The Tipped Employee Exemption to the FLSA
Employers in the entertainment industry are particularly susceptible to claims under the Fair Labor Standards Act. These employers often rely extensively on the tipped-employee exemption of the Act, such as with restaurants, gentlemen's clubs, and the like. Proper treatment of FLSA is critical.
Employers Have to Inform Employees of the ExemptionIn order to take advantage of the tipped-employee exemption to the FLSA, the employer must tell the employee what the exemption means and how the employee's wages will be calculated. It is best to do this in writing, and acknowledged by the employee, to prevent legal issues arising out of a failure to inform. The Courts have concluded that while the penalties for failing to inform employees of the exemption are severe, they are easy to avoid and so have upheld the extreme penalties for failing to properly inform employees.
Employee's Have to Keep all their TipsIn order to be able to utilize the tipped-employee exemption, the employee must be able to retain all their tips with few exceptions. Employers are not permitted to take fees, or share in the employees tips. If they do, they face the possibility of wage and hour lawsuits that can be devastating to the employer.
Tipped Pools are Acceptable if Treated CorrectlyThe employer is permitted to require employees to participate in a tip-pool as long as everyone participating in the pool are regularly tipped employees. This means that owners cannot participate even if they are performing bartending or wait staff services.
Employees Performing Non-Tip Generating Services Often Have to be Paid the Full Wage for that TimeMany employers, especially in the restaurant industry, attempt to utilize their tipped employees to perform secondary duties cheaply. For example, a restaurant owner may attempt to use tipped employees as cleaning staff in order to pay the reduced minimum wage. However, under the FLSA, if an employee spends more than 20% of their time performing these secondary duties, the employee must be paid the full minimum wage for that "side work." Therefore, the attempted use of such cheap labor can also have severely detrimental affects on the employer's business.