Tip Conversion: What It Is and What You Need to Know

Tip conversion occurs when an employer takes a portion of an employee’s tips to use as credit against the minimum wage or other employment costs. While tip conversion is legal in some circumstances, it is highly regulated and can be a source of confusion for both employers and employees. Here’s what you need to know about tip conversion.

Tip Credits and Tip Pools

Under federal law, employers can take a tip credit against the minimum wage if they meet certain requirements. The tip credit allows employers to pay tipped employees (such as waiters, bartenders, and hair stylists) a lower hourly wage as long as their tips bring their total earnings up to the minimum wage. The amount of the tip credit varies by state, but generally ranges from $2.13 to $5.12 per hour.

Employers can also require employees to participate in a tip pool, where tips are collected and distributed among a group of employees. However, the rules for tip pools are highly regulated. Employers cannot take a portion of the tip pool for themselves or use the tips to pay non-tipped employees, such as managers or kitchen staff.

Tip Conversion

Tip conversion occurs when employers use a portion of an employee’s tips to satisfy the minimum wage or other employment costs. For example, an employer may require a tipped employee to contribute a portion of their tips to a tip pool, and then use those tips to pay non-tipped employees. Alternatively, an employer may take a portion of the employee’s tips and apply it as a credit against the minimum wage.

Tip conversion is highly regulated, and employers must follow strict rules in order to use tip credits or tip pools. Failure to comply with these regulations can result in legal action and significant financial penalties.

What Can You Do About It?

If you believe that your employer has engaged in tip conversion, there are several steps you can take to protect your rights:

1. Educate Yourself: Learn about the rules governing tip credits and tip pools in your state, and make sure that your employer is following these rules.
2. Speak with Your Employer: If you believe that your employer is violating tip conversion laws, speak with them directly to try to resolve the issue. Sometimes, employers may be unaware of their legal obligations and are willing to correct the problem.
3. File a Complaint: If your employer is unwilling to resolve the issue, you can file a complaint with the U.S. Department of Labor or your state labor department. These agencies can investigate your claim and may take legal action on your behalf.
4. Consider Legal Action: If you have been the victim of tip conversion, you may be entitled to compensation. An experienced employment attorney can help you understand your legal rights and work to obtain the compensation you deserve.

Tip conversion can be a complex and confusing issue for both employers and employees. If you believe that your employer has engaged in tip conversion, it’s important to take action to protect your rights. Speak with an experienced employment attorney to discuss your case and determine the best course of action to take.