1021-00005 · Verimark Hospitality Group · Analysis & Advice

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MEMORANDUM

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

This memorandum is protected by the attorney-client privilege and constitutes attorney work product prepared in anticipation of litigation. It is intended solely for the use of the individuals identified herein and is not to be disclosed to any third party without the prior written consent of outside counsel.

TO: Bernard Crawford, Responsible Partner Renata Vasquez, Billing Partner

FROM: Nadia Petrov, Lead Associate James Underwood, Working Associate

DATE: February 10, 2026

RE: Verimark Hospitality Group Inc. — Florida Tipped-Employee Minimum Wage Compliance Analysis (Front-Desk and Concierge Employees Participating in Tip Pools)

MATTER NO.: 1021-00005

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I. Executive Summary

This memorandum analyzes the compliance posture of Verimark Hospitality Group Inc. ("VHG") with respect to the Florida constitutional minimum-wage provision (Art. X, § 24, Florida Constitution) and the federal Fair Labor Standards Act, 29 U.S.C. § 203(m) (the "FLSA"), as those provisions apply to front-desk and concierge employees at the seven at-issue Verimark-branded properties who participate in pooled-tip arrangements. The analysis is undertaken in the context of a pre-litigation wage-and-hour audit prompted by the demand letter described below.

On January 14, 2026, the firm of Garza, Linden & Okafor LLP ("GLO"), through its attorneys Marco A. Garza and Priya N. Chandrasekaran, transmitted a demand letter to VHG General Counsel Devin K. Arroyo on behalf of former front-desk associate Daniela M. Serrano (Employee ID VHG-EMP-20220314-5587). The demand letter sets forth five categories of wage-and-hour claims. This memorandum is limited to Allegation No. 4: the alleged failure to pay the Florida minimum wage for tipped employees. The remaining four allegation categories — FLSA exemption misclassification, automatic meal-break deductions, pre-/post-shift compensability, and overtime computation errors — are addressed in separate, concurrently prepared memoranda.

The central factual predicate of Allegation No. 4 is that VHG has applied a tip credit to the wages of front-desk associates and concierge staff who participate in pooled-tip arrangements at the seven at-issue properties, but has done so in a manner that fails to comply with the substantive and procedural requirements of both Florida and federal law. Specifically, the demand letter asserts that (a) certain front-desk employees may not qualify as "tipped employees" eligible for the tip credit in the first instance; (b) the composition of VHG's tip pools includes employees who do not customarily and regularly receive tips, thereby invalidating the tip credit for all pool participants; (c) VHG has failed to provide the requisite notice to employees before taking the tip credit; and (d) VHG has not ensured that the sum of the direct cash wage plus pooled tips actually received equals or exceeds the applicable minimum wage in each workweek.

As of September 30, 2025, Florida's full minimum wage is $14.00 per hour. The tipped-employee minimum cash wage, after application of the $3.02 tip credit, is $10.98 per hour. The Florida constitutional minimum wage has increased annually over the lookback period, from approximately $10.00 per hour in 2021 to the current $14.00, meaning that VHG's compliance must be assessed at each historical rate.

VHG's potential exposure on this claim category alone is substantial. Under Fla. Stat. § 95.11(2)(b), actions founded on a statutory liability are subject to a five-year statute of limitations, which would extend the lookback period for the Florida constitutional claim to January 14, 2021 — approximately eighteen months prior to VHG's transition from its legacy in-house payroll system to the Luminos Payroll Solutions Inc. platform on January 1, 2022. This extended lookback creates both heightened exposure and significant practical challenges in reconstructing payroll data from the pre-Luminos period. The FLSA's shorter limitations periods (two years for non-willful violations, three years for willful violations) do not eliminate this extended Florida-law exposure.

