Tipped Employees Under the Fair Labor Standards Act – Know Your Rights

Feb 5, 2025 | KLF Blog

What is a tipped employee?

Under the Fair Labor Standards Act (“FLSA”), a tipped employee is an employee engaged in an occupation in which they customarily and regularly receive more than $30 a month in tips. 

This overview provides general information about the application of the FLSA to tipped employees, whether an employer pays the full minimum wage or takes a credit against the tips earned by the employee towards its minimum wage obligations.

Tip Credit Under the FLSA

The FLSA permits an employer to take a tip credit toward its minimum wage and overtime obligation(s) for tipped employees.  An employer that claims a tip credit must ensure that the employee receives enough tips from customers, and direct (or cash) wages per workweek to equal at least the minimum wage and overtime compensation required under the FLSA.

An employer must pay a tipped worker at least $2.13 per hour under the FLSA.  An employer can take an FLSA tip credit equal to the difference between the direct wage, or the cash wage it pays directly to the tipped employee, and the federal minimum wage, which is currently $7.25 per hour.

The maximum tip credit that an employer can currently claim is $5.12 per hour: ($7.25 – $2.13 direct (or cash) wage = $5.12).  Only tips actually received by the employee count when determining whether the employee is a tipped employee and in applying the tip credit.

Employers claiming a tip credit must be able to show in each workweek that tipped employees receive at least the full federal minimum wage when direct (or cash) wages and the tip credit amount are combined.  If an employee’s tips combined with the employer’s direct (or cash) wages do not equal the minimum hourly wage of $7.25 per hour in each workweek, the employer must make up the difference. 

Employer Obligations to Tipped Employees

Employers must provide the following information to tipped employees before taking a tip credit under the FLSA:

  1. the amount of the direct (or cash) wage the employer is paying a tipped employee, which must be at least $2.13 per hour;
  2. the additional amount claimed by the employer as a tip credit, which cannot exceed $5.12 (the difference between the minimum required direct (or cash) wage of $2.13 and the current minimum wage of $7.25);
  3. that the tip credit claimed by the employer cannot exceed the amount of tips actually received by the tipped employee;
  4. that all tips received by the tipped employee are to be retained by the employee except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips; and
  5. that the tip credit will not apply to any tipped employee unless the employee has been informed of these tip credit provisions.

Employers may provide oral or written notice to tipped employees informing them of items 1-5 above.  An employer that fails to provide the required information cannot take the tip credit.

State Law Considerations for Tipped Employees

When state law differs from the federal FLSA, an employer must comply with the standard most protective to employees.  For example, some states require a higher cash wage than the federal direct (or cash) wage of $2.13 per hour or in some cases prohibit the taking of a tip credit.  Links to your state labor department can be found at https://www.dol.gov/agencies/whd/state/contacts.

Employers, Including Managers and Supervisors, May Not “Keep” Tips

Regardless of whether an employer takes a tip credit, the FLSA prohibits employers from keeping any portion of employees’ tips for any purpose, whether directly or through a tip pool.  An employer may not require an employee to give their tips to the employer, a supervisor, or a manager, even where a tipped employee receives at least the federal minimum wage (currently $7.25) per hour in wages directly from the employer and the employer takes no tip credit.

A manager or supervisor may keep only those tips that they receive directly from a customer for the service they directly and solely provide.  For example, a restaurant manager who serves their own tables may keep their own tips from customers they served but would not be able to receive other employees’ tips by participating in a tip pool.

Tip Pooling Regulations

The FLSA allows employers to require employees to share or “pool” tips with other eligible employees.  The FLSA does not impose a limit on the percentage or amount of the contribution of each employee in valid mandatory tip pools.  The rules governing tip pools depend on whether the employer pays a direct (or cash) wage equal to the full minimum wage to tipped employees or not.

Traditional Tip Pooling: An employer that takes a tip credit can require tipped employees to contribute tips only to a tip pool which is limited to employees in occupations in which they customarily and regularly receive tips, such as waiters, bellhops, counter personnel (who serve customers), bussers, and service bartenders.  This is sometimes known as a “traditional” tip pool.

