by Amy Thomson.
Don’t miss our previous posts where we introduced the FLSA tip credit, delved into who qualifies as a tipped employee, and discussed the complexities for tipped employees who have multiple roles with the same employer. Only one post remains in this in-depth series about FLSA and tipping. Today, you’ll learn about what qualifies as a tip, how service charges fit in, and how credit card charges impact the situation.
Under the FLSA, a tip is a sum presented by a customer as a gift or gratuity in recognition of service performed, rather than as payment for the service. It is up to the customer whether to tip, how much to tip, and who will receive the gratuity. A tip voluntarily provided by the customer is typically the sole property of the tipped employee regardless of whether the employer takes the tip credit. Employers, including managers and supervisors, may not keep any portion of employee tips, even when a tipped employee receives at least $7.25 per hour in wages directly from the employer.
Service charges, also referred to as administrative charges, are mandatory charges that may be imposed on customers. Service charges are not tips, even if the employer distributes some portion of the charges to its employees.
Service charges differ from tips in the following ways:
- Service charges do not involve customer discretion. They are imposed by the employer. For example, when a restaurant charges an additional 10% for parties of 10 or more.
- Service charges are the employer’s property and are part of the employer’s taxable gross receipts. Subject to state or local laws to the contrary, the employer may choose to retain service charges or distribute all or a portion to its employees.
- If the employer distributes service charges to the employees, they are considered wages, not tips, and may be applied toward the employer’s FLSA obligations. Service charges should also be included in determining the employee’s regular rate of pay for calculating overtime pay. Service charges cannot be counted as tips for the purposes of determining if an employee is a tipped employee or for satisfying the tip credit.
Credit Card Payments
When a credit card company charges the employer a percentage fee on each credit card sale, employers are usually permitted to subtract that percentage from employee tips. For example, when a credit card company charges 2%, the employer may pay tipped employees 98% of their credit card tips. However, employers may not offset credit card fees if doing so would reduce an employee’s hourly wage below minimum wage.
An employer’s right to offset credit card charges is limited to the cost required for collection. It is not available for time spent by servers processing credit card transactions or the employer’s cost of having additional cash on hand to pay out credit card tips.
The amount owed to employees for credit card tips must be paid no later than the regular pay day and may not be held while the employer awaits reimbursement from the credit card company.
FLSA Claims Can Be Expensive—Get Answers From An Atlanta Business Lawyer
Throughout this series, we’ve mentioned how costly FLSA claims can be, and let’s face it, maintaining compliance can be complicated. The experienced Georgia employment law attorneys at Stanton Law are ready to answer your questions and help you understand how to stay compliant. Don’t hesitate to reach out to Stanton Law attorney Amy Thomson at 404-531-2341.