Tips on Tipping for Georgia Restaurateurs — Part 1: Mastering Wage & Hour Regulations
In this on-demand webinar, Les A. Schneider and J. Larry Stine will shed light on wage and hour regulations and tip credit rules in Tips on Tipping: Part I. They share cautionary tales of costly lawsuits, emphasize the importance of understanding tipping requirements, and cover topics such as federal minimum wage, service charges versus tips, and tip pooling.
For valuable insights and answers to common questions, watch this presentation below.
Tips on Tipping: Part 1 Highlights
Cautionary Tales: Larry & Les shared recent lawsuits against restaurant employers reaching settlements of hundreds, even millions of dollars for failure to comply with the Fair Labor Standards Act (FLSA). It is important to understand tipping requirements and practice transparency with your employees to avoid potentially costly legal proceedings.
Back to Basics: Federal minimum wage is $7.25/hr and the tip credit minimum wage is $2.13/hr. Tips received must bring your employees' hourly rate to at least $7.25/hr - if not, you are required to provide supplemental pay.
Service Charges v. Tips: While tips always belong to your employee, service charges belong to your restaurant. It is permissible to collect a percentage service charge in lieu of tips, but you must pay all participating workers at least $7.25/hr.
Make a Splash with Tip Pooling: Tip pools are a popular way to distribute gratuity among your staff. However, salaried owners and managers cannot participate in a tip pool; unless they do not claim a tip credit, back-of-house employees receiving an hourly wage or salary must also be excluded from tip pools.
What if an employee is hired for both non-tipped and tipped work? Do the same rules apply to gratuity for online orders? For the answer to these questions and more, click below to watch the full recording of the presentation.
Les A. Schneider (00:00):
Well, we'll get started. Basically this seminar is about the tips on tipping. Basically Larry and I, over the years, who have been involved with the Fair Labor Standards Act, have found that this area is one where so many employers end up costing themselves so much money because the way they handle the giving of tips the calculation whether overtime is owed on the tips, et cetera, seems to be a constant problem. Oops. And as Larry's,
J. Larry Stine (00:33):
You ready for it?
Les A. Schneider (00:36):
Les A. Schneider (00:37):
For less? Yeah. And it's a tsunami, as you can see. It's been a big problem when you don't follow the fair Labor Standards rules. And over the years there's been a lot of horror stories. As I'm sure Ben, you're aware that celebrity chef Mor Vital, he had to pay 5.25 million for tipping violations in 2012 in North Carolina. There were seven Mexican restaurants that got hit for 4,000, a hundred thousand dollars in back wages. Korean restaurants in Las Vegas had to pay $179,000 for overtime violations. And as recent as January, 2023, and the slutty vegan PF Chang recently was sued also. So this is something that can really hurt the bottom line of a company dramatically. Yeah,
J. Larry Stine (01:32):
I, I, I'll tell you, Les, we did one personally for some Mexican restaurants, and the settlement was over a million dollars,
Les A. Schneider (01:39):
Right? So the, if anything's gonna cut into the bottom line, it's that. So we start out basically from the premise that the basic minimum wage in Georgia and the federal minimum wage is 7 25 an hour, right? The tip credit is figured out a little differently. You get $2 and 13 cents of wages, but then the tips you receive as a waiter, a waitress must bring your regular rate to at least that 7 25 an hour. And obviously for any overtime, you have to have one and a half times the regular rate for all hours worked above 40. So those are the working rules to do it. So Larry, you want to go through the example Sure. Of a server?
J. Larry Stine (02:29):
Sure. So here's, here's how we would handle it, and we've got a couple examples. So you got get fill for what the calculations are. So we'll start off with one server working 30 hours, got a total tip of $150, and this is what he is gotta be paid. He has to be paid 30 hours times two 13. So that's 63.9. The minimum wage is 30 hours on 7 25. So that's two 17. So when you, the minimum wage requirement of 30 hours times two 13 to the $150 tips, you get 2 13 90. But when you multiply and you do the minimum wage, you see it's two 17. So you have to supplement it by paying the server or whopping $3 and 60 cents. The other example is this one where we do the same thing only this time, the, the server makes $900 a tip. We're gonna, going from the huddle house to the fancy steakhouse, steakhouse and the tip, and this one is still, you see the 30 hours is still 2 13 63 90. But in this case, the, the critical point is he still gets all 900. So he makes $963 and 90 cents. But the interesting thing is, that's his minimum wage. And if you pay him less than that, you're violating the minimum wage, even though it's $963 and 30 cents, which you're kind of going like, wow, that's 30 bucks.
