Employers in most states may choose to apply a tip credit to establish the hourly cash wages of a bartender or server. The sum of the actual cash wages and the tips the employee receives must equal or exceed the applicable minimum wage law. Under federal law, employers must pay at least $2.13 per hour as a cash wage, but many states require a higher cash wage. Under the federal Fair Labor Standards Act, specific rules apply to tips the customer includes when paying by a credit card. If your state laws conflict with federal statutes, your employer must follow the law that gives you the greatest benefit.
Federal Law on When Employer must Pay Credit Card Tips
The FLSA states that credit card tips cannot be held beyond the next normal payday. The employer cannot hold tips pending his receipt of funds from the credit card processing company. As an example, if you are paid every Friday for hours worked through the previous Sunday, an employer must pay you for the credit card tips you received the previous Saturday. With this pay schedule, the employer cannot hold tips for two weeks. However, if your employer only issues paychecks monthly, he can hold credit tips for two weeks or more as long as he is not in violation of state laws.
Deductions to Credit Card Tips
If the employer must pay a percentage of the tip to the credit card processing company, he may deduct his actual cost for the percentage on your tip and pay you the balance. However, the reduction is illegal if it reduces your pay below the applicable minimum wage. Individual state laws, such as those in place in California, may prohibit the employer from deducting credit card fees on tips.
State Laws Regarding Paydays
Some states have labor laws that would prohibit an employer from holding tips for two weeks. For example, New Hampshire and Rhode Island require employers to issue paychecks to non-exempt employees at least weekly. Indiana law requires payment at least every other week. Your normal payroll schedule dictates the length of time an employer can hold a credit card tip, but at minimum, he must pay on your next regular paycheck or he will violate the federal law.
Federal labor laws apply on to tips, not service charges. For example, an establishment may have a policy charging patrons a percentage of the bill for private rooms or banquets. It is up to the employer to decide whether to keep the entire service charge or share it with his employees, although employees serving the party must receive at least minimum wage. Since the decision to pay all or part of the service charge to the employees is in effect a bonus, the employer may choose when to pay the funds to the employees.