We have identified four key areas of compliance risk that must be investigated during the forthcoming audit phase:

(a) Whether front-desk and concierge employees at the seven at-issue properties qualify as "tipped employees" under both Florida law and the FLSA — i.e., whether they are engaged in an occupation in which they "customarily and regularly" receive more than $30 per month in tips;

(b) Whether VHG's tip-pool structure satisfies applicable legal requirements, including whether any managers, supervisors, or non-customarily-tipped employees participate in the pool, which would invalidate the tip credit for all pool participants;

(c) Whether VHG has properly applied the tip credit — including whether it has provided the required individualized notice to each employee before utilizing the credit, and whether it has ensured that the sum of the cash wage plus actual tips received meets or exceeds the full minimum wage in each workweek; and

(d) Whether VHG's record-keeping practices satisfy the heightened documentation obligations applicable to tipped employees under both federal regulations (29 C.F.R. § 516.28) and the Florida constitutional provision.

Based on our preliminary assessment, we recommend the following immediate actions: (1) expedited review of tip-pool policies, payroll configurations in the Luminos TimeTrack system (account LTT-VHG-2022-0041), and pre-Luminos payroll records across all seven at-issue properties; (2) engagement of Ridgepoint Advisory Group LLC (Dr. Alicia Tran, lead forensic analyst) for forensic payroll reconstruction and computational verification, at an estimated cost of $85,000 to $120,000, within the board-authorized audit budget cap of $350,000; and (3) immediate issuance of a litigation hold covering all tip-related records from January 14, 2021 forward. These recommendations are elaborated in Section XI below.

II. Scope and Purpose of This Memorandum

This memorandum has been prepared for the following purposes:

First, to analyze Allegation No. 4 of the GLO demand letter: the alleged failure to pay the Florida minimum wage for tipped employees in compliance with Art. X, § 24, Florida Constitution, as it applies to certain front-desk and concierge roles at VHG's seven at-issue Florida properties whose employees received pooled tips.

Second, to identify the applicable legal framework under both Florida constitutional law and the federal Fair Labor Standards Act, including the substantive and procedural requirements for taking a tip credit, the rules governing tip-pool composition, the 80/20/30 dual-jobs rule, and the applicable notice and record-keeping obligations.

Third, to assess, to the extent possible at this preliminary stage, VHG's current and historical practices regarding tip pooling, tip-credit application, and wage payments to affected employees, drawing on the limited information obtained to date from VHG General Counsel Devin K. Arroyo and Director of Payroll & Workforce Compliance Enrique J. Fuentes.

Fourth, to identify the record-keeping obligations applicable to tipped employees under both federal and Florida law, and to evaluate VHG's compliance with those obligations based on information currently available.

Fifth, to flag the specific areas requiring further factual investigation during the document-collection and audit phases, and to prioritize the most critical data requests.

This memorandum is prepared in connection with the pre-litigation wage-and-hour audit scoping phase initiated following receipt of the GLO demand letter. The audit scope and methodology memorandum, which is a separate document being prepared concurrently, addresses how the broader audit will proceed across all five allegation categories, including the engagement of Ridgepoint Advisory Group LLC for forensic payroll analytics and the coordination of document-collection efforts among VHG, Luminos Payroll Solutions Inc., and the seven individual properties.

This memorandum does not address the merits of the remaining four allegation categories (FLSA exemption classification, automatic meal-break deductions, pre-/post-shift compensability, and overtime computation errors), each of which is the subject of a separate memorandum. Nor does it address conditional certification standards for the anticipated FLSA collective action or class certification under Florida Rule of Civil Procedure 1.220, which are addressed in a separate procedural memorandum. The joint-employer analysis relating to the Verimark Shores Clearwater property (owned by Palomar Realty Partners LLC, managed by VHG) is likewise addressed in a standalone memorandum. Cross-references to those companion memoranda are provided where relevant.

III. Factual Background

A. The Claimant and the Demand

Daniela M. Serrano (Employee ID VHG-EMP-20220314-5587) was employed by VHG as a front-desk associate (hourly, non-exempt) at the Verimark Regency Tampa, located at 1200 North Westshore Boulevard, Tampa, FL 33607. Ms. Serrano's employment commenced on March 14, 2022, and terminated on August 22, 2025. Based on VHG's preliminary records, Ms. Serrano was classified as a tipped employee for purposes of minimum-wage calculations and participated in the Verimark Regency Tampa's front-desk and concierge tip pool throughout her tenure.

