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Tip question.

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  • Tip question.

    Would it then be possible to pay the server direct wages less than $2.13 per hour if the value of their commissions earned exceed an hourly rate greater than 1.5 times the applicable minimum wage (say $15.00 per hour)? Since we are saying on the one hand that Banquet Servers are not receiving tips, why would the tip credit minimum wage even come in to play? After all, it is possible for an employee to be paid strictly on a commissioned basis. If anyone has experience supporting or arguing against this position, please advise. Thanks

  • #2
    No. "Tips" are not "commissions". "Service charges" are not commissions and, in fact, the law doesn't even require that service charges be distributed to the servers working the banquet/group.

    The only employees who can be paid "commission only", without respect to hours worked, are those exempt under the outside sales exemption.
    I don't respond to Private Messages unless the moderator specifically refers you to me for that purpose. Thank you.


    • #3

      I started to give pretty much the same answer you did, then erased it. I am not sure on this one.
      - If the employees NEVER receive tips then the tipped employment rules are arguably not in place, even if we are talking servers of food. We would have vanilla MW rules only. Whether we call the payments "commissions" or anything else, it would not matter as far as the MW rules are concerned. Either (on a workweek basis) we follow the MW rules or we do not. Calling part or all of the payment a commission is legally meaningless in a MW context.
      - HOWEVER, if the employees SOMETIMES receive tips, then it becomes much harder to argue that the tip specific rules are turned off. It seems that the tip rules are either active or they are not active, but it would be very hard to argue that the tip rules can be flipped on and off, depending on what the employee is doing on a specific day.

      So, I would say that the question for the OP is "do these employees EVER get tips while they are your employee"?

      Not part of the most recent question, but just to be clear, the 7(i) rules are overtime only, and legally unrelated to the MW rules. The phrase "commission" means something in context of the 7(i) rules, but means nothing in context of the MW or the MW with tips rules. MW (with or without tips) is Section 3 of the FLSA law, while the 7(i) exceptions are Section 7.
      "Reality is that which, when you stop believing in it, doesn't go away".
      Philip K. **** (1928-1982)


      • #4
        Well, yeah. I assumed the employees in question already met the requirement as a "tipped employee".
        I don't respond to Private Messages unless the moderator specifically refers you to me for that purpose. Thank you.


        • #5
          Thanks for responding. In this case, these employees do not receive any direct tips. All of their earnings are either direct wages, or distributed banquet service charges. We are questioning if we can pay direct wages below the tipped minimum (the value of their distributed service charges alone far exceed $10.88/hr).


          • #6
            If I may, I'm going to ask one of the moderators to start with your question and put it and the subsequent response in its own thread. Hijacking someone else's thread is one thing for a simple question/answer. This thread now has a life of its own.
            I don't respond to Private Messages unless the moderator specifically refers you to me for that purpose. Thank you.


            • #7
              I will do it.
              Too often we underestimate the power of a touch, a smile, a kind word, a listening ear, an honest compliment, or the smallest act of caring, all of which have the potential to turn a life around. Leo Buscaglia

              Live in peace with animals. Animals bring love to our hearts and warmth to our souls.


              • #8
                Service Changes, Minimum Wage and 7(i) Exemption

                Thanks for moving this thread Patty...didn't mean to breach etiquette or hijack anything…!

                Let me try to re-state the "core" question here: Can an employer count distributed service charges as part of the employee’s direct wage for the purposes of minimum wage compliance? Please consider the following example:

                An employee makes $1.00/hr. on the clock, and receives an average of $6.50 per hour in distributed service charges, bringing them to an average rate of $7.50/hr. Is this employer in compliance with minimum wage requirements (assuming the federal minimum wage is applicable)?

                Although tips and overtime exemption also come into play with the banquet server situation, assume for the sake of arguement that these employees only work 40 hours per week, and do not receive any direct tips. Thanks!


                • #9
                  I would sure feel more comfortable if you were not using the phrase "direct tip". That is not a phrase defined in law and you are using the phrase like it actually means something. "Ti;s" and "service charge" are defined in law. In law, a "service charge" is not a "tip". A "service charge" is something that the customer has no choice what-so-ever, basically a fixed markup on the bill that the employer could legally keep if they wanted to.

                  Regarding "direct tips", there is a single rule effecting all tips. This would include "direct tips", "indirect tips" and "yellow and green polka dotted tips". It is either a tip or it is not a tip. There is no middle ground here.

                  One more time. If the employee never, ever receives any type of tips for any reason while in your service, then they are not a tipped employee, and are subject to the normal MW rules, meaning that YOU must pay them at least MW.

                  I am including a pointer to the actual Tip rules. Please note how your phrase "direct tip" does not appear anywhere in the rules, and all your points are addressed without DOL using that phrase.

                  "Reality is that which, when you stop believing in it, doesn't go away".
                  Philip K. **** (1928-1982)


                  • #10
                    Thanks DAW,

                    I think found the answer in the link you provided:

                    Service Charges: A compulsory charge for service, for example, 15 percent of the bill, is not a tip. Such charges are part of the employer's gross receipts. Sums distributed to employees from service charges cannot be counted as tips received, but may be used to satisfy the employer's minimum wage and overtime obligations under the FLSA. If an employee receives tips in addition to the compulsory service charge, those tips may be considered in determining whether the employee is a tipped employee and in the application of the tip credit.

                    Appreciate everyone's feedback and assistance!


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