Future Planning

Restaurants Use Tips to Cut Labor Costs

That tip on your dinner bill might not be going where you think. Employers can legally apply it toward wages, fees, and even labor costs.
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Restaurants Use Tips to Cut Labor Costs
Nok Lek Travel Lifestyle/Shutterstock
Anne Johnson
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You received great service and want to reward your waiter. But your server may not be receiving the entire tip you left. Some restaurants and food establishments are quietly subsidizing their labor costs instead of letting workers keep their tips.

But is this legal? Restaurateurs have been legally taking tips to supplement payroll. It’s allowed by the federal government, but some states have changed that. Food-delivery services also have been accused of this practice.

Tipped Employees Under the Fair Labor Standards Act

The Fair Labor Standards Act (FLSA), according to the Department of Labor, allows employers to take a tip credit toward their minimum wage and overtime obligations for tipped employees.
Anne Johnson
Anne Johnson
Author
Anne Johnson was a commercial property and casualty insurance agent for nine years. She was also licensed in health and life insurance. She went on to own an advertising agency, where she worked with businesses. She has been writing about personal finance for 10 years.