On January 14, 2026, the law firm of Garza, Linden & Okafor LLP ("GLO"), by and through Marco A. Garza and Priya N. Chandrasekaran, transmitted a formal demand letter to VHG General Counsel Devin K. Arroyo. The demand letter asserts claims on behalf of Ms. Serrano and "all similarly situated current and former hourly, non-exempt employees" at Verimark-branded Florida properties. The letter sets forth five categories of wage-and-hour violations, the fourth of which — Allegation No. 4 — is the subject of this memorandum. The demand letter sets a response deadline of February 28, 2026.

Allegation No. 4 specifically asserts that Ms. Serrano and similarly situated front-desk and concierge employees participated in tip pools but were not paid the correct minimum wage when VHG applied the tip credit. The demand letter identifies several sub-theories: (i) that VHG's tip pools include employees who do not customarily and regularly receive tips, including certain "lead" and "senior" hourly employees who exercise supervisory functions; (ii) that VHG failed to provide individualized tip-credit notices to employees as required by 29 U.S.C. § 203(m)(2)(A); (iii) that VHG failed to ensure that the sum of the direct cash wage plus actual pooled tips equaled or exceeded the applicable Florida minimum wage in each workweek; and (iv) that front-desk employees perform substantial non-tip-generating duties for which the tip credit should not have been taken.

The putative class or collective described in the demand letter encompasses all current and former hourly, non-exempt employees at Verimark-branded Florida properties from January 2023 to the present — a group estimated at approximately 4,100 to 5,900 individuals. However, this temporal scope appears to have been framed with the FLSA's three-year willfulness period in mind. As discussed in Section VI below, the Florida constitutional claim potentially extends the lookback to January 14, 2021, which could substantially increase the number of putatively affected employees, particularly those who departed VHG before the January 2023 date used in the demand letter.

The demand letter seeks aggregate relief of $18.5 million across all five allegation categories, inclusive of back pay, liquidated damages, and attorneys' fees. The letter does not allocate this amount among the five categories. Our preliminary exposure assessment memo (prepared separately) provides a more granular analysis of the potential exposure by claim category; the tipped-employee analysis presented in Section VII of this memorandum contributes to that assessment.

B. VHG's Workforce and Properties at Issue

Verimark Hospitality Group Inc. employs approximately 8,200 individuals across fourteen hotel and resort properties throughout the State of Florida. Of these, approximately 5,900 employees (roughly 72%) are classified as non-exempt hourly workers. The remaining approximately 2,300 employees hold salaried positions classified as exempt under various FLSA exemptions (the propriety of these classifications being the subject of the separate FLSA exemption classification memorandum).

The GLO demand letter identifies seven specific Verimark-branded properties as the focus of its claims. These seven properties, together with their approximate employee counts, are as follows:

The seven at-issue properties collectively employ 2,620 individuals, of whom approximately 1,895 are hourly, non-exempt workers. These properties span three distinct Florida markets: the Tampa Bay area (Properties 1, 3, and 4), the Orlando area (Property 2), and the South Florida coast (Properties 5, 6, and 7). This geographic distribution may be relevant to the analysis because tip volumes, tipping customs, and guest demographics may differ materially across these markets, potentially affecting both the "customarily and regularly tipped" threshold analysis and the magnitude of any wage shortfalls.

Front-desk associates and concierge staff represent a subset of the hourly workforce at each property. The exact number of employees holding these positions at each property, broken down by job code and time period, has not yet been determined. On February 3, 2026, Nadia Petrov transmitted a detailed data collection request to Enrique J. Fuentes, VHG's Director of Payroll & Workforce Compliance, seeking, among other things, headcount data by property, job code, and pay period for all front-desk and concierge positions over the full lookback period. We expect this data to be produced in the coming weeks as part of the initial audit document collection.