Les A. Schneider (04:05):
So in essence, we can't take any money away from that $900 to management or to a supervisor or somebody like that and not, and, and still be able to use the tip credit where you only pay in wages, the $2 and 13 cents. That's the key thing. And that's a big mistake that a lot of employers make because they say, well, we're going to share some of this money with our supervisors, some people in the back of the house who, the cooking, et cetera. And that is strictly forbidden under the fail labor, same act. So that's a common mistake that people make,
J. Larry Stine (04:45):
Right? And it ends up with some really large numbers of use. Screw that up. So,
Les A. Schneider (04:49):
J. Larry Stine (04:50):
So here the, here the tip rules. And first thing is there's a big difference between a tip and a service s charge. And a lot of restaurants don't understand it and don't take advantage of it. But they amended the Fair Labor Standards Act in March of 2018. Prior to that, it was very arguable who the tips belonged to, but in the prior administration, they reached a compromise. And one of the things in the compromise is that it was aggrieved that the tips belonged to the employee
Les A. Schneider (05:22):
And the service charges would belong to the restaurant. And being recently coming back from Toronto who last week, I can tell you that a lot of restaurants up there do do it as a service charge. And they do divide it among the, not only the wait staff, but the people in the back of the house, the concierge who's taking care of the wine, et cetera. So that is a big difference. And it, there are certain restaurants in New York, for instance, that have gone to strictly a service charge. And that is something that is done. Now, the other part that's interesting in Georgia, if you put a service charge on the bill, the Department of Revenue, and this is way beyond the Fair Labor Standards Act, but they take the point of view that if the meal is $30 and the service charge is $6, sales tax has to be paid on $36, not the $30.
Les A. Schneider (06:23):
Where if it's a tip, if it's a suggested tip, then service sales tax does not have to be charged on the tip or on the suggested tip. So as you can see from the headings we put up here, if it's a mandatory tip, it has, sales tax has to be added on service charge, sales tax has to be added on. If it's a suggested tip, the sales tax does not have to be added. This not only affects restaurants, ironically enough, but a lot of car services, taxis, limos, et cetera they have gotten into trouble with the Department of Revenue on that exact point. In fact, we are dealing with a couple of cases right now on that issue. So it is important that if you're gonna put a tip on an invoice, make sure you use the word suggested tip, and that the customer has the right to either increase it, decrease it, or cross it out entirely, that that's how you will avoid any sales tax implications. So that, that's, that's a big point that we usually throw in. Talk to people about
J. Larry Stine (07:31):
You, Knowles, you're talking about the service charge. The problem, a lot of times, and I had a, an attorney, God darn, 40 years ago, when Jackson was trying to put service charges on, the problem is that the servers strongly resisted because tips are a tradition in the industry. Couldn't resist Dan.
Speaker 3 (07:58):
Yeah, yeah, no, that, that's fine. You know, just they are, I mean, I'm thinking back to my days working in the restaurants and how we did tips. I'm sure it probably wasn't by the bug <laugh>, but
J. Larry Stine (08:09):
Highly unlikely. It was.
Speaker 3 (08:11):
Yeah. I mean, we split 'em at the end of the night. And I, you know, I may, I'm thinking after hearing that, that we probably shouldn't have all accounted for what we took away and who, who all got what, but of course we didn't. We put it in a big bucket and split it out evenly, and then went drink beer and went home <laugh>.
J. Larry Stine (08:28):
Les A. Schneider (08:29):
And if you, if you divided it among just the wait staff, you probably did not violate the tip law. You had a, a tip pool basically, and you shared it among most people who were the service people. If you started to dividing it among people in the back of the house, et cetera, that's where you'd get into trouble and you would, you wouldn't be able to preserve that $2 and 13 cent rate. So that, that's a big okay, that's a big point that has to be done. And you'll see the tip credit rules that we're about to set up of, you know, what is the tip credit, who's eligible for it? And again, I think we've said it already, that it has to be the people who are s doing the service, not the people who are in the back of the house cooking the meals, et cetera, and not supervisory people. As Larry indicated, the resell Laura's tips belong to the workers who earn them. And then the other thing that's, that's come out in October of 2021 is this side work and limitation. And Larry, why don't you go over those two points?
J. Larry Stine (09:36):
Sure. So what, what's happened is wage and hour has had limitations on side work for a long time. And, and it used to be the, the 20% rule, you couldn't exceed more than 20% of your time on non tip work.
Les A. Schneider (09:52):
And give us some examples, Larry, of what non tip work would be.
