In the restaurant world, tips are the lifeblood of many employees' earnings. Customers leave them to show appreciation, and employees rely on these to make ends meet. But what happens when management decides to dip into the tip jar? Spoiler alert: It can land your company in hot water — of the legal variety.
Let’s talk about a simple yet critical way to protect your business from lawsuits: give the employees their tips.
The tipping point: What you need to know
Tips aren’t just tokens of gratitude; they’re legally protected income for employees. In the United States, the Fair Labor Standards Act governs how tips must be handled. Employers are generally forbidden from keeping any portion of employees’ tips. Even using these funds for business expenses, such as condiments or packaging, could violate federal and state laws. For example, in Texas, several restaurants have come under fire recently for using employees’ tips to offset business costs. The result? Lawsuits, bad press, and likely some very awkward staff meetings.
The bottom line: Skimming tips isn't just bad form — it’s against the law.
Who owns the tips? (Spoiler: Not the employer)
Once a customer hands over a tip, it’s the employee’s money. While employers can facilitate tip pooling under certain conditions, they cannot touch those funds themselves.
Think of tips as sacred ground — like a no-parking zone for management. Violating this principle can lead to serious consequences, including back pay, fines, and potentially, punitive damages. In some states, such as California, laws go even further, ensuring employees get every penny intended for them.
Employers might argue, “We work as a team. The tips partially cover our shared expenses!” Nice try. But any attempt to divert tips away from employees will likely end with a judge issuing a reminder (and a penalty) about whose money it is.
Avoiding legal pitfalls: Best practices
Here’s how your company can stay on the right side of the law and out of court:
- Create a clear tip policy: Spell out who gets what. A written policy ensures everyone, from management to staff, understands how tips are handled.
- Audit your practices: Regularly review how your company handles tips. If there’s even a hint of impropriety, fix it before a labor and employment lawyer fixes it for you.
- Educate your team: Ensure your managers and payroll staff understand tip laws. Ignorance isn’t a defense in court, but education can be a solid defense against lawsuits.
- Respect local laws: Tip regulations vary by state. What’s legal in Florida might be a lawsuit waiting to happen in Washington.
Keep your hands off: As tempting as it might be to use tip money for operational costs, resist the urge. Seriously, just don’t.
The cost of cutting corners
So, what happens if you skim off your employees’ tips? For example, a recent case in Pasadena, California involved restaurant owners who withheld and even stole portions of their employees’ tips to cover business expenses. Besides losing their employees’ trust, the financial fallout can be severe. In addition to repaying stolen wages, employers face legal fees, fines, and reputational damage. One lawsuit can turn your company’s name into the punchline of a legal joke no one wants to hear.
The takeaway: Don’t let your company tip into trouble
Protect your company from lawsuits: pay your employees their wages, let them keep their tips, and follow the rules. When in doubt, consult a legal professional who can ensure your business practices are squeaky clean.
Here’s a tip: If you need a legal blog that sheds a humorous light on bonkers cases, you can’t do better than our blog. If you need family law attorneys in Washington State, LaGrandeur & Williams is the team to call. Visit our law offices in Kent or simply leave us a message.
Here’s a tip: For a dose of legal humor on bizarre cases, our blog is a delightful read. But if you’re dealing with a family law issue in Washington State, LaGrandeur & Williams is here for you. Visit our Kent offices or drop us a message — no tipping required!