The Verimark Shores Clearwater property (Property 3) warrants special attention. This property is owned by Palomar Realty Partners LLC (Ricardo E. Montalvo, Managing Member) and is managed by VHG pursuant to a Hotel Management Agreement dated June 1, 2021 (reference HMA-2021-0601-PC). The management agreement governs the allocation of operational and employment responsibilities between Palomar and VHG. Whether VHG is the sole employer, or whether Palomar qualifies as a joint employer of the Clearwater property's workforce, has direct implications for liability allocation on the tipped-employee claim. This issue is addressed in a separate joint-employer analysis memorandum and is not further analyzed here.

C. Payroll and Timekeeping Systems

Since January 1, 2022, all VHG payroll processing and timekeeping across the fourteen Florida properties has been handled by Luminos Payroll Solutions Inc. ("Luminos"), through the Luminos TimeTrack platform. VHG's Luminos account is identified as LTT-VHG-2022-0041, and VHG's primary contact at Luminos is Shannon D. Prewitt, Senior Account Manager.

The Luminos TimeTrack system is responsible for calculating tip credits, processing tip-pool allocations, generating employee wage statements, and computing gross and net wages for all tipped and non-tipped hourly employees. The specific configuration settings within the Luminos system — including the pay codes assigned to tipped employees, the formula used to calculate the tip credit, the methodology for allocating pooled tips, and the parameters for triggering make-whole adjustments when tips fall short of the minimum-wage threshold — are of central importance to this analysis. On February 6, 2026, James Underwood transmitted a letter to Shannon D. Prewitt at Luminos requesting the preservation and production of all system configuration data, tip-credit calculation logic, and historical payroll records pertaining to tipped employees at the seven at-issue properties. A copy of this preservation and production request was provided to Devin K. Arroyo for VHG's records.

For the period prior to January 1, 2022, payroll processing was handled by VHG's prior in-house payroll system. This pre-Luminos period is directly relevant because the Florida constitutional minimum-wage claim carries a five-year statute of limitations that reaches back to January 14, 2021 — approximately eighteen months before the Luminos transition. Records from the legacy payroll system covering this period must be located, preserved, and produced. The availability and integrity of these records is uncertain at this stage. Malik P. Jefferson, VHG's Corporate IT Administrator, has been identified as the appropriate contact for locating legacy system data, though a formal request has not yet been transmitted. We recommend that this request be treated as a matter of urgency, as discussed in Section XI below.

The current VHG Employee Handbook is version 7.2, which became effective on January 1, 2025. Prior versions of the handbook — which are relevant to the tip-credit notice analysis, as they would contain the tip-pool policies and tip-credit disclosures in effect during earlier portions of the lookback period — have been requested from VP of Human Resources Carla S. Whitfield. Bernard Crawford made this request on February 4, 2026. As of the date of this memorandum, the prior versions have not yet been produced.

D. VHG's Tip-Pool Practices (Preliminary Understanding, Subject to Verification)

Our understanding of VHG's tip-pool practices is preliminary and based primarily on initial conversations with VHG General Counsel Devin K. Arroyo and Director of Payroll & Workforce Compliance Enrique J. Fuentes. All factual representations in this subsection are subject to verification during the audit phase and should not be relied upon as confirmed.

Based on these initial conversations, VHG operates a tip pool at some or all of the seven at-issue properties. The tip pool reportedly includes front-desk associates, concierge staff, and potentially bellhops and porters. The pooled tips are aggregated and distributed among participants according to a methodology that has not yet been fully described to us. VHG applies a tip credit to the minimum wage for these employees, paying a direct cash wage that is less than the full Florida minimum wage and relying on pooled tips to bridge the gap.