J. Larry Stine (09:55):
Oh, like, can you tell your server to go clean the bathroom? Right? That's a non tipped service. If you are having them move chairs, move the furniture, that's non tip, you get some mm-hmm. <Affirmative>. But what they did to changed the rules is they said there's no more than 30 minutes continuous on non tip work. So that changed the rules. Now, mind you, that's what wage hour puts out in a memo, right? That doesn't mean it's the law, but it is something that wage hour's going to,
Les A. Schneider (10:29):
They're gonna try to enforce that.
J. Larry Stine (10:30):
Yeah. They're gonna try to enforce that. And so what happens is you end up with a not 20% rule, and then it's continuous. So you can have 30 minutes in the morning and 30 minutes in the afternoon but
Les A. Schneider (10:45):
You couldn't have 45 minutes in morning in, in one shot. And if some of the servers are rolling silverware and putting them together or whatever, again, that would be non tip work, is all this prep stuff that they would be doing.
J. Larry Stine (10:59):
It gets a little arguable about wrapping the silverwares. So you, you have attorneys fighting over
Les A. Schneider (11:05):
Whether, whether that, whether
J. Larry Stine (11:06):
Weld facilitator is non tip work or tip work. And you, I mean, sometimes we get into some really silly battles but that is in fact one of the things you'll fight over. But it does cause some problems on the side work still not as bad. Big a problem is the tip rules.
Les A. Schneider (11:24):
And just going back to another point, Ben, I'm sure you have seen on menus a lot of times at restaurants where it says parties of six or more 20% will be added to the bill, right? That really in, in many instances that the kiss of death, in terms of the revenue departments like shooting fish in a barrel, they'd see that on a menu. They go in and they audit the invoices and they look at the 20% tips that have been added to those checks, and they just hit them with a sales tax liability. So what it should be, what, what it should say on the menu is parties of six are a suggested tip of 20% will be put on the bill. And then a, again, giving the customer the right to alter that, either up or down or eliminate it entirely. But there's been a lot of chain restaurants who've gotten killed with that.
Speaker 3 (12:19):
So I mean, Iles, as you know, I I see that a lot during the session when we're doing big dinners. So should it, should it be then that the that the, you know, mandatory 20% gratuity on parties of, or more come before the sales and use tax is applied on the bill? Just curiously, I'm just curious as
Les A. Schneider (12:41):
Far as Yeah. As far as the revenue department is concerned, yes. If, if it's $500 for food and there's a hundred dollars mandatory tip, basically, and it's 600, then the sales tax should go on the 600. Which should the way the restaurant can protect itself, because of course, once you've paid the bill of $600, the chances of them finding you again to come back and get the sales tax is not gonna happen. They're gonna hit the restaurant with it. Right. And one of the big restaurant chains in town got hit with that because they did it. And it took a lot of working to show that there were instances where customers had actually crossed it out and changed it higher, lower, et cetera. Ironically enough, the limousine industry got hit with this dramatically. And it, they have been unrelenting in terms of it. That's why I've always told clients to put the words suggested gratuity and put it in. And you know what's interesting, Ben, because you mentioned the Capitol <laugh>. If you you, I'm sure going at the capitol, Ben, you've been to six feet under across from the cemetery, right?
Speaker 3 (13:56):
Oh yeah. Of course. Yes, sir.
Les A. Schneider (13:57):
Right? I don't know if you noticed, but they, and a lot of other restaurants on that street now, they bring you your bill and there's an automatic 20% charge on the bill.
Speaker 3 (14:09):
Les A. Schneider (14:10):
Tip. And you sometimes you don't even see it. And then they have another line that says additional tip. Yep. So people are haven't even realize they put 20%, they're paying the 20% tip, and then they start putting just out of, out of reaction, they, you go and do that.
Speaker 3 (14:25):
Yeah. I'm seeing that more and more th those restaurants. And I feel like in other places too and in other, when I'm outta town for some reason, I, I feel like I'm seeing that more and more. And I was kind of curious why that is.
