How a Tip Dispute Turned Into a $62K FLSA Payout

A Denver-area restaurant is paying nearly $62,000 after a DOL investigation uncovered tip retention and recordkeeping violations under the Fair Labor Standards Act (FLSA).

The case shows how a tip dispute can expand into broader wage-hour liability once payroll practices and time records come under scrutiny. Employers with tipped staff, shift managers and layered payroll systems face heightened exposure if oversight controls are inconsistent.

DOL Says Restaurant Kept Tips Meant for Workers

An investigation by the DOL’s Wage and Hour Division found Tommy’s Oriental Food Inc., d/b/a Tommy’s Thai, kept employee tips in violation of the FLSA. The agency also determined that the employer failed to record all hours worked by employees and failed to display an FLSA poster as required by law.

The company agreed to pay $61,568 in back wages for 11 workers to settle the dispute. It also paid a $990 civil money penalty for the violations.

Wage and hour investigations often begin with a single complaint about tips, overtime or time edits. Once the DOL reviews payroll and time records, the scope can widen quickly. Employers that rely on variable pay, shift coverage by managers or informal time adjustments can find multiple compliance gaps exposed in a single review.

“Violations like these are all too common in the food service industry. Most restaurant employers are legally obligated to comply with the FLSA, which prohibits employers, including managers and supervisors, from keeping any portion of another’s tips,” said David Skinner, the Wage and Hour Division’s district director in Denver.

Last year, the DOL issued Opinion Letter FLSA2025-1, which clarifies that managers and supervisors cannot keep employee tips unless they “solely and directly” provide service to customers, regardless of whether or not a tip credit is taken. For smaller employers, the distinction can be easy to blur when managers work alongside frontline staff. The opinion letter makes clear that supervisory status, not job title, determines whether tips can be retained.

For more info on paying tipped employees and “tip pools,” see the DOL’s related fact sheet.

FLSA Recordkeeping Rules

As this case shows, the FLSA requires employers to maintain accurate records for all non-exempt employees. In practice, tip disputes often expose broader recordkeeping gaps. Time edits, inconsistent tip allocations and incomplete payroll documentation can all expand the scope of a DOL review. When investigators request records, incomplete documentation can turn a complaint into a wider compliance issue.

The FLSA specifies the payroll and employment records employers must retain. For three years, employers must keep:  

• Records containing employees’ names, addresses, dates of birth, occupations, pay rates and weekly compensation
• Collective bargaining agreements and changes/amendments to those agreements 
• Individual contracts
• Written agreements under the FLSA
• Sales and purchase records

Basic employment and earnings records – wage rate tables used to calculate wages; salary, wages and overtime pay info; work schedules; and additions to or deductions from wages – must be kept for two years. 

Tip and Timekeeping Compliance Checklist

Employers reviewing their FLSA compliance practices may want to confirm:

• Tip pools exclude managers and supervisors unless they meet the “solely and directly” service standard
• Payroll coding separates tips, base wages and any tip credit taken
• POS tip data reconciles to payroll distributions each pay period
• Time edits require documentation and supervisory approval within the payroll system
• Required FLSA posters are current and visibly displayed
• Payroll and time records are retained for required FLSA timeframes
• Wage-hour complaints or settlements trigger a documented review of payroll and timekeeping controls