An employer that implements a traditional tip pool must notify tipped employees of any required tip pool contribution amount, may only take a tip credit for tips each tipped employee ultimately receives, and may not retain any of the employees’ tips for any other purpose.  An employer may not receive tips from such a tip pool and may not allow managers and supervisors to receive tips from the pool.

Other Tip Pooling: When an employer pays its employees a cash wage of at least the federal minimum wage (currently $7.25) per hour, the employer may impose a mandatory tip pooling arrangement that includes employees who are not employed in an occupation in which employees customarily and regularly receive tips.  This is sometimes known as a “nontraditional” tip pool.

For example, an employer that implements a nontraditional tip pool may require tipped employees, such as servers, to share tips with non-tipped employees, such as dishwashers and cooks, but only if all workers receive a direct cash wage of at least the federal minimum wage.  In addition, an employer may not receive tips from such a tip pool and may not allow managers and supervisors to receive tips from the pool.

Distributing Tips from Tip Pools: When an employer collects tips to administer a tip pool, the employer must fully distribute any collected tips at the regular payday for the workweek, or, for pay periods of more than one workweek, at the regular payday for the period in which the particular workweek ends.  To the extent an employer cannot determine the amount of tips received or how tips should be distributed before processing payroll, those tips must be distributed to employees as soon as practicable after the regular payday.

Dual Jobs and Tip Credit

In some situations an employee is employed in a dual job, for example, where a maintenance person in a hotel also serves as a server. In such a situation the employee, if they customarily and regularly receive at least $30 a month in tips for their work as a server, is a tipped employee only with respect to their employment as a server. The worker is employed in two occupations, and no tip credit can be taken for their hours of employment in their occupation as a maintenance person.

Such a situation is distinguishable from that of a server who spends part of their time cleaning and setting tables, toasting bread, making coffee and occasionally washing dishes or glasses. It is likewise distinguishable from the counterperson who also prepares their own short orders or who, as part of a group of counter staff, takes a turn as a short order cook for the group. Such related duties in an occupation that is a tipped occupation need not by themselves be directed toward producing tips.

Credit Card Tips and Employer Deductions

Under the FLSA, when tips are charged on customers’ credit cards and the employer can show that it pays the credit card company a percentage on such sales as a fee for payment using a credit card, the employer may pay the employee the tip, less that percentage.  For example, where a credit card company charges an employer 3 percent on all sales charged to its credit service, the employer may pay the tipped employee 97 percent of the tips without violating the FLSA.

However, the employer cannot reduce the amount of tips paid to the employee by any amount greater than the transactional fee charged by the credit card company, regardless of whether or not it takes a tip credit.  Additionally, this transactional fee may not reduce the employee’s wage below the required minimum wage, including the amount of any tip credit claimed.

Under federal law, the amount due the employee must be paid no later than the regular pay day and may not be held while the employer is awaiting reimbursement from the credit card company.  NOTE: Some states may have more protective laws regarding tips charged to credit cards which do not allow the employer to deduct credit card fees from employees’ tips.

Service Charges vs. Tips

A compulsory charge for service, for example, 15% of the bill, is not considered a tip under the FLSA.  Sums distributed to employees from service charges are not tips, but may be used to satisfy the employer’s minimum wage and overtime pay obligations under the FLSA.  Further, these sums are part of the employee’s total compensation and must be included in the regular rate of pay for computing overtime. 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.

Employer Recordkeeping Requirements

An employer that takes a tip credit must keep records of: (1) each employee whose wage is determined in part by tips; (2) the weekly or monthly amount reported by the employee, to the employer, of tips received; (3) the amount by which the wages of each tipped employee have been deemed to be increased by tips as determined by the employer; (4) hours worked each workday in any occupation in which the employee does not receive tips, and total daily or weekly straight-time payment made by the employer for such hours; and (5) hours worked each workday in occupations in which the employee receives tips, and total daily or weekly straight-time earnings for such hours.