Les A. Schneider (14:37):
Well, because I think it's an easier way for the, for the restaurant not to increase wages to the employees to ensure that the customers are paying a good size tip and they're able to keep staff, et cetera. And it makes, it makes it a lot easier. And of course, most of it's all on the credit card cause Yep. The cash business and the restaurant business is not what it used to be. Mm-Hmm. <Affirmative>, I mean, when the Waffle houses and McDonald's of the world start taking credit cards, you know, this change even a takes credit cards. So <laugh>, I don't think you can find many places today that don't take credit card and only do cash. So
J. Larry Stine (15:18):
Yeah. When you look at the tips now, a number of cash tips are
Les A. Schneider (15:22):
J. Larry Stine (15:22):
Less than 10% of the total. That's
Les A. Schneider (15:24):
Right. But that's it. So let's come back to a slide. The tip re the tip credit rules the record keeping requirements. You obviously have to show the hours work, the pay received the cash and the credit card tips received. And as we just said, cash tips are becoming lesser and lesser of a situation. And then you are allowed as an employer to take the processing charge that you have to pay the credit card companies away from the gross tips and then go to the people. Yeah.
J. Larry Stine (15:57):
Yeah. But the problem I'm running into is a lot of 'em will take like the Amex charge, which is 3%, right? And they just do a 3% across the board,
Les A. Schneider (16:05):
Even though the other one is only one and a half percent or
J. Larry Stine (16:08):
Les A. Schneider (16:08):
Yeah. Yeah. So there's a little larceny in the in some, in some employers who just say, well, this is administratively easier. Well, it's always administrative easier to their advantage, so, right. They don't use the lower percentage of what may be MasterCard or Visa card may provide. So you have to use the exact amount that you're paying in the processing charge. You cannot subtract any more than that.
J. Larry Stine (16:33):
Right. And also, if you want to do an administratively easy thing, use the guy during lowest,
Les A. Schneider (16:39):
Right? If you use the lowest one, you would have it, but then the employer would feel like they're getting cheated because they're subsidizing the tips. So you can't win to lose.
J. Larry Stine (16:48):
Right? Yeah. Use, use the exact, use the lesser, but don't use the higher. Cuz I'm finding myself in these cases arguing they're going, well, how much was your cost? And you say this, and then they, well, you're paying it and you're taking outta the tips. And the problem is then you lose the entire guy during tip credit of $5 and 12 cents for every hour.
Les A. Schneider (17:06):
And that's a very good point, Ben, what Larry has said, because you lose it and you clearly lose it in the week that you did it, or the week that all of those credits, you can lose the tip credit for the entire month if you've taken out that processing charge in excess of what it actually costs you. And that's the biggest problem. And that's the part that gets a lot of employers in trouble. Yeah.
J. Larry Stine (17:32):
Well, here's the problem. You, you're paying $2 and 13 cents and you're taking $5 and 12 cents in tip credits. And if the court finds you did it wrong, think of the five 12 and then they liquidated and all of a sudden you're paying every tipped employee for the last two years, an additional $10 and
Les A. Schneider (17:53):
J. Larry Stine (17:53):
And 24 cents an hour or two or three years,
Les A. Schneider (17:58):
Years. And it just, it just doesn't pay. So pigs get fat, hogs get slaughtered. You gotta be more judicious the way you, you do that. We talked a little bit about the SIP work and the non sip work. So Larry, why don't you go over an example of the dual work for Ben.
J. Larry Stine (18:15):
Okay, here's the example, and we'll go look at the map. The server works 32 hours at eight hours, four days, but spends an hour each morning serving an hour after serving clean the restaurant. Boer has the two rules. The 20% rule in using this rule, the time is limited to 32 hours times 20% or 6.4 hours. However, this server spent two hours times four days for cleaning for a total of eight hours. And thus with this formula, he'd had to pay the full minimum wage for 1.6 hours. However, with the recently added 30 minute rule limit the tip credit to 30 minutes continuous time using that rule, you can't take the tip credit for one hour for four days. And thus the, you can take the tip credit for 28 hours and have to pay the minimum wage for four hours. So employees that worked at the 32 hours a day hours with two hours non tipping, the 20% equals that 6.4 hour limit. And then you take that 2.48 minus 6.4 times 7 25 and with the one minute you end up with four hours and you end up paying 28 hours times that and four hours at 7 25. So you can end up paying a good bit more with a bit. The problem is you've gotta pay the one that's most favorable to the employee, to the employee, whichever way that they run that is wage hour's positioned. Courts haven't upheld it yet, and they haven't put it in a wreck.
Les A. Schneider (19:51):
Right. And nobody has re no court has rejected it yet either. So at, at this point you're at the mercy of the administrative process, right? And the bureaucracy of fair labor stand of, of the, of, of the Department of Labor wage and hour division as to what they come up with in an audit. And again, this just eats into the bottom line profit of a business. And therefore you gotta be very careful how you assign duties to employees. Not only the total hours, but the length of time that they're doing that, that work. Right.
