Tip Credit Violations

The tip credit is supposed to work like this: the employer pays you $2.13 per hour in cash, and your tips make up the difference to get you to minimum wage. But that only works if the employer follows the rules. The moment they break those rules, they lose the tip credit entirely, and they owe you full minimum wage for every hour you worked.

Who I Represent

I work with servers, bartenders, bussers, hosts, and delivery drivers who rely on tips. Also kitchen staff and dishwashers when the employer improperly forces them into tip pools, cooks working for less than minimum wage, and anyone paid in tips but required to work without the legal protections those tips provide.

This covers restaurants, bars, nightclubs, hotels, catering operations, and any food or beverage service.

Common Violations

Here's what disqualifies an employer from using the tip credit:

The employer takes a portion of tips for itself or gives tips to managers and kitchen staff who don't interact with customers. Tips are supposed to go to the employee or be properly shared among tipped employees only. If a manager or kitchen staff member gets a cut, the tip pooling is illegal and the tip credit is lost.

The employer doesn't actually pay the $2.13 cash wage. You're told "just work for tips." You receive no base wage at all, not even $2.13. This is a complete violation and triggers liability for full minimum wage plus all overtime premiums.

The employer fails to notify you that it's using the tip credit. You have a right to know your base wage, the tip credit amount, and that you're entitled to tips. If there's no clear notification, the credit doesn't apply.

The employer requires you to pay out more than your share of tips for breakage, shortages, or cash register errors. Tip pools can exist, but you can't be charged for losses that aren't your fault.

You work in non-tipped duties (stocking shelves, cleaning, prep work) for substantial portions of your shift while earning only $2.13. The tip credit only applies to tipped work. The Fifth Circuit vacated the DOL's 80/20/30-minute rule in Restaurant Law Center v. U.S. Dep't of Labor, No. 23-50562 (5th Cir. Aug. 23, 2024), meaning that rule is no longer enforceable in Texas. Whether time spent on non-tipped side work defeats the tip credit now depends on a more fact-specific analysis of what constitutes the employee's "tipped occupation." If you spent a significant chunk of your shift rolling silverware, mopping floors, or doing prep while clocked in at $2.13, that time may still be the subject of a valid claim — but the legal framework has shifted.

How the Law Protects You

The FLSA allows the tip credit, but only if the employer complies with every requirement. There's no "close enough." If the employer violates any part of the rule, it loses the credit entirely. The Supreme Court has confirmed that FLSA exemptions and special arrangements like the tip credit are to be construed narrowly against employers (Encino Motorcars, LLC v. Navarro, 584 U.S. 79 (2018)).

Once the tip credit is lost, the employer owes you the full federal minimum wage ($7.25) for every single hour you worked, going back years. That's a massive difference. If you earned $2.13 per hour for two years at 40 hours per week, you're looking at more than $18,000 in unpaid minimum wage alone.

Then you add overtime. Any hours over 40 per week are supposed to be paid at time-and-a-half. If your employer was using an illegal tip credit, it was also underpaying your overtime.

What Your Case Could Be Worth

Tip credit cases get expensive for employers fast.

Let's say you worked as a server making $2.13 per hour base for two years. You worked an average of 45 hours per week. That's 4,680 hours total. At the federal minimum wage of $7.25, your base pay should have been $33,930. You were paid $9,970 in base wages. You're owed $23,960 in back pay before we even calculate overtime.

Now add overtime. Those extra 5 hours per week at time-and-a-half should be paid at roughly $10.88 (1.5 times the minimum wage). That adds another several thousand dollars.

Then the FLSA lets you recover double damages: the back wages plus an equal amount as liquidated damages (a penalty). So that $23,960 becomes $47,920.

And I handle these cases on contingency, so if there is no recovery, you pay nothing.

The clock typically runs back 2 to 3 years depending on the circumstances, and some violations can reach further back.

No Cost to You

I take tip credit cases on a contingency fee basis. You pay nothing upfront. If there is no recovery, you pay nothing at all, not even the costs.

Contact Me

30+ years employment law experience. 15+ years FLSA-only.

If your restaurant or bar is using an illegal tip credit, taking your tips, or paying you less than minimum wage, call me at (512) 799-2048 or email doug@welmakerlaw.com. Let's talk about what's been happening and what you're owed. The first conversation is free and confidential.

Related Reading

• Tips Stolen by Employer: Illegal Tip Pools and Wage Violations. Specific patterns of illegal tip pooling, manager skimming, and how courts have treated them.
• What Is the FLSA?. The federal wage law that the tip credit rules come from, and what it protects.
• It Costs Nothing to Sue for Overtime: Contingency Fees and the FLSA. How the fee arrangement works so you don't have to pay anything to pursue what you're owed.
• Retaliation for Overtime Complaints: Your Rights Under the FLSA. What counts as illegal retaliation, how to prove it, and what remedies are available.