An employer that does not take a tip credit, but still operates a mandatory tip pool, must keep records of each employee who receives tips, and the weekly or monthly amount of tips received by each employee.

Common Problems and Violations

Minimum Wage Problems:

  • An employee does not receive sufficient tips to make up the difference between the direct (or cash) wage payment (which must be at least $2.13 per hour) and the minimum wage in each workweek.    The employer must make up the difference at the regular payday for the period in which the workweek ends.
  • An employee receives only tips and is paid no direct (or cash) wage.  The employer must comply with the requirements for taking a tip credit and pay a direct (cash) wage of at least $2.13 an hour or must pay a direct (or cash) wage equal to the full minimum wage, which is currently $7.25 an hour.
  • Deductions for walkouts, breakage, or cash register shortages reduce the employee’s wages below the minimum wage.  Such deductions are illegal where an employer claims an FLSA tip credit, because any such deduction would reduce the tipped employee’s wages below the minimum wage.

Overtime Problems:

  • An employer that takes a tip credit by paying a direct (or cash) wage less than the minimum wage erroneously calculates the overtime premium using only the reduced direct (or cash) wage paid.  When an employer takes a tip credit, overtime must be calculated based on the full minimum wage, which is currently $7.25 an hour, not the lower direct (or cash) wage payment.  The employer may not take a larger FLSA tip credit for an overtime hour than for a straight time hour.  Under certain circumstances, an employer may be able to claim an additional overtime tip credit against its overtime obligations.
  • An employer does not include all service charges, commissions, bonuses, and other remuneration in the regular rate for purposes of computing overtime pay.

Tip Pooling Problems:

  • A tipped employee receives less than the federal minimum wage (currently $7.25) per hour as a direct (or cash) wage and is required to contribute to a tip pool that includes employees who do not customarily and regularly receive tips, such as cook or dishwasher.  When the employer takes a tip credit, the employer can require the employee to share tips only with those employees who customarily and regularly receive tips, such as a server or bartender.
  • An employee is required to share tips with a manager or supervisor, regardless of whether the employer takes a tip credit for the tipped employee.  An employer who violates the FLSA by requiring tipped employees to share their tips with a manager or supervisor may be required to return the tips to the employee and pay the full minimum wage.

Source: U.S. Department of Labor, Wage and Hour Division, Fact Sheet #15

Are You a Tipped Employee Concerned About Wage Violations?

If you are a tipped employee and believe your rights under the FLSA have been violated, you may have legal recourse. Whether it’s regarding improper tip pooling, wage or overtime discrepancies, you don’t have to navigate these pay issues alone.

Free, No-Obligation Case Evaluation

Kehoe Law Firm is here to help. Our experienced attorneys are committed to protecting the rights of workers, including those who rely on tips for their income. For a free, no-obligation evaluation of potential legal claims, send us a message or contact Michael Yarnoff, Esq., (215) 792-6676, Ext. 804, [email protected], [email protected]. 

No-Cost Legal Assistance

Our class action legal services are provided on a contingency-fee basis, meaning you are not responsible for any fees or litigation expenses. 

SEND US A MESSAGE

Contact Us

ADDRESS

Kehoe Law Firm, P.C.
2001 Market Street
Suite 2500
Philadelphia, PA 19103

PHONE

Tel: 215-792-6676

EMAIL

[email protected]

Employee or Independent Contractor? Understanding Your Rights Under the FLSA

Feb 4, 2025 | KLF Blog

Understanding whether you are an employee or an independent contractor under the Fair Labor Standards Act (FLSA) is critical to knowing your rights and protections under the law. The U.S. Department of Labor has issued regulations (29 CFR part 795, effective March 11, 2024) to clarify how to determine a worker’s classification.

Why Does Classification Matter?

Employees are entitled to protections under the FLSA, including minimum wage, overtime pay, and other legal safeguards. Independent contractors, on the other hand, operate their own businesses and do not receive these protections. The key to classification lies in the economic reality test, which examines whether a worker is economically dependent on an employer or truly in business for themself.