J. Larry Stine (20:28):
And, and, and the big, big problem we run into litigation with tip credits, I've been doing tip credit type cases forever, is the notification department. So what has to happen is the, the statute says that you have to notify the employees about the tip. Correct. And what happens is a lot, a lot of times the employee gets on the stand and says, they never tell me about the tip credit. And the problem with it is that that instantly contaminates the entire period of employment with that employee in the <inaudible>. And there are cases in which they have lost the case upon the, the notification. So what we did is we drafted a, a poster, a very detailed poster because the statute says you're supposed to notify 'em about the provisions of 29 USC 2 0 3 M two. So when we looked at it, we went, well, it says you gotta, it doesn't say the court's kind of fudge on which you're supposed to tell the plaintiffs are arguing.
J. Larry Stine (21:40):
You have to tell 'em about all the details. But when you read the statute, all the statute says is tell them about the provisions of 29 USSC 2 0 3 M two. So what we did is we drafted up a poster that quotes 29 USSC 2 0 3 M two, and told everybody to put it up and to leave it on the poster and take a photo with every employee. Because what we've done in the past is we've given 'em all these notices and say, okay, when you bring your new tip employee in, you give this form to them and they sign it. I have yet to find an employer that matches about more than 50% where they can pull up about 50% of those forms for their new employees. And I got 50%. And now what they're claiming is the plaintiffs arguing, well, you can see you filled out the forms when you told 'em, but you didn't tell the other 50%. So your lack of getting the signature for your forms works against you. But if you put it where you put your posters and then for added protection, what I've told everybody is get your cell phone out, put the new employee in front of the poster, take it time, state it, and put it in your God during files and, and then you won't be having problems with this particular one. That's the solution I came up
Les A. Schneider (23:01):
With. Yeah. And basically that Kodak moment can really save you in a lawsuit when the employee says, you know, I, I don't remember this, I don't ever recall knowing anything about a tip, the tip credit or anything like that. This is too complicated to me. And here there's a poster of him at him or her with the, with the notice. It helps a lot in litigation and other employers certainly have had, as Larry said, that sometimes people can put it in the handbook and they try to have people initial it. But then it's a matter of keeping the records and making sure that it is initialed as you can see on the bottom of, of this form. So again, everybody does their does their processes differently. But I like the idea of the photo because somebody sounds like a complete liar when they said they never, they never even heard about a notice to a tip employee. And here they are with a picture of themselves and that notice, which certainly can help, but there's no harm in including it in the employee handbook. I mean, that certainly is another area for of that.
J. Larry Stine (24:08):
I'd have an employee handbook, I'd have it on the board, but I I I think I've given up having a specific
Les A. Schneider (24:15):
J. Larry Stine (24:17):
Actually tends to be used against those, for those that don't initially.
Les A. Schneider (24:20):
But putting it in the handbook and putting it up on the, putting it up on the wall and having that picture taken, it'd be tough to argue against that.
J. Larry Stine (24:30):
Well, and it's amazing how often you, you know, you, I've, I've taken depositions of servers and work in the industry 20 years and they go, oh no, they never told me anything about that. And you're kind of going selling your paycheck. And I I, I don't believe that a lot of times, but I can tell you they'll testify to it. And you're trying to convince the court and the jury otherwise, and this is the best way I think we've, you and I have ever come up with,
Les A. Schneider (24:53):
And most, and most juries, basically expect more of an employer than they do of an employee. They do. And if the employer runs its policies like a ragtag operation, they're gonna give the benefit of the doubt to the employee. So I think it's,
J. Larry Stine (25:12):
I juror one time that, cause they against me and they got question and she says, I'm, I'm a cheerleader. I, I I, I coach judge cheerleaders and she says, I keep better record than your company did. Right. And the problem was it's true. She was right <laugh>, she was absolutely right.
Les A. Schneider (25:31):
That's exactly right. Right. And the next thing we'll talk about, as you can see that poster is the tip pool. Now again, Ben, there is a process whereby, as you said, in the place that you may have worked in that you can pool the tips together among all the service employees. And that's perfectly legal. And again, the issue is who participates in that. Gotcha. And again, we're talking about servers, bartenders, busers, expediters, all those people can be part of that tip pool who can't be part of it would be the kitchen employees and never management or owners. If they are gonna be part of it. Those last two groups, then you might as well have a service charge and not do not do tip credit at all, assuming then that all that money is gonna subsidize the wages that those people are gonna make at the minimum wage and time amount of money.
