By Evan Rosen
Hospitality employers continue to get hit with class action lawsuits alleging that they are unlawfully taking the tip credit for their employees. Under federal law, and the law of most states, an employer may pay less than the minimum wage to any employee who regularly and customarily receives tips. The difference between the minimum wage and the hourly wage rate is called the “tip credit.”
This compensation system, when administered correctly, has the advantage of saving employers a significant sum of money. But employers must implement several safeguards to avoid potential liability. Indeed, if the employer’s tip policy is unlawful, employers will be liable, not only for the amount of tips that were wrongfully distributed, but will also be on the hook for the entire tip credit for all tipped employees, and under some state laws, liquidated, punitive, and/or treble damages.