The following critical facts remain unconfirmed and are among the highest-priority items on our data collection request list:

• The precise job codes included in the tip pool at each of the seven properties;

• The allocation methodology used to distribute pooled tips (e.g., by hours worked, by position, by shift, or by some other formula);

• Whether the tip-pool policy has been consistently applied across all seven properties or whether practices vary from property to property;

• Whether any employees who do not "customarily and regularly" receive tips — including, but not limited to, housekeeping staff, maintenance personnel, or management-level employees — participate in or receive distributions from the tip pool;

• Whether any employees classified as "lead" or "senior" front-desk associates or concierge staff exercise supervisory functions that would disqualify them from tip-pool participation under FLSA § 203(m)(2)(B);

• The amount of the direct cash wage paid to tipped employees at each property and whether this amount has been updated in concert with annual increases to the Florida minimum wage;

• Whether VHG has a formal written tip-pool policy and, if so, the effective dates and contents of each version of that policy; and

• Whether VHG has provided individualized tip-credit notices to each employee before utilizing the tip credit, or whether the company has relied solely on general provisions in the employee handbook.

Until these facts are established, the compliance assessment in this memorandum necessarily proceeds on a conditional basis — analyzing the legal consequences that would follow from various factual scenarios.

IV. Legal Framework

A. Florida Constitutional Minimum Wage — Art. X, § 24, Florida Constitution

1. General Minimum Wage

Article X, Section 24 of the Florida Constitution, adopted by Florida voters in 2004 as Amendment 5, establishes a state minimum wage that exceeds the federal FLSA minimum of $7.25 per hour. The provision was subsequently amended by Florida voters in 2020 through Amendment 2, which mandated a series of annual increases to the state minimum wage culminating in a $15.00 per hour floor effective September 30, 2026.

The Florida minimum wage is adjusted annually on September 30 of each year. Effective September 30, 2025, the Florida minimum wage is $14.00 per hour. This rate applies to all employees in the state who are covered by the FLSA, as well as to additional employees who may fall within the scope of Florida's constitutional provision. Because the Florida minimum wage substantially exceeds the federal minimum, it is the controlling standard for minimum-wage compliance by VHG and all other Florida employers.

The Florida minimum wage applies broadly. Unlike the FLSA, which contains various exemptions from its minimum-wage requirements (e.g., for executive, administrative, and professional employees, as well as certain agricultural and seasonal workers), the Florida constitutional provision is phrased in sweeping terms and has been interpreted to apply to the same categories of employees covered by the FLSA, with limited exceptions. For purposes of this memorandum, there is no dispute that front-desk associates and concierge staff at VHG's properties are covered by both the FLSA and the Florida constitutional minimum wage.

2. Tipped-Employee Minimum Wage

Article X, Section 24(f) of the Florida Constitution permits employers to take a "tip credit" against the minimum wage for "tipped employees" as defined under the FLSA. This is a critical provision for the present analysis. By incorporating the FLSA's definition of "tipped employee" by reference, the Florida Constitution ties the availability of the tip credit in Florida to the federal statutory framework — including the definition of "tipped employee" at 29 U.S.C. § 203(t), the substantive and procedural requirements for the tip credit at 29 U.S.C. § 203(m), and the tip-pooling rules at 29 U.S.C. § 203(m)(2)(B).

The current tip credit under Florida law is $3.02 per hour, which yields a tipped-employee minimum cash wage of $10.98 per hour ($14.00 minus $3.02). The $3.02 tip-credit amount has historically been aligned with the amount permitted under FLSA regulations, though the relationship between the federal tip-credit amount and the Florida tip-credit amount should be confirmed for each year in the lookback period.

Because the Florida minimum wage has increased annually over the lookback period, and because the tip credit has remained at $3.02, the tipped-employee minimum cash wage has also increased annually. The following table summarizes the historical rates, to the extent they can be determined at this stage (exact historical rates are subject to confirmation during the research phase):

These historical rates are directly relevant to the compliance analysis because VHG must have adjusted both its direct cash wage and its tip-credit calculations each time the Florida minimum wage increased. Failure to timely update these parameters — whether in the Luminos system or the prior in-house payroll system — would result in a wage shortfall for every pay period following the missed adjustment.