Les A. Schneider (26:34):
The problem you run into is, as I think you mentioned earlier, you're gonna lose a lot of people. And as you well know in some of the fancy steakhouses in town and fancy continental restaurants, it's not unusual for a waiter or a waitress to make a hundred, $150,000 a year. If you go to just a service charge. They may not make that much money because they're sharing it with other people in the restaurant. So you may not keep the level of help that you were expecting to, but it is a balancing act. And some restaurants and other employers are getting very frustrated by it and therefore they think it's easier to keep an overall good staff to do go to the service charge route. But I haven't seen that take over yet. Larry, do you have a different view or do you feel that most places are still using the tip credit? Yeah,
J. Larry Stine (27:29):
Yeah. Most of them are, frankly the vast majority are using what we call the traditional tip credit and the new one where you pay, you don't take the tip credit and pay 'em 7 25 and you can share the tips with everybody. With everybody, the managers and supervisors. The only place that I have seen that are on the high end ones where the servers are making so much money, but they're not coming in to see the servers. They're coming in for the
Les A. Schneider (28:02):
Chef. The chef, the sous cheff Yeah. The pastry chef, et cetera.
J. Larry Stine (28:05):
And they can share it with the non managers and supervisors by paying the tip staff 7 25 and then have that tip. And then the service charge is still probably the lowest percentage of anything there is.
Les A. Schneider (28:24):
That's true. And again, the whole issue today, when Ben, when we talk about two 13 an hour, that doesn't stop. I know a number of the restaurants, especially a lot of the chains, they may start somebody at two 13 an hour, but they may, if they're, if they stay and they have some longevity, the two 13 may become two 50 and then it may come $3. In other words, the tip credit can be a little bit more than two 13, it just can't be any less than two 13. Right. And that's the other part that I know even my son years and years and years ago who was working at one of the chain steakhouses, he, the longer he stayed, they always bumped him up 10 or 15 cents more cuz they were so grateful that he actually hung around and they didn't have great turnover.
Les A. Schneider (29:11):
So that, that's part of it also the, the, the obviously if you do it wrong you get a potential loss of tip credit, you have liability for back wages. Larry talked about overtime and liquidated damages, basically doubling the amount of money that's owed. And it's pretty automatic unless you can really show a very, very strong defense, which most people can't. And of course you also would be responsible for attorney's fees and the attorneys are not shy in terms of what they deem to be a reasonable hourly rate for the work that they do. And the judges aren't at all shy about awarding those attorney's fees in pretty high numbers. In fact, sometimes it gets so ridiculous. We've defended various businesses where maybe the violation was a few thousand dollars, maybe $15,000 among five or six employees, but the attorney fees were $50,000. Oh yeah. And unfortunately it got awarded. And so the frustration among the employer is the fact that a lot of times attorneys are so aggressive in fighting to sue that they end up paying a lot more than if there was, if there was reasonable discussions initially just to resolve the case at an earlier level. But everybody works for a living I guess. So
J. Larry Stine (30:34):
Yeah. And sometimes,
Les A. Schneider (30:36):
J. Larry Stine (30:37):
We have to admit some of our clients are stubborn.
Les A. Schneider (30:39):
Oh, the Clark Stein is stubborn and sometimes the plaintiff's attorneys are particularly aggressive and they, and they're looking that they realize that the more they elongated and if they're right and it's sort of like shooting fish in a barrel, they're gonna get a bigger attorney fee award. So yeah. That's the other part of it that you have to do. We have used sometimes strategies of making an offer of judgment where if we offer something that is equal to or greater than what actually is awarded that, that might stop the, some of the award of attorney's fees in the judge's discretion. It's not automatic like the state law is on offer of judgment. But again, those are things that sometimes bring the plaintiffs to the table. And it's helpful to try to get a settlement
J. Larry Stine (31:28):
Unless you'd be interested in this. I bet there's a, a firm in Arkansas that has been extraordinarily aggressive and so aggressively off the federal judge. Mm-Hmm. <affirmative>, his reason award for attorney fees in the case and the circuit firm it was 500.
Les A. Schneider (31:44):
Well, sometimes, sometimes the good guys per prevail.
J. Larry Stine (31:50):
Yeah. Yeah. I I think I actually dealt with 'em once when I was in Arkansas. Right. So anyway, we got the, we got the, the, the three ways we can comply with the first ones through traditional one
Les A. Schneider (32:00):
Right. Paying the two 13 an hour mm-hmm. <Affirmative>, the employees keep their tips, they have to receive at least $7 and 25 cents in total of tips. And the two 13 and then tip pool may include traditionally tipped employees of the ones we mentioned earlier. Right. So that's the way you traditionally comply with the law.