The Economic Reality Test

The economic reality test consists of six key factors to determine whether a worker is an employee or an independent contractor:

  1. Opportunity for Profit or Loss Depending on Managerial Skill
  • Does the worker negotiate their pay, accept or decline work, or make independent business decisions?
  • If the worker’s earnings are dependent on their own business efforts, they are likely an independent contractor.
  • If the worker’s earnings rely on work assignments from the employer, they are likely an employee.

Example: A landscaper working for a company without control over assignments is likely an employee. A landscaper who markets their services, sets their own rates, and hires helpers is likely an independent contractor.

  1. Investments by the Worker and Employer
  • Are the worker’s investments capital or entrepreneurial in nature?
  • Employees typically do not make significant business investments.

Example: A graphic designer using company-provided tools is likely an employee. A designer who purchases their own software, markets their services, and rents office space is likely an independent contractor.

  1. Degree of Permanence of the Work Relationship
  • Continuous work relationships indicate employee status.
  • Project-based, non-exclusive work suggests independent contractor status.

Example: A cook working for the same venue every week is likely an employee. A cook preparing meals for different events and venues is likely an independent contractor.

  1. Nature and Degree of Control
  • Who determines schedules, pricing, work assignments, and supervision?
  • More control by the employer indicates employee status.

Example: A registered nurse with a fixed schedule and supervised work is likely an employee. A nurse who sets their own prices and works for multiple clients is likely an independent contractor.

  1. Extent to Which the Work Performed is Integral to the Employer’s Business
  • Is the work essential to the employer’s main business function?

Example: Farmworkers picking tomatoes for a tomato farm are likely employees. An accountant performing tax services for a farm is likely an independent contractor.

  1. Skill and Initiative
  • Is the worker using their skills in a way that demonstrates business initiative?

Example: A highly skilled welder following company instructions is likely an employee. A welder marketing their own specialty services and seeking clients is likely an independent contractor.

Other Things to Consider

  • No single factor solely determines a worker’s status, nor is any individual economic reality test factor—or combination of factors—more important than the others. Rather, the working relationship should be assessed based on the totality of the circumstances.
  • Titles and labels (such as “freelancer” or “contractor”) do not determine employment status.
  • Signing an independent contractor agreement does not automatically make a worker an independent contractor.
  • Receiving a 1099 form instead of a W-2 does not necessarily mean a worker is an independent contractor.
  • Factors like where work is performed or how a worker is paid do not solely determine classification.

Employer Responsibilities Under the FLSA

If a worker is classified as an employee, the employer must comply with the following FLSA requirements:

  • Minimum Wage: Employees must be paid at least $7.25 per hour (or the state/local minimum wage, if higher).
  • Overtime Pay: Employees must receive 1.5 times their regular pay rate for all hours worked over 40 per week, unless a relevant exemption applies.
  • Recordkeeping: Employers must maintain proper wage and hour records.
  • Retaliation Protections: Employees are protected from employer retaliation when asserting their rights.

Source: U.S. Department of Labor, Wage and Hour Division, Fact Sheet #13

Are You a Worker Who Has Been Misclassified?

Worker misclassification is a serious issue that can deny workers fair wages and benefits. If you believe you have been misclassified as an independent contractor, you may have legal recourse.

Free, No-Obligation Case Evaluation

At Kehoe Law Firm, P.C., we advocate for workers’ rights and fight for fair treatment under the law. If you have questions or suspect you’ve been misclassified, reach out to us for a free, no-obligation evaluation of your potential legal claims.

📞 Michael Yarnoff, Esq. – (215) 792-6676, Ext. 804
📧 Email: [email protected] | [email protected]

No-Cost Legal Assistance

Our class action legal services are provided on a contingency-fee basis, meaning you are not responsible for any fees or litigation expenses. 

