abrahamson, an associate with the employee-side litigation firm Outten & Golden, LLP in New York City, explains that in order to be considered a tipped employee, a restaurant worker needs to spend their time doing direct service work and work that directly generates tips for that employee.

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The 80/20 Rule and Working Double Duty

More and more frequently, owners have begun to require these tipped employees to perform duties that would generally be done by a non-tipped employee who would be paid the normal hourly wage.

According to Abrahamson, having wait staff and bartenders perform many of these duties, known collectively as “side work,” is allowable under the FLSA and U.S. Department of Labor regulations, provided the duties are related to their tip work and the tipped employee’s workload consists of no more than 20 percent side work – a rule known as the “80/20 rule.” If a tipped employee performs more than 20 percent side work, Abrahamson said, that employee must be paid the full minimum wage for any side work that exceeds 20 percent of the workday.

Side work can include cutting fruits for drinks, sorting, bundling, and cleaning silverware, stocking plates, napkins, cups, and to-go containers, and wiping up messes in the dining room. In a significant number of cases, however, these employees have had to perform side work for more than 20 percent of their work time.

Restaurant owners also have required tipped employees more frequently to perform tasks that don’t relate to their service work or provide any direct customer service. If tipped employees are performing these dual job duties, they must be paid full minimum wage for the hours spent performing those tasks, according to DOL regulations 29 C.F.R. § 531.56(e).

Illegal Tip Pooling Schemes

In addition, there have been many lawsuits alleging that all tips received by tipped employees go into a pool and are supposed to be divided only among those employees at the end of the night, but that the pool ends up including employees who are considered non-tipped and shouldn’t be eligible for such a pooling scheme.

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