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Wage violations for tipped employees continue to be a problem

Pho Ha Vietnamese Restaurant will have to pay $219,716 to 33 employees for back wages and damages, according to the U.S. Department of Labor (DOL). The California restaurant's violations include failure to pay minimum wage and overtime, as well as recordkeeping violations. 

Violations common in the restaurant industry

Unfortunately, these types of violations are common in the restaurant industry. In fact, restaurant employers are the most likely to violate minimum wage laws. Just one week before the DOL found Pho Ha Vietnamese Restaurant in violation, it cited the El Pollo Loco chain restaurant $31,939 for bonus pay violations and for attempting to treat maintenance workers as exempt from overtime pay. The list goes on with restaurants across the country.

The most common violations in the restaurant industry include:

  • Misapplication of tip credits and tip pools
  • Service charges applied to tips
  • Dual role violations
  • Improper base rate for overtime

Understanding tip credits

A typical problem in the restaurant industry is the practice of tip credits. To be a tipped employee, you must receive $30 per month or more in tips on a regular basis. The Federal Labor Standards Act (FLSA) allows employers to pay tipped employees less than minimum wage, with a minimum of $2.13 per hour paid as a cash wage. The employer can claim the difference between $2.13 and the federal minimum wage of $7.25 as a tip credit, but cannot claim more than the employee actually collects in tips. If the employee does not make $7.25 per hour with tips, the employer must make up the difference. Forcing an employee to work on tips alone is a violation of the law and the employer owes the employee the full minimum wage for those hours.

When a tipped employee works overtime, the employer must calculate the time based on the minimum wage, not the pre-tip cash wage. In Illinois, the minimum wage is $8.25 and $10.50 in Chicago. The employer may not take a larger tip credit for an overtime hour. 

Some employers charge their tipped employees for things like uniforms and cash register shortages, but they can never charge the employee so much that the employee no longer makes minimum wage. If the employer is taking advantage of tip credits, they cannot make these deductions at all. Such deductions would put the employee under the minimum wage. 

Tip Pools

Invalid tip pools are another common violation. Tip pools are allowed only if they include other normally tipped employees, like servers and bussers. They may not include other workers in the pool who do not normally receive tips, like the cooks or the management staff. The employer may not keep any of the tip pool for itself, and can only take a tip credit for the actual amount each tipped employee receives. 

The U.S. Department of Labor provides employers with many tools to assist them with compliance. Restaurant employers have no excuse for the ongoing wage theft of their tipped employees. If you are a tipped employee, make sure you are being paid everything you are owed. 


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