SEND US A MESSAGE

Contact Us

ADDRESS

Kehoe Law Firm, P.C.
2001 Market Street
Suite 2500
Philadelphia, PA 19103

PHONE

Tel: 215-792-6676

EMAIL

[email protected]

Novo Nordisk Class Action Lawsuit (NVO)

Jan 25, 2025 | Investigations

Novo Nordisk investors should be aware that on January 24, 2025, a class action lawsuit was filed on behalf of all investors who purchased or otherwise acquired Novo Nordisk A/S (“Novo Nordisk”) (NYSE: NVO) securities between November 2, 2022, and December 19, 2024, inclusive (the “Class Period”). This lawsuit seeks to recover damages caused by Defendants’ alleged violations of federal securities laws.

What Can You Do if You Purchased or Acquired Novo Nordisk Securities During the Class Period?

If you purchased or otherwise acquired Novo Nordisk securities between November 2, 2022 and December 19, 2024 and suffered losses, you may be eligible to participate in this class action lawsuit.

Get More Information or Speak with an Attorney

To learn more about the class action lawsuit or to find out if you’re eligible to participate, please send us a message or contact Michael Yarnoff, Esq., (215) 792-6676, Ext. 804, [email protected], for a free, no-obligation evaluation of your potential claims.

Alternatively, you can email [email protected] or complete our online confidential Securities Class Action Questionnaire, and you will be contacted by a legal professional.

Class Action Allegations

The Novo Nordisk class action alleges that Defendants misled investors about the Phase 3 CagriSema obesity study, “REDEFINE-1.” The lawsuit claims that critical details about the flexible dosing protocol in the study were not disclosed to investors, including the fact that patients could adjust their doses during the trial. As a result, Novo Nordisk’s stock traded at artificially inflated prices during the Class Period.

On December 20, 2024, Novo revealed disappointing results from the REDEFINE-1 trial, revealing a 22.7% average weight loss instead of the anticipated 25% average weight loss for obesity patients treated with CagriSema in the study.

Following this announcement, Novo Nordisk’s stock price fell sharply by 17.83%, from $103.44 per share on December 19, 2024 to $85.00 per share on December 20, 2024.

To view the complaint, click Novo Nordisk class action complaint.

About Kehoe Law Firm, P.C.

Kehoe Law Firm, P.C. is a multidisciplinary, plaintiff-side class action law firm specializing in securities fraud, breaches of fiduciary duties, and corporate misconduct. Collectively, the firm’s partners have served as Lead Counsel or Co-Lead Counsel in high-profile cases that have recovered more than $10 billion for both institutional and individual investors.

All legal consultations are completely free and with no obligation to pursue a case. Legal services are provided on a contingency-fee basis, meaning you are not responsible for any fees or litigation expenses.

 

SEND US A MESSAGE

Contact Us

ADDRESS

Kehoe Law Firm, P.C.
2001 Market Street
Suite 2500
Philadelphia, PA 19103

PHONE

Tel: 215-792-6676

EMAIL

[email protected]

Scam Alert: Beware of “QR Code” on Unexpected Packages

Jan 24, 2025 | Archive, KLF Blog

Scam Alert: QR Code on an Unexpected Package //

Imagine receiving an unexpected package addressed to you. Inside, there’s a note claiming it’s a gift, but it doesn’t mention who sent it. Instead, it asks you to scan a QR code to find out more or to get return instructions. While this might seem intriguing, it could be a tactic to steal your personal information.

If you’re confident it’s a genuine gift, you can keep it. However, be aware that such scenarios could involve a new variation of a brushing scam.

The Risks of Scanning Unknown QR Codes

Scanning the QR code might redirect you to a phishing website designed to harvest your sensitive information, such as usernames, passwords, or credit card details. Worse, it could install malware on your device, providing hackers with unauthorized access.