J. Larry Stine (32:22):
Yeah. And in March of 2018, they changed the law to allow this type of Right. Which is the minimum wage tip.
Les A. Schneider (32:29):
Right. So basically all the, all the workers paid at least seven and a quarter. All the tips may be pooled and shared. The tips may be shared with everyone except the owner and manager. Right. Basically no supervisory employees and not the owner of the restaurant. And I've seen, I've seen this more in a, in a city or in a state where the cost of living is a lot higher and frankly, restaurants have to pay at least seven and a quarter just to get people hired. They can't, they can't, most people can't live on the fact that the tips in some of the smaller places, Ben, you could imagine that on the night shift in a waffle house, if it was in the middle of New York City, there may not be that much business. So therefore to get somebody to work that shift, they gotta pay seven and a quarter anyway, so Right. That's the other part of it. So
J. Larry Stine (33:30):
Yeah. Well, New York City wouldn't be seven and a quarter
Les A. Schneider (33:33):
Right. Probably be
J. Larry Stine (33:36):
Les A. Schneider (33:37):
$14 in change now, right?
J. Larry Stine (33:38):
Yeah. Yeah. That's the New York City.
Les A. Schneider (33:40):
That's the other issue, Ben. Your minimum wage, although the two 13 is good across the board, Larry, in a state that has a state minimum wage mm-hmm. <Affirmative> of $10 or $15 an hour, et cetera. Yeah. Does the tip credit have to take care of the difference between the two 13 and the state minimum wage?
J. Larry Stine (34:05):
Yeah. Typically now. And, and if some states just eliminated the tip credit over
Les A. Schneider (34:10):
Yeah. California California has no tip credit. Yeah. There is no such thing. But let's say in New York, if the minimum wage was $14 an hour, the employee would have to make the difference between would've to make tips and the difference between the 14 and the two 13. Correct. Well,
J. Larry Stine (34:27):
What happens in New York and New York City, they've, they've gotten their own particular rules. They do still allow tip credit. Right. But they have a much, much larger minimum tip credit number that you have to pay.
Les A. Schneider (34:40):
So you could have the problem of of not violating the federal minimum wage but violating the statement Oh yeah. With their tip credit.
J. Larry Stine (34:48):
Les A. Schneider (34:48):
J. Larry Stine (34:50):
Once you get, luckily here in Georgia, it's, it's just the feds, it's only not, we, we have a de chart in the book of all the minimum wage for the states and the
Les A. Schneider (35:07):
Yeah. Would you have to pay. Yeah. And it, it's constantly going up and in a way that, that six feet under example, Ben, that's a way where it's not in the law, but it's in the policy of the restaurant. They have decided that that's the way they're gonna handle it. Now, as I said earlier, it may affect the sales tax ramification of the entire process when the revenue department comes and hits them for that. But at the end of the day, they're complying with the law and not having any problem with that. The other way is the pay all workers at least seven and a quarter in lieu of the tips, you collect a percentage service charge such as 18% and the employer may distribute that as a additional pay, the tax can consequences. Is it obviously gonna go on the, the W2 of that employee and they're gonna have to pay taxes on all of that. And and
J. Larry Stine (36:04):
It's gonna show up his income to
Les A. Schneider (36:05):
The employer and, and in income as the employer. But it will be an expense I guess Larry, so it'll be it'll be canceled out. Yeah. From the point of view of not paying more income tax on it. But the tax consequences to the employee again, is the fact that they will be paying taxes where in the old days when in the a of a lot of cash tips, I, I wouldn't say that every single waiter or waitress was a hundred percent honest and how much they declared that they got in cash tips to the federal and state government. You
J. Larry Stine (36:39):
Mean the time we, when I was with the federal government, we were going to have a tip credit case and the defendants announced subpoenas for their tax records and and none of the employees showed up for trial.
Les A. Schneider (36:50):
That's right. Not a single one. That's right. Yeah. Nobody wanted, nobody wanted to fess up to how much they lied about stuff. Oh yeah. Yeah. Ben, I know we've been through a lot of information. Do you have any specific questions or things you'd like to talk about in this area?
Speaker 3 (37:05):
You know, you guys covered a good bit of it. Thank you. I'm just thinking back to my days and now that I think about it, I was, I never got quite promoted to server <laugh>. No. I was a bus, I was a busboy and a bar back and I think that's when we really pulled the tips. Yeah. Not when I was in the kitchen. Right?
