Does Their Employers’ Failure to Comply with the Wisconsin Tip Declaration Requirement Entitle Wisconsin Tipped Employees to the Full, Un-Tipped Minimum Wage of $7.25 Per Hour?

The Previant Law Firm, S.C.

The minimum wage under both the Fair Labor Standards Act and Wisconsin law is $7.25 per hour. Both federal and Wisconsin law allows the employer to, under some circumstances, count some of the tips received by the employee against the minimum wage owed to the employee. The tips counted against the minimum wage is called a tip credit. An employer is allowed to claim a tip credit as high as $5.12 per hour under the Fair Labor Standards Act; and as high as $4.92 per hour under Wisconsin law, so that the tipped minimum wage is $2.13 under the Fair Labor Standards Act and $2.33 under Wisconsin law.

Both federal and Wisconsin law requires the employer to comply with certain requirements before it can claim the tip credit against the minimum wage. For example, tips must be kept by the tipped employees rather than returned to the employer unless the tipped employees participated in valid tip pooling arrangements. There are also notice requirements that an employer must comply with before it can begin to claim a tip credit. As interpreted by the Seventh Circuit Court of Appeals, to claim a tip credit the employer must notify the employee (a) that in anticipation of the employee receiving tips the employer will pay less than the minimum wage; (b) how much the employee’s cash wage will fall short of the non-tipped minimum wage; and (c) that if the cash wage plus tips do not equal at least the non-tipped minimum wage, the employer will make up the difference. Schaefer v. Walker Brothers Enterprises Inc., 829 F. 3d 551, 556-557 (7th Cir. 2015). Sufficient notice is given if the some of the information is presented by Department of Labor minimum wage posters posted by the employer; rather than explained by the employer to the tipped employee. It is not difficult for an employer to comply with the tip notice requirements of the Fair Labor Standards Act.

Wisconsin is allowed to enact laws that are more protective of labor than federal law. Spoerle v. Kraft Foods Global, 614 F. 3d 427, 430 (7th Cir. 2010). Wisconsin has enacted additional protection for tipped employees in a Department of Workforce Development regulation, DWD §272.03(2)(b), which provides:

When the employer elects to take tip credit the employer must have a tip declaration signed by the tipped employee each pay period and show on the payroll records that any required social security or taxes have been withheld each pay period to show that when adding the tips received to the wages paid by the employer, no less than the minimum rate was received by the employee. When the employer's time and payroll records do not contain these requirements, no tip credit shall be allowed.

The plain language of the regulation thus provides that if the employer’s maintained time and payroll records do not include tip declarations signed by the employee for each pay period, the employer cannot credit any tips received by the employee against the minimum wage owed to the employee, so that the employee is entitled to the full cash minimum wage of $7.25 per hour despite also receiving tips. Because the statute of limitations on pursuing a wage claim is two years, the employer must maintain tip declarations signed by its tipped employees for two years to avoid liability for the difference between the cash wage paid to the employee and the full minimum wage of $7.25 per hour to its employees for the two years. Wisconsin regulations such as DWD §272.03(2)(b), because they are approved by both the legislature and the governor, have the same force of law as Wisconsin statutes.

While many Wisconsin employers require their tipped employees to regularly report the amount of tips they receive, very few if any tipped employees are either signing (or electronically signing) the daily tip reports; or signing any other document each pay period that details the amount of tips they received during each pay period. It thus appears that enforcing the plain language of DWD §272.03(2)(b) would entitle most Wisconsin tipped employees to the full minimum wage of $7.25 per hour for each and every hour worked during a two years period, on top of all tips that they received and kept.

When confronted with a lawsuit for unpaid wages by tipped employees, the employer is likely to argue that DWD §272.03(2)(b) is a record keeping requirement, and that Wisconsin record keeping requirements must be enforced by the DWD rather than by affected employees. This argument relies on a line of Wisconsin federal district court cases that hold the record keeping requirements of DWD §272.11 cannot be enforced through Wis. Stat. §109.03(1) and (5), which is the statute that requires Wisconsin employers to pay all legally owed wages to their employees every 31 days. See German v. Wisconsin DOT, 2000 WI 62 (2000) (Wisconsin Supreme Court holding the employees may maintain a lawsuit against the Wisconsin DOT, pursuant to Wis. Stat. §109.03(5), for all meal break wages that are required to be paid by DWD regulations).

DWD §272.03(2)(b) is easily distinguishable from DWD §272.11 because unlike DWD §272.11, DWD §272.03(2)(b) does spell out a clear consequence for its violation: An employer that failed to maintain employee signed tip declarations in its time and payroll records cannot claim any tips paid to the employee as a credit against the minimum wage of $7.25 per hour owed to the employee. Additional minimum wages owed to the employee because of the employer’s violation is precisely the type of unpaid wages that can be recovered through a Wis. Stat. §109.03(1) and (5) lawsuit.

If an employer failed to comply with Wisconsin’s record keeping requirements, minimum wages owed to the employee can add up quickly. For example, if a tipped employee worked 1,500 hours per year and received a cash wage of $5 per hour ($2.67 per hour above the minimum Wisconsin tipped wage of $2.33 per hour), during a full two years period he would be owed total minimum wages of $6,750. If the employer employed at least 40 tipped employees during the two years period, in a class action lawsuit the employee who comes forward can also receive a class representative incentive award, attorneys’ fees, and costs, on top of the recovery of minimum wages owed to him.

The Previant Law Firm S.C. is experienced in prosecuting lawsuits for wage theft on behalf of employees. It is actively looking for Wisconsin tipped employees to represent to advance a claim based on the employer’s failure to comply with Wisconsin’s requirement for signed tip declarations. If you received a cash wage excluding tips of under $7.25 per hour, and did not sign a tip declaration for each pay period, please contact Attorney Yingtao Ho at 414-223-0437 or yh@previant.com.

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