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Here’s a tip: Know law on paying employees who work for tips

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in Compensation and Benefits,Human Resources

Hundreds of thousands of Floridians rely on tips for part of their incomes. To stay on the right side of wage-and-hour laws, their employers need to understand the somewhat tricky interplay of tip income and the minimum wage.

Florida’s minimum wage law follows the federal Fair Labor Standards Act in many respects, but there are some key differences. Foremost, Florida’s minimum wage is $6.79 per hour, higher than both the current $5.85 federal wage and the $6.55 rate that takes effect July 24.

Another key difference involves the credit employers must take for tipped employees. Federal law requires employers to pay employees who receive tips at least $2.13 per hour, and make up the difference between the direct hourly wage and the federal minimum ($3.72) as a tip credit.

Florida approaches things differently. The state’s $3.02 tip credit remains constant regardless of the state minimum wage. So this year, Florida employers must pay a direct hourly wage of $3.77 to tipped employees ($6.79 – $3.02 = $3.77).

Tips and hours worked

Recently, a Key West employer lost a wage-and-hour case involving a tipped employee. The case shows just about everything that can go wrong when employers try to skirt the law’s intent.

A waitress, Odalys Perez, worked for Fico Key West Seafood. She worked 7 a.m. to 3 p.m. Mondays and Tuesdays, and 9 a.m. to 9 p.m. Thursday through Sunday. But Perez was very conscientious and usually arrived early in the mornings to set up the restaurant. After each shift, the manager calculated her tips from the day’s credit card receipts.

Fico tracked Perez’s hours on time cards and submitted them to its payroll company. Things started going wrong when Perez noticed her hours worked did not jibe with her paychecks. In addition, it appeared Fico was not reporting to the payroll company some of the cash payments it made to Perez.

Perez suspected she was being shortchanged and filed a lawsuit, leaving a court to sort out the mess. It found Fico’s records were unreliable. As a result. it gave greater credence to Perez’s version of events. The court found that Fico had not applied the proper tip credit because it did not report its cash payments properly. Perez offered evidence she had not been paid for all her hours and was therefore entitled to overtime.

After all the slips of paper and dust settled, the court concluded Perez was entitled to $5,773.20 in overtime pay. Under Florida’s minimum wage law, Perez will collect double that amount when liquidated damages are added in.

Tip credit details

Unlike federal law, Florida employees do not have to receive any minimum amount of tip income to be considered tipped employees. (Federal law recognizes only employees who make $30 or more per month in tips.) As under federal law, employers must demonstrate that the employee receives the minimum wage when direct wages and tips are added together. Employers must tell employees beforehand that they are using the tip credit.

Generally, employees get to keep all their tips. However, if the employer pays a fee for credit card transactions, it may deduct that percentage from credit card tips.

For employees who work in both tipped and non-tipped capacities, employers may use the tip credit only for hours when the employee worked as a tipped employee if the employee works at least 20% of the time in a non-tipped position.

Note: Service charges and tips are two different things. Service charges are charges automatically added to the customer’s bill. For example, when a restaurant adds 15% for parties of six or more, that is a service charge, not a tip. Employers may keep that amount.

Here’s a tip: Keep good records

Employers must keep clear, detailed records to show how much employees receive in tips. Federal and Florida law both place the onus on the employer to show the employee received enough in tips to make up the difference between the direct hourly wage and the minimum wage.

Employers must count all time the employee is on the job. If an employee shows up early, the employer has the right to not allow the employee to clock in as long as the employee is not performing any job duties. If the employee is working, the employer should be paying. And that starts the tip credit clock ticking.

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