Restaurant Owners May Count Service Charges As Wages, Not Tips, for Servers

Restaurant Owners May Count Service Charges As Wages, Not Tips, for Servers

When a restaurant places fixed service charges on a customer’s bill, the Eleventh Circuit Court of Appeals ruled in March 2022 that the restaurant can distribute these service charges to employees, including wait staff, and use the disbursement to offset minimum wage requirements under FLSA. This is potentially an important distinction when these employees end up working overtime hours.

If you are a restaurant server who works overtime, but you are unsure whether your employer is properly calculating your wages, reach out to Feldman Legal Group for a consultation. Call us today at 877-946-8293 for more information.

Court Case Regarding Classification of Service Charges

In Compere v. Nusret Miami, Ltd. Liab. Co., the tipped employees at the Nusr-et Steakhouse argued that the service charges the steakhouse was adding to the bill for patrons deserved a classification as tips, rather than as service charges. By classifying these charges as tips, the money would not count toward the employees’ wages under minimum wage requirements, which would affect the overall pay for these tipped employees.

Background in Compere v. Nusret Miami LLC

The plaintiffs in the case were the tipped employees at the restaurant, while the defendant was the restaurant, Nusr-et Steakhouse. The service charges at Nusr-et Steakhouse added a mandatory 18 percent charge to the bill. The restaurant then distributed the service charge amount to employees of the restaurant based on a merit (or point) system. By handling the service charge this way, the restaurant’s treatment of its service charge did not really meet the traditional definition of either service charges or tips under the FLSA.

  • Tips: Under FLSA, tips constitute a voluntary payment that customers may make to people serving them. Any employees who earn these tips must receive them, as the employer cannot keep any of this money.
  • Service charges: A service charge is not a discretionary payment that a customer makes, as the restaurant or business includes this payment as part of the bill. The employer does not need to pay the money from the service charge directly to the employee.

The court determined that because the restaurant set the amount of the service charge, it was not a voluntary payment where the customer was able to set the amount. Additionally, by distributing these service charges to the employees, the court determined this payment constituted wages.

Using Service Charges to Meet FLSA Payment Guidelines

Under the FLSA 7(i) exemption, employers are able to classify employees who receive commissions or tips as exempt from receiving overtime pay. The employer must show that the employee was receiving more than one-and-one-half times the FLSA’s minimum wage requirement for each hour worked. The employer also must show that the employee is receiving the majority of wages from tips or commissions.

By determining that these service charges counted as wages, the court is giving the employer the ability use them to satisfy the FLSA 7(i) exemption.

Understanding Overtime Pay Under This Ruling

The ruling from the court fits under 29 U.S.C.S. § 207(i). Ultimately, because of this ruling, the Eleventh Circuit Court of Appeals determined that the restaurant legally was able to make the service charge part of the regular rate of pay for the employer. The restaurant did not have to classify this money as tips. This allows the employer to offset the wage obligations it has to its tipped employees.

As another aspect of this ruling, when a server works overtime, the value of the server’s regular rate of pay must reflect the payments made as part of the service charges. With the service charges being part of your wages, it is possible that you should have a higher base rate of pay, which affects the amount you should receive as overtime pay. These payments also could affect whether you are still exempt from FLSA 7(i) overtime pay.

Not every server works overtime, but those that do may have a challenging time calculating exactly what amount they should receive. Just because your employer says you should receive a certain amount, taking this ruling into account, it doesn’t mean your employer did the calculations correctly. The team at Feldman Law Group is ready to hear your story if you believe you are not receiving the proper wages because of incorrect calculations from your employer.

Why You Should Select Feldman Legal Group for Your Wages Case

At Feldman Law Group, our lead attorney, Mitchell Lloyd Feldman, ensures that our firm has a focus on cases where employees are receiving unfair treatment. We have significant experience representing employees who see their employers fail to follow the FLSA. This is especially common in restaurants, where wait staff and other employees who receive tips may be subject to tip pooling laws.

As an unpaid wages attorney with extensive knowledge of employment laws, we know how to investigate individual cases to determine when employees are not receiving the wages they should receive under FLSA or other employment laws. We also represent employees in class action lawsuits when an employer purposefully chooses to use deception in job titles to avoid paying employees the wages they deserve, especially overtime wages.

Reach Out Today for a Discussion of Your Case Regarding Improper Calculation of Overtime Pay

For restaurant servers receiving pay under minimum wage rules in the FLSA, it can be challenging to know whether your employer is treating you fairly, especially when you end up working overtime. If your employer charges patrons at the restaurant service charges, it is important for you to understand the effect this recent court ruling may have on you and your pay, especially with regard to overtime pay.

Feldman Legal Group is ready to help servers who are not receiving fair treatment when it comes to overtime pay, especially if they receive payments from service charges. This can be a confusing situation, thanks to the new ruling, so you may want to seek the services of our employment attorney to help you determine whether you are receiving all the payments you should have. Call us today at 877-946-8293 for a discussion of your case.