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Employment Law

The Tip Credit: Is Your Employer Following the Rules?

Many employers try to hide behind the FLSA's "tip credit" provision as a way to invalidly justify their failure to pay minimum wages to their employees. However, in order to claim a tip credit, an employer must comply with the FLSA's notice requirement, even if an employee receives tips that are equivalent to the minimum wage. Furthermore, an employer bears the burden of demonstrating that it has strictly complied with the FLSA notice requirement. If an employer cannot show that it has informed employees that tips are being credited against their wages, then no tip credit can be taken and the employer is liable to the employee for the full amount of minimum wage.

In the case of Hernandez v. JRPAC, the federal court in Manhattan held that an employer who delivery workers that they could would receive both a flat weekly salary plus tips did not satisfy the FLSA's notice requirement because the employer had failed to specifically tell the delivery workers that tips would constitute an offset to minimum wage. The court held that the defendant, an Indian restaurant, was liable to its delivery worker for minimum wages.

In many instances, employers of tipped employees never bother to inform employees of their hourly rate of pay. Courts have repeatedly held that in such circumstances, tips cannot be used by the employer to justify pay that falls below state or federal minimum hourly wages. In the case of Ayala v. Your Favorite Auto Repair, the federal court in Brooklyn held that, "because plaintiffs were never informed as to the hourly wage they were receiving, it follows that plaintiffs here were never told that their wages would be reduced below the minimum wage on account of tips received."

Many employers also violate the tip credit rules by taking a tip credit for the full amount of overtime compensation or calculating its overtime obligations based on its lower direct payment to the employee rather than the full minimum wage rate. Simply put, this is not allowed. Where the employer takes the tip credit, overtime is calculated on the full minimum wage, not the lower direct (or cash) wage payment. In addition, the employer may not take a larger FLSA tip credit for an overtime hour than for a straight time hour.

If you are an employee in New York who is being cheated out of minimum wages or overtime, call the New York wage and overtime lawyers at Rapaport Law Firm.

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