Overtime on Tips Question Resolved in Industry’s Favor

Posted on February 28, 2013 by

Page 1 of 3

A November 2012 ruling from the U.S. Department of Labor went a long way in clarifying the difference between imposed charges, which are viewed as wages subject to overtime, and tips, which are discretionary and are not subject to overtime.
The distinction brought a long-sought answer for limousine operators on when a tip is considered mandatory and when it is deemed discretionary.

The message from the DOL was essentially that in order for a tip to be a tip, operators must inform their clients in several ways that the suggested tip is discretionary and not compulsory, and can be raised or lowered or eliminated entirely depending on the level of service provided. It is also critical that chauffeurs are paid their tips in full by their next pay period.

“This is the single most significant victory in the history of the National Limousine Association,” explains Scott Solombrino, owner of Boston-based Dav El Chauffeured Transportation Network and co-chair of the NLA’s Legislative Committee. “Had the Department of Labor not reconsidered  our arguments as to why our industry should not be subject to overtime on tips, [at least] 6,000 operators would have been in jeopardy of audits that could have included interest, penalties, and civil lawsuits from current and past employees. The only way we were able to succeed was through the relentless efforts of the NLA’s member contacts to Congress, the efforts of our lobbying firm, Cornerstone Government Affairs, the NLA’s legal team at Keller and Heckman and outside counsel Peter Moser, and the NLA’s Legislative Committee having the political clout to convince the Department of Labor to take the time and carefully review our position.”

Breaking Down the Issue
The issue at hand was whether overtime for chauffeurs should include the invoiced gratuity. The DOL contended that if operators automatically included a tip on a client’s bill, it would be considered a service charge and not a gratuity, and thus subject to overtime. DOL believed there was no discretion in the above described transaction. The key to NLA’s argument was that with most operators there is indeed discretion on tips. The industry provided the DOL with hundreds of invoices, contracts, and examples of where tips were discretionary to the customer.
For transportation companies with corporate accounts, the DOL position would have been a nightmare in not only calculating overtime but also in billing the client. Additionally, if audited, damages could go back three years including penalties and interest. The simple remedy for the industry would have been for companies to no longer include tips on a customer’s bill and cause drivers to fend for themselves on tips. Unfortunately, without lucrative tips, many chauffeurs may have migrated from the luxury-for-hire transportation industry to other jobs.

The Ruling
The Department of Labor sent a letter to the NLA which confirmed that they will not take an inflexible approach that invoiced gratuities can never be tips. Instead, according to the NLA, they have adopted an “it depends” approach. Basically, if the client does not have the right to raise, lower, or eliminate the tip depending on the level of service provided, the charge is viewed to be an imposed fee and not a tip. If customers can — at their own discretion — increase, decrease, or remove the gratuity, then it is a tip. The chauffeur will need to receive the entire tip amount and the client must be made aware of their ability to raise, lower or remove it.

View comments or post a comment on this story. (2 Comments)

More News

Uber Appears To Be Losing A Big Case In Europe

Should the TNC be treated as a taxi service subject to the same safety and employment rules?

Drivers File Preemptive Labor Suit Against Uber Chiefs

The suit alleges disgraced ex-CEO Travis Kalanick and co-founder Garrett Camp advised the company to misclassify drivers.

Virginia Operators Fight TNC Bill And Unfair Tax

The Virginia Limousine Association gears up to repeal TNC registration relief and unfair vehicle tax advantage.

Inside Travis Kalanick’s Resignation As Uber’s CEO

At a Chicago hotel, two venture capitalists presented him with a list of demands, including his departure by the end of the day.

Push To Close Long Island TNC Sex Offender Loophole Begins

Uber and Lyft can start operating in Suffolk County on June 29th.

See More News

Facebook Comments ()

Comments (2)

Post a Comment



See More

LCT Store

LCT Magazine - July 2017 $12.95 COVER STORY: * Why These Titans Work So Hard to Give it Away * *
LCT Magazine - June/Fact Book 2017 $47.95 * Facts & Stats * Directors & Guides *


Experience the three annual industry events for networking for business, showcasing vehicles and products, and getting the tools for success.

Read About Your Region

What’s Happening Near You?
Click on any state to see the latest industry news and events in that region.

More From The World's Largest Fleet Publisher

Automotive Fleet

The Car and truck fleet and leasing management magazine

Business Fleet

managing 10-50 company vehicles

Fleet Financials

Executive vehicle management

Government Fleet

managing public sector vehicles & equipment


Work Truck Magazine

The number 1 resource for vocational truck fleets

Metro Magazine

Serving the bus and passenger rail industries for more than a century

Schoolbus Fleet

Serving school transportation professionals in the U.S. and Canada

Please sign in or register to .    Close