WASHINGTON, D.C. — The U.S. Department of Labor has recovered more than $85,000 in back wages for employees at a Texas coffee business following an investigation into violations of federal wage laws. Officials said the case involved improper handling of employee tips and misuse of a tip credit system under the Fair Labor Standards Act (FLSA).

The department’s Wage and Hour Division investigated Nate’s At the Buda Mill & Grain Inc, operating as Nate’s Coffee & Cocktails in Buda, Texas. The investigation found that the company allowed its general manager to participate in an employee tip pool while also claiming a tip credit, a practice prohibited under federal law. As a result, the employer is required to pay $85,197 in back wages to 36 affected workers.

Federal regulations clearly state that managers and supervisors are not permitted to retain any portion of employee tips or share in tip pools when a tip credit is applied. Tips are considered the property of service workers who earn them directly from customers. Violations of these provisions can result in employers losing the ability to claim tip credits and being required to compensate workers at the full federal minimum wage.

The FLSA allows employers to pay tipped employees a base wage as low as $2.13 per hour, provided that tips received bring total earnings up to at least the federal minimum wage of $7.25 per hour. Employers may claim a tip credit of up to $5.12 per hour to meet this requirement. However, strict compliance rules govern how tips are distributed and who may participate in tip pools.

Labor officials emphasized that employers must ensure tipped workers receive all earnings owed and comply fully with wage and hour laws. The department encourages both workers and employers to seek guidance to better understand their rights and responsibilities under federal regulations.