J. Larry Stine (37:24):
Yeah. Yeah. The bar backs and, and the the busboy are considered part of the traditionally tipped allowed employees. And so the servers typically in a very traditional, they get all their tips together and then depending on what the employer does, they give the busboy some money and the barback some money, whatever scheme they come up with and the employer comes up with, they can make that distribution. Some wage hour has sometimes argued that it couldn't exceed 15% of the tips the server received in North Carolina. They actually passed a statute that limits the percentage that you give to other people of the tip. And it is 15%. Hmm. That's interesting. So you, if you have a hundred dollars, most you can tip back in North Carolina is 15, 15 bucks. Mm-Hmm. <affirmative>. Yeah. Yeah. I ran into that when I was doing that restaurant. We were also violating that rule too. So we were violating all the rules, which is what we settled for a million dollars. That's right.
Les A. Schneider (38:39):
Yeah. So that's the that's the issue part. You know, the other part Ben that we, we may talk about in the next seminar, but so long as you're here we can came to my mind. One of the things that a lot of employers do wrong is when they're dealing with a tipped employee and the employee does something wrong, they just can't avoid the temptation of taking money out of their check. They break a plate or they make a calculation on proper, or they sell a bottle of wine underpriced and they get a little kickback from the customer. You know, we have always counseled people that you can, that that tip and that amount is sacrosanct. You cannot screw around with subtracting. You can deal with it as a disciplinary matter. You can certainly tell them, if this happens again, they may not be working here anymore, but you cannot cut it because you lose the tip credit for that week and sometimes even a longer period.
Les A. Schneider (39:42):
So that is one thing you cannot do. We had a restaurant client who called, who called me and, and gave the example of they found that somebody was selling a very expensive bottle of wine, $200 and they were only putting it on $50 on the check. So, and they probably were getting about $50 kickback from the customer, but they wanted to charge that particular waiter waitress that difference in the check. And I said, well, you can do that, but you're gonna lose the tip credit for all those weeks. And I said, if you want to cut him out of shifts for a week or have him clean the bathrooms for a week at seven and a quarter an hour, that may be better punishment than getting in trouble with wage an hour. Oh,
J. Larry Stine (40:30):
I think, I, I think that's absolutely genius is you take some servers, you know, actually making 50 bucks an hour with the tips and everything else and assign them for four hours of cleaning bathroom at 7 25, you don't violate the law. And you kind of make it make it a punishment that you feel, well I'm deprived them of that amount of money and it's perfectly legal and we've got some other issues that we'll talk on next. Part one, one of 'em is that you can actually get your servers exempt from overtime if you handle the service charge correctly, where you can't do that for tips.
Les A. Schneider (41:09):
J. Larry Stine (41:11):
We got about another 45 minutes, Ben, of stuff. Cause it was such a long
Speaker 3 (41:16):
J. Larry Stine (41:17):
Detail area that we had to break it into two parts.
Les A. Schneider (41:20):
Yeah. Any other questions, Ben?
Speaker 3 (41:22):
I I don't Thank you. I, I'm glad I signed up for this. I appreciate it. It's, it's eliminating and you know, like I said, for the dealer world, they don't really deal that much in gratuity and tips, but a lot, there's some overlap and stuff that they do deal with. So I'll be keeping, I'll keep an eye out for the next version of this and for the other webinars you'll have coming up
Les A. Schneider (41:41):
And if there's anything, Ben, in the, in your industry that you think we should you create a seminar around, we would be open to that. I often try to figure out in a particular industry what are the issues on wage and hour that should be addressed. And for instance, this obviously goes a lot to the restaurant industry, but just other points of view on construction, as you say in the dealerships, the, you know, your indoor outdoor, you know, your outside and inside salespeople. Right. That's certainly an impact that you can have some of your service folks and how they're paid some of the office people in terms of whether they're paid hourly or salary and how that can be handled. So if it's something that the automobile industry would want to have certain subjects covered, we can probably mo model something after that. If you think the association would think that would be something their members would enjoy literally too. They have their own particular set of exemptions. Yeah. They ha you have your own exemptions. That would be
Speaker 3 (42:47):
We do. That's right. No, thank you. I appreciate that. I'll I'll certainly keep that in mind. I know y'all had one recently about workforce. Where did all the workers go? Right. And right. Yeah. I just missed that. I I had to, I got conflicted that day with something, but I,
Les A. Schneider (43:03):
I told you Ben, it's, it's on the, it's on the website. It's on
Speaker 3 (43:06):
The website, yeah. Alright.
Les A. Schneider (43:07):
I was one of the speaker. Yeah.
Speaker 3 (43:09):
Cool. I'll take a, I'll take a listen to that one at some point, but thank you.