With the recent conviction of Las Vegas nightclub operator Steve Davidovici, for running a tip scam at the Pure nightclub at Caesars Palace, Las Vegas employees and employers are now on notice regarding the paying and reporting of tips. Under the Fair Labor Standards Act, an employer is required to pay an employee a statutory minimum wage. However, if the employee receives tips as payment for her service, an employer can allocate the employee’s tips to satisfy up to 50 percent of the statutory minimum wage requirement provided the following two conditions are met: 1) the employer must inform the tipped employees of certain provisions of the FLSA; and 2) tipped employees must retain all the tips received except those tips included in a tipping pool shared by employees who customarily receive tips. Additionally, employer-run tip pools are permissible if the employees who participate 1) customarily and regularly receive tips, and 2) the employer does not participate in the tip pool.
In determining whether an employee customarily and regularly receives tips, courts have held that an employee’s level of customer interaction is the most significant factor. The employee’s interaction with customers must be one of service and significant.
According to the U.S. Department of Labor (DOL), when it comes to the hospitality industry, waiter/waitresses; bellhops; counter personnel who serve customers; busboys/girls (server helpers); and service bartenders generally perform important and significant customer service interactions. Therefore, employees performing these functions can participate in a tip pool. Janitors, dishwashers, chefs/cooks and laundry room attendants generally do not perform customer service functions and, therefore, cannot participate in a tip pool. For other employees, such as restaurant host or maitre de, the quantity and quality of the employee’s customer interactions must be reviewed to determine whether his or her customer interaction is important and significant. For instance, if a restaurant host greets and seats customers, hands out menus, and “enhance the wait,” their contact with customers is more than minimal and thus would be allowed to participate in a qualified tip pool.
For non-hospitality industries, industry custom is an important factor in determining who if a tip is customary and regular. Further, it is the customer’s, and not the employer’s or employee’s perspective that determines industry custom.
Finally, according to the FLSA, if an employer participates in the tip pool, the tip pool is not qualified. The employer can be the owner or someone with significant managerial authority over the day to day business operations. Courts generally use the economic reality test to determine whether an individual qualifies as the employer. This test examines whether the individual 1) has the power to hire and fire employees, 2) supervises and controls employee work schedules or conditions of employment, 3) determines the rate and method of employees’ pay and 4) maintains employment records.
The Las Vegas law office of Lagomarsino Law did not represent anyone involved in any cases that may be referenced above. This commentary is for educational purposes. If you would like to be represented by an attorney in our Las Vegas office, contact our office for a free confidential case review and receive a response within 24 hours. Call Toll Free 866-414-0400.