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Gratuity Can be Excluded from Regular Rate and Overtime Calculation When the Tip is Recommended, Not Mandatory

A recent case from the Eastern District Court of New York weighed the question of whether a tip is to be included in calculating an employee’s regular rate and overtime calculation, when the tip is recommended, not mandatory. In a town with a service staff equal to New York City, this decision could serve as a guideline for Las Vegas and Nevada employers.

In Ellis v. Commonwealth Worldwide Chauffeured Transp. of NY, LLC, Commonwealth was a chauffeur service. From July 2004 to June 2009, Ellis was employed as one of Commonwealth’s chauffeurs and paid $8/hr. When Ellis worked more than 40 hours a week, he was paid $12/hr. or time and a half his regular $8/hr rate.

When Commonwealth billed its clients, the billing invoice recommended a tip at 20% of the fare. However the billing invoice also included a statement that the actual amount of the tip was at the discretion of the customer; and any tip received would be remitted in full to the chauffeur.” Commonwealth always paid the full amount of any tips received to the employee. If a client had not paid the bill by the end of the employee’s pay period, Commonwealth still gave the employee a 20% tip. When this occurred, if the client subsequently paid more than a 20% tip, the amount above the 20% was then paid over to the employee. However, if the client paid less than the 20% tip, Commonwealth did not take back money from the chauffeur.

Ellis sued Commonwealth claiming in determining his overtime rate the 20% tip should be added to his regular rate.

When an employer is not using a “tip credit” to satisfy the FLSA’s minimum wage provision, any tips the employee receives “need not be included in the regular rate” for purposes of calculating proper overtime wages. 29 C.F.R. ยง 531.60 (2012). However, if it was a mandatory service charge, Commonwealth was required to include it in calculating Ellis’ overtime, and failure to do so would constitute a violation of the FLSA.

Based on the fact that Commonwealth’s billing invoices used the word “recommended” and added that the actual amount of the tip was in the discretion of the client, the tip was not a mandatory service charge to be included in calculating Ellis’ overtime. Summary Judgment granted to Commonwealth.

The Las Vegas law office of Lagomarsino Law did not represent anyone involved in the above-referenced case. The commentary is for educational and commentary purposes only. If you would like to be represented by a Nevada attorney, contact our office for a free confidential case review and receive a response within hours. Call Toll Free 866-414-0400.