After A Dine-And-Dash, Is It Legal For A Restaurant To Take Money From A Waiter’s Tips?

It’s a story we’ve heard any number of times, both professionally and from friends in the restaurant world. A customer splits without paying the bill, or doesn’t leave enough to cover the full amount; to make up for the loss, the manager takes it out of the waiter’s pay. Can this be legal?

It all depends on how much the waiter earns as his base pay.

Many servers, and other employees who rely on tips, start with a base wage that is below the current federal minimum wage of $7.25/hour. Employers then claim a “tip credit” equal to the difference between that base pay and the minimum wage level, but the employee must be guaranteed at least that minimum wage. So even if there are insufficient tips during a pay period to meet the $7.25, the employer must make up the difference.

Now, what about walk-outs and dine-and-dashes?

Here’s what the Dept. of Labor’s website has to say about this issue:

Where deductions for walk-outs, breakage, or cash register shortages reduce the employee’s wages below the minimum wage, such deductions are illegal. Where a tipped employee is paid $2.13 per hour in direct (or cash) wages and the employer claims the maximum tip credit of $5.12 per hour, no such deductions can be made without reducing the employee below the minimum wage (even where the employee receives more than $5.12 per hour in tips).

But this is a little unclear, as it only gives the example of someone earning the absolute minimum allowed by law ($2.13 plus tips), and does not mention the gray area of someone earning a slightly higher (but still below minimum) wage, or whether tips can be docked.

For clarification, we went straight to the Dept. of Labor’s Wage and Hour Division.

We gave them the following example:

A waiter at a diner makes a base wage of $4 plus tips. So in an 8-hour day, he makes $32 plus tips. Let’s say he makes $48/day in tips for total earnings of $80/day ($10/hour).

One day, a customer walks out on a $30 meal. The manager says he will deduct the walkout from the waiter’s pay. So then the waiter only makes $50 total for that day ($6.25/hour).

Was it legal for the manager to make this deduction?

If the waiter had brought in a higher than usual number of tips that day, say $60 (making his total earnings $92 – $30 for the walkout = $62 or $7.75/hour), would that then be legal?

A rep for the Division explained that, according to Sec. 203(m) of the Fair Labor Standards Act [PDF], tips are to be fully retained by the employee, except in those cases where there is a valid tipping pool shared by multiple employees.

“Beyond that, tips are the property of the employee and an employer cannot require an employee to turn over any portion of them to the restaurant,” explains the rep.

So if, as per the example situation we presented, the waiter depends on his tips to meet the minimum wage, his employer can not deduct anything from his wages or tips?

“In the situation you give, there would be a violation,” says the Labor Dept. rep. “Since the employer is claiming a tip credit, the server is in effect a minimum wage employee and any deduction from wages would result in a violation.”

The Wage and Hour Division has a toll-free line for employees with questions — 1-866-4USWAGE (1-866-487-9243) — our you can also find your the Division’s nearest local office on this page.

Further Reading:
It’s illegal to make a server cover an unpaid restaurant bill Zack McGhee

The costs of getting stiffed shouldn’t be the server’s to pay Connie Schultz