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Notice must be provided to tipped employees that the employer intends to take a credit for the tips received by the employee. Notice can be verbal or written, but the employer should not rely only on an employee’s pay stubs to provide notice, even if they list the rates of pay. The Labor Department took the notice requirement even further in issuing the 2011 regulations, which require notice of:

1. The amount of the cash wage that is to be paid to the tipped employee by the employer;

2. The additional amount by which the wages of the tipped employee are increased on account of the tip credit claimed by the employer, which amount may not exceed the value of the tips actually received by the employee;

3. That all tips received by the tipped employee must be retained by the employee except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips;
 
4. That the tip credit shall not apply to any employee who has not been informed of these requirements.

The best practice is to deliver this information in writing at the time of hiring and to obtain a signed acknowledgement in writing from the employee.

Dual jobs: Are expeditors just a faster way to the courthouse?

“Tipped employees” are defined as employees who customarily and regularly receive more than $30 per month in tips. However, when an employee works in both tipped and nontipped capacities, or  “dual jobs,” the tip credit is available only for the hours spent performing the tipped work.

The general rule for dual jobs is that if the employee spends more than 20 percent of his or her time performing nontipped work, then the employer must pay the full minimum wage for hours spent on nontipped work, but can still pay $2.13 plus tips for hours spent performing tipped duties.

In restaurants, the most common dual job position is the expeditor or food runner. Under the new regulations, dual job employees create additional complications for restaurants that use tip-pooling arrangements because nontipped employees cannot participate in tip pools. In the absence of a clear rule for determining when a tip pool may be invalidated by nontipped worker participation, restaurants should consult with attorneys who focus on wage and hour compliance.

The 2011 regulations have escalated an already overwhelming challenge for restaurants seeking to take advantage of the federal tip credit. Complicating the issue are recent rulings by district courts that have ruled differently on the validity of the regulations, and it will likely take time for appellate courts to settle these disagreements.

Due to the statutory and regulatory ambiguity in wage and hour law, employee compensation compliance and risk management should be at the top of any restaurant’s priority list.

John Mays (john@maysandkerr.com) is a founding partner of Mays & Kerr LLC in Atlanta. His employment practice concentrates on wage and hour litigation and compliance, including individual and collective actions, salary misclassifications and unpaid overtime and minimum wage claims under the Fair Labor Standards Act.