If you work as a server, runner, or bartender, your livelihood probably depends on tips. A recent lawsuit against Hard Rock Café highlights how employers can misuse what is called the “tip credit” and what every restaurant worker should know to protect their paycheck.
The Fair Labor Standards Act (“FLSA”) establishes a minimum wage rate that employers must pay to most workers. However, the FLSA allows employers to pay tipped workers a sub-minimum wage by taking a “tip-credit” against the workers’ minimum wage under certain circumstances. Under this scheme, employers pay tipped employees as little as $2.13 an hour in direct pay, if tips make up the difference to reach the minimum wage of $7.25 per hour. The difference of $5.12 per hour is the tip credit the employer is allowed to take toward meeting minimum wage requirements.
Employers can only take a tip credit if they meet certain conditions, including: (1) notify employees that a tip credit will be applied against their wages; (2) the employee’s total wages plus tips must at least equal the federal minimum wage of $7.25 per hour, and that (3) employees must spend the majority of their work time performing tip-generating duties, such as serving customers, taking orders, and delivering orders to customers.
In other words, employers cannot pay tipped workers less than the minimum wage while making them perform excessive non-tipped duties, such as cleaning, setting up tables, rolling silverware, washing dishes, or preparing food. If employers do not meet these requirements, they lose the right to take the tip credit and must pay tipped employees the full minimum wage for all hours worked, in addition to allowing employees to keep their tips.
In October 2022, Terry Carpenter, a server at Hard Rock, sued Hard Rock Café International, claiming that Hard Rock required its servers and bartenders to spend a large portion of their shifts performing non-tipped tasks without paying them the full minimum wage as required under the FLSA. The workers also claimed that Hard Rock failed to inform them that it would be taking a tip credit against their wages. While Hard Rock argued that the lawsuit should be dismissed, a federal court judge ruled that the workers’ case could move forward.
The Hard Rock Café lawsuit is a wake-up call for the restaurant industry. Employers cannot classify every task as “tipped work” to reduce labor costs. When servers spend too much time doing work that doesn’t generate tips, the law requires that they be paid the full minimum wage for that time. For workers, this lawsuit is a reminder that if you are doing excessive work that does not earn tips, the law says you deserve full minimum wage for it.
It is important to note that states also have special rules, and even if an employer complies with the FLSA, they can still violate state law. For example, New York State’s minimum wage is higher than the federal rate. The tip credit employers may take depends on the type of work the employee is doing and the location of the workplace. For example, in New York City, as of January 2025, employers can take a tip credit of no more than $5.50 against a food service worker's hourly wage rate of $16.50, for a total of $11.00 per hour worked. In New York, employers may not take a tip credit against a tipped worker's wages if an employee spends two or more hours, or more than 20% of a shift, performing non-tipped work.
Additionally, New York requires employers to give employees a written notice of the tip credit, tip allowance, hourly rates, and regular pay schedules before the tip credit is taken against their wages. This notice must be signed and acknowledged by the employee; otherwise, the employer loses the ability to take a tip credit in New York.
If you are a restaurant worker and you think your employer may be violating tip-credit rules or have questions about your rights as a worker, contact the attorneys of Pechman Law Group at 212-583-9500.
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