Steps to Take If You Scanned the QR Code

If you mistakenly scanned the QR code and provided your credentials, act quickly:

Monitoring and Safeguarding Against Identity Theft

If you suspect misuse of your personal information, follow these steps:

  1. Obtain your free credit report from AnnualCreditReport.com and review it for unfamiliar accounts or activities. Free weekly reports are available.
  2. Check your bank and credit card statements for unauthorized transactions.
  3. Consider additional measures to protect your identity, such as freezing your credit or placing a fraud alert on your report.

What to Do If Your Identity Is Compromised

If identity theft occurs, report the incident and create a recovery plan at IdentityTheft.gov.

Proactive Tips for Staying Secure

What About the Package?

By law, you are generally allowed to keep unordered packages as gifts. Learn more about your rights when you get unordered merchandise here.

Source: Consumer.ftc.gov

 

 

SEND US A MESSAGE

Contact Us

ADDRESS

Kehoe Law Firm, P.C.
2001 Market Street
Suite 2500
Philadelphia, PA 19103

PHONE

Tel: 215-792-6676

EMAIL

[email protected]

Regeneron Pharmaceuticals – Breach of Fiduciary Duties Investigation (REGN)

Jan 20, 2025 | Investigations

Kehoe Law Firm, P.C. is investigating whether certain executives or board members of Regeneron Pharmaceuticals, Inc. (“Regeneron”) (NASDAQ: REGN) breached their fiduciary duties and whether the company and its shareholders were harmed.

If you own Regeneron stock, you may have legal claims and be able to seek remedies for any misconduct by the company’s directors and officers.

To help us assess your legal options, please complete our securities questionnaire.

Alternatively, if you would like to discuss the investigation and your legal rights, click here to send us a message or contact Michael Yarnoff, Esq., at (215) 792-6676, Ext. 804, or by email at [email protected] or [email protected], for a free, no-obligation evaluation of your potential claims.

U.S. Department of Justice Sues Regeneron

On April 10, 2024, the United States Department of Justice (“DOJ”) announced it had filed a complaint under the False Claims Act (FCA) against Regeneron, a company which manufactures and sells Eylea, an anti-vascular endothelial growth factor inhibitor approved by the FDA to treat, among other conditions, neovascular Age-Related Macular Degeneration.

The DOJ complaint alleged that Regeneron fraudulently inflated Medicare reimbursement rates for Eylea by knowingly submitting false average sales price reports to the Centers for Medicare and Medicaid Services that excluded certain price concessions.

In particular, the DOJ alleged that Regeneron knowingly failed to report price concessions in the form of credit card processing fees Regeneron paid to specialty drug distributors to benefit its customers. According to the DOJ complaint, Regeneron paid these credit card fees so that distributors would accept credit cards for Eylea purchases while still charging a lower, cash price for the drug, and so that Regeneron’s customers — typically retina and ophthalmic practices — could receive credit card benefits for their purchases, such as “cash back” and other credit card rewards.

“The government alleges that Regeneron manipulated Medicare’s drug pricing process, by knowingly failing to report its payment of credit card processing fees as price concessions to its customers,” said Acting U.S. Attorney Joshua S. Levy for the District of Massachusetts. “By doing so, Regeneron greatly inflated the costs of its drug to Medicare over many years and enhanced its revenues. Falsely reported average sales prices cost the Medicare system hundreds of millions of dollars and we will make every effort to prevent such practices.”

Regeneron’s Q3 2024 Financial Results & Stock Drop

On the news of the DOJ lawsuit, Regeneron’s stock price dropped, and on October 31, 2024, Regeneron reported disappointing Q3 2024 financial results, reporting, among other things, that “[n]et product sales of EYLEA in the third quarter of 2024 were adversely impacted by a lower net selling price compared to the third quarter of 2023.” 

Kehoe Law Firm, P.C. is a leading, multidisciplinary plaintiff-side class action law firm committed to protecting investors from securities fraud, breaches of fiduciary duty, and corporate misconduct. The firm’s partners have collectively served as Lead Counsel or Co-Lead Counsel in high-profile cases that have secured over $10 billion in recoveries for both institutional and individual investors.

For more information, visit our website at Kehoe Law Firm, P.C.