Printer-Friendly Version
September 2, 2005
Dear Name* ,
This is in response to your letter requesting an opinion regarding whether gratuities imposed upon customers may be used towards the minimum wage and overtime requirements of the Fair Labor Standards Act (FLSA) for chauffeurs employed by your company. It is our opinion that these gratuities do not qualify as tips for that purpose and may not be applied towards the tip credit allowed under 29 U.S.C. § 203(m) (copy enclosed).
Under the proposed compensation scheme, chauffeurs would be paid a cash wage of $2.13 an hour in
addition to a 15% “imposed gratuity” which would be added to every reservation
and “transferred through directly to the chauffeur.” This imposed gratuity
would not be included in the company’s gross receipts. Customers would also be
informed that they may provide an additional gratuity. You acknowledge that
employees must receive $30.00 a month of this additional gratuity to qualify as
tipped employees. The regular rate for purposes of overtime would be
calculated by adding the cash wage of $2.13/hr, the imposed gratuity, and
non-imposed tips up to the “tip credit” of $3.02 and dividing by the hours
worked. You ask whether the compensation plan would comply with the FLSA if
the company
- pays the minimum cash wage of $2.13/hr;
- meets the minimum overall hourly rate of $5.15;
- employees earn a minimum of $30 in non-imposed tips every month; and
- overtime is calculated as mentioned above.
The definition of wages in FLSA section 3(m) provides that tipped employees must be paid no less than
$2.13 an hour in cash wages, if they receive an additional amount in tips equal
to the difference between the cash wages paid and the applicable minimum wage,
currently $5.15 an hour. This amount, referred to as the tip credit, may not
exceed the amount of tips actually received and may not exceed $3.02 at the
current minimum wage. Additionally, under section 3(m) an employee may only be
compensated using this method if
- the employee has been given proper notice that the employer will be utilizing the tip credit and
- the employee retains all tips received, except as part of a valid tip pooling agreement among
employees who customarily and regularly receive tips. FLSA section 3(t) (copy
enclosed) defines “tipped employee” as “any employee engaged in an occupation
in which he customarily and regularly receives more than $30 a month in tips.”
The proposed compensation scheme includes the 15% “imposed gratuity” in the amount applied to the tip
credit used to fulfill the tip portion of the minimum wage obligation under
sections 3(m)(1) and (2). However, 29 C.F.R. § 531.52, (copy enclosed),
distinguishes between a tip voluntarily paid by a customer and a mandatory
charge imposed upon the customer. “Whether a tip is to be given, and its
amount, are matters determined solely by the customer.” Id. For
example, “a compulsory charge for service, such as 10 percent of the amount of
the bill, imposed on a customer by an employer’s establishment, is not a tip
and, even if distributed by the employer to his employees, cannot be counted as
a tip.” See 29 C.F.R. § 531.55(a) (copy enclosed). Furthermore, these
charges “which become a part of the employer’s gross receipts are not tips for purposes
of the Act.” Id.at § 531.55(b). Although you state that you do not consider the
imposed gratuity as a part of the company’s gross receipts, because the imposed
gratuity is not optional for the customers, amounts received from the imposed
gratuity do not meet the definition of tip.[1]
Your letter inquires about the compulsory service charge often added to a customer’s bill at a restaurant
when there is a large party. As Field Operations Handbook (FOH) § 30d03 (copy enclosed) explains, a compulsory service charge is not considered a tip. Thus,
the employer must pay the entire minimum wage and overtime requirement unless enough bona fide tips are received to qualify the employee as a tipped
employee.
Therefore, we conclude that the “imposed gratuity” is not a tip under the FLSA. Thus, no tip credit is
allowed for amounts received as an imposed gratuity and the employer must pay
the entire minimum wage and overtime as required by the FLSA. See FOH §
30d03. You state that the chauffeurs may receive other amounts directly from
customers, at the customers’ option. These amounts do qualify as tips. Thus,
if the employees receive at least $30 per month from such bona fide tips, the
employees could be considered tipped employees. In this case, the employer may
take a tip credit up to the amount of the tips actually received, not to exceed
$3.02 an hour.
