In Tennessee, the minimum wage for tipped employees is $2.13 per hour. Nevertheless, all employees working in the United States are entitled to at least $7.25 per hour, which is the federal minimum wage. How does this work? Essentially, employers use an employee’s tips towards their minimum wage requirement.
For example, consider an employee who works for 1 hour in a restaurant. If that employee gets a table that tips $10 within that time, the employee is actually making $12.13 an hour, which fulfills the federal minimum wage requirement. Even if employees don’t receive tips every hour, employers assume the ebb and flow of tipping customers will “even out” their employees’ wages. If an employee does not earn at least $5.12 per hour in tips, the employer must pay the difference.
Employers may only take a “tip credit” if the employee earns at least $30 a month in tips, and employers must notify employees of their hourly wage and whether or not they are expected to participate in a tip pool (see below).
What About Side Tasks?
Employees who receive tips usually don’t spend their entire shift performing services that lead to tips. Servers, for instance, have to complete “side work,” like wiping down counters, folding napkins, and making coffee. For this reason, employers who use tips towards an employee’s federal minimum wage may not require employees to perform non-tipped work for more than 20% of their shift.
This is known as the 20% rule. Sometimes, employers work around this rule by paying servers $7.25 for the hours before or after customers are available to give tips (like before a restaurant opens or after it closes) or pooling tips. If an employer requires tip pooling, all tipped employees put their tips into a pool and split it at the end of their shift. As long as all tipped employees still go home with the federal minimum wage, they can spend as much time as they need completing side tasks.
What Counts As a Tip?
A tip is money that a customer voluntarily leaves in excess of the charge for products or services and tax. Tips belong to employees directly, unless the employer uses tip pooling (see above), or the tip is paid via credit card (in which case the employer may use part of the employee’s tips to cover credit card service fees).
Mandatory service charges are not tips because the Internal Revenue Services (IRS) views them as wages.
What If I Don’t Receive the Federal Minimum Wage as a Tipped Employee?
Determining your hourly wage as a tipped employee can be difficult, and your wage may vary from day to day. If you go home with less than $7.25 an hour – or less than $58 after an 8-hour day (pre-tax), you should speak to your employer.
If your employer does not remedy the situation, or you go home with less than $7.25 an hour on more than one occasion or during more than one pay cycle, you should speak to an attorney.
At Donati Law, PLLC, we dedicate a large portion of our practice to ensuring workers in Tennessee receive the correct amount – whether they are tipped employees, independent contractors, or commission-based employees.