Wage Issues Involving Tipped Employees

Posted on April 20, 2022

More businesses are asking customers to tip their employees than ever before.  If you are an employee working in Arizona and receive tips, make sure you know your wage rights so you get paid all you are entitled to under the law.

In Arizona, the minimum wage that employees must be paid in 2022 in $12.80.  Arizona and federal law allow employers to pay employees who customarily and regularly receive tips a reduced hourly wage.  In Arizona, tipped employees in 2022 must be paid at least $9.80 per hour by their employer, and the tips employees earn must make up the difference so that the employees are earning at least the minimum wage of $12.80 per hour in Arizona.  The law is even more favorable for employees in Flagstaff, as the minimum wage for employees and tipped employees is even higher there.  If you have a slow week and don’t earn enough in tips to hit the minimum wage, your employer must make up the difference.

Arizona and federal law allow an employer to use a “tip credit” to make up the difference between the hourly rate and the minimum wage, but an employer can only use the tip credit if they provide notice to the employee, track and report earned tips for tax authorities, and ensure that their employees are still receiving at least the $12.80 per hour when calculating their wages each pay period (and even more in Flagstaff).  Employers can also use a tip pool, but employees cannot be required to share tips with employees who do not typically receive tips themselves, such as management or owners, when the employer is using the tip credit.

It is common for tipped employees’ wages to fall below the minimum wage, because the employer has failed to make up the difference between the lower hourly rate and the required minimum wage.  It is typically unlawful for an employer to penalize an employee by reducing earnings due to walkouts, cash register shortages, or breakage.  Furthermore, if you work overtime (more than 40 hours in a week), an employee’s overtime rate cannot be based on the lower hourly rate the employer pays the tipped employees.

If you have questions about your pay, please contact Ty Frankel or Patti Syverson in the unpaid wages practice who devote their practice to recovering unpaid wages to learn more about your rights.