Next, you ask whether your proposed method of calculating the standard wage is consistent with the minimum
wage requirements of the FLSA. You state that you will pay the minimum wage of
$5.15 by “adding the entire wages earned at $2.13/hr, the imposed 15%
gratuities collected on behalf of the employee, plus all additional non-imposed
gratuities received by employees and dividing that number by the total number
of hours worked.” As stated above, the imposed 15% gratuity may not be
included in calculation of the minimum wage. Instead, the company may choose
to pay the chauffeurs $2.13 in cash wage per hour and use the non-imposed
gratuities to calculate the tip credit. For example, if an employee works 20
hours and receives $100 in tips, this would be an average of $5 an hour. The
company could take a $3.02 tip credit, which added to the $2.13 in cash wages
paid, would equal the required minimum wage. However, if the employee were to
receive only $30 in tips for the same 20 hours of work, the employee would only
average $1.50 an hour in tips. Therefore, the company would have to pay $3.65
an hour in cash wages to that employee during that workweek. The tip credit
calculation may vary widely from week to week and employee to employee.
Finally, you ask if your proposed method of calculating overtime complies with the FLSA. You state that
you would calculate overtime by multiplying total hours worked by the
employee’s remuneration consisting of $2.13 per hour, the total amount of 15%
imposed gratuities, and additional non-imposed tips. Tip amounts in excess of
$3.02 per hour would not be included in this total remuneration amount. The
resulting total remuneration is divided by the total number of hours worked,
providing the regular rate. The regular rate then would be divided by 2,
providing the overtime premium that must be paid for each overtime hour. See
29 C.F.R. § 531.60 (copy enclosed). Additionally, as we stated in an
Opinion Letter dated January 15, 1975 (copy enclosed), “[i]t is our opinion
that if such service charges to customers are compulsory they are not tip
income…, but are gross receipts to the employer.” Therefore, the overtime
calculation that you provide is correct.
This opinion is based exclusively on the facts and circumstances described in your request and is
given on the basis of your representation, express or implied, that you have
provided a full and fair description of all the facts and circumstances that
would be pertinent to our consideration of the questions presented. Existence
of any other factual or historical background not contained in your request
might require a different conclusion than the one expressed herein. You have
represented that this opinion is not sought by a party to a pending private
litigation concerning the issue addressed herein. You have also represented
that this opinion is not sought in connection with an investigation or
litigation between a client or firm and the Wage and Hour Division or the
Department of Labor. This opinion letter is issued as an official ruling of
the Wage and Hour Division for purposes of the Portal-to-Portal Act, 29 U.S.C.
§ 259. See 29 C.F.R. §§ 790.17(d), 790.19; Hultgren v. County of Lancaster, Nebraska, 913 F.2d 498, 507 (8th Cir. 1990).
We trust that the above is responsive to your inquiry.
Sincerely,
Alfred B. Robinson, Jr.
Deputy Administrator
Enclosures:
FLSA sections 3(m) and 3(t)
29 C.F.R. 531.52, .55, and .60
Opinion Letters dated February 18, 1975 and January
15, 1975 FOH
§ 30d03
* Note: The actual name(s) was removed to preserve privacy in accordance with 5 U.S.C. 552 (b)(7).
[1]
The other provisions of § 531.55(b), which have not been amended since 1967 and
provide that the employer may use an employee’s tips to satisfy the monetary
provisions of the FLSA, “were issued pursuant to the Act as it was before the
1974 amendments, and have no effect to the extent that they are in conflict with
the amended Act.” Opinion Letter dated February 18, 1975 (copy enclosed). As the 1975 letter explained, “[t]he amendments to section 3(m) of the
[FLSA] [providing that an employer may not utilize a tip credit unless an
employee retains all tips received] would have no meaning or effect unless they
prohibit such agreements whereby tips are credited or turned over to the
employer for use by the employer in satisfying the monetary requirements of the
Act.” Therefore, while service charges are “not prohibited by Section 3(m),
that section is inapplicable in such a case, and the employer is obligated to
pay the full minimum wage.” Id. See also § 531.55(a).
| |
|