3. Enforcement and Remedies

Article X, Section 24(d) of the Florida Constitution provides that employees may bring a civil action for unpaid minimum wages. The remedies available include:

• Back pay in the amount of unpaid minimum wages owed;

• Liquidated damages equal to the amount of unpaid wages (effectively doubling the back-pay recovery);

• Reasonable attorneys' fees and costs.

The liquidated-damages provision is mandatory and does not contain a good-faith defense analogous to FLSA § 260, which permits a court to reduce or eliminate liquidated damages under the FLSA upon a showing that the employer acted in good faith and had reasonable grounds to believe its practices complied with the Act. This distinction is significant: even if VHG can establish a good-faith defense that reduces or eliminates FLSA liquidated damages, the Florida constitutional provision would still impose automatic liquidated damages equal to the full amount of unpaid wages.

The statute of limitations for Florida constitutional minimum-wage claims is governed by Fla. Stat. § 95.11(2)(b), which provides a five-year limitations period for actions founded on a statutory liability. Florida courts have consistently applied this five-year period to claims under Art. X, § 24. This limitations period is significantly longer than the FLSA's two-year period for non-willful violations (29 U.S.C. § 255(a)) or three-year period for willful violations. The practical consequence is that the Florida constitutional claim in the present case could reach back to January 14, 2021 — the date five years prior to the date of the GLO demand letter, which functions as the earliest potential filing date for purposes of this preliminary limitations analysis.

This extended lookback is of particular concern because it encompasses approximately eighteen months of payroll data from VHG's pre-Luminos in-house payroll system (January 14, 2021 through December 31, 2021). Records from that system may be more difficult to locate, preserve, and analyze than records maintained in the current Luminos TimeTrack platform.

Finally, it bears noting that the Florida constitutional provision does not contain an administrative exhaustion requirement. An employee (or a putative class of employees) may file a civil action directly in state court without first filing a complaint with any administrative agency. This removes a procedural barrier that might otherwise provide VHG with additional time or an opportunity to resolve claims administratively before litigation.

B. Federal Fair Labor Standards Act — Tipped Employee Provisions

1. Definition of "Tipped Employee" — 29 U.S.C. § 203(t)

Under the FLSA, a "tipped employee" is defined as "any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips." 29 U.S.C. § 203(t). This definition establishes a threshold that must be satisfied before an employer can take a tip credit under 29 U.S.C. § 203(m).

The "customarily and regularly" standard is an objective one. It does not require that the employee receive tips in every workweek, but it does require that tipping is a customary feature of the occupation in which the employee is engaged at the employer's establishment. The Department of Labor's interpretive guidance and federal case law provide that occupations such as waitstaff, bartenders, bellhops, valets, and hairstylists are among those traditionally recognized as customarily tipped. Front-desk positions at hotels, however, are not universally recognized as customarily tipped occupations. Whether front-desk employees at a particular establishment satisfy the $30-per-month threshold depends on the specific factual circumstances at that establishment — including the type of hotel (resort vs. business-oriented), the guest demographic, the property's tipping culture, and whether the employer has actively encouraged or facilitated tipping at the front desk.

This threshold issue is of central importance to VHG's compliance analysis. If VHG has been treating front-desk associates as "tipped employees" and applying the tip credit to their wages, but those employees do not in fact "customarily and regularly" receive more than $30 per month in tips, then VHG's use of the tip credit is impermissible from the outset. In that event, VHG would owe each affected employee the full minimum wage — currently $14.00 per hour — for every hour worked during the applicable lookback period, without any offset for tips received.

The determination of whether front-desk employees meet the $30-per-month threshold must be made on a property-by-property basis. It is plausible that front-desk employees at the resort-style properties — particularly the Verimark Resort & Spa Boca Raton and the Verimark Key West Collection, which cater to leisure travelers — receive tips more regularly than front-desk employees at the urban, business-oriented properties such as the Verimark Bayfront St. Petersburg or the Verimark Grand Orlando. If so, the tip credit may be valid at some properties but not others, which would affect both liability and class/collective certification arguments.

The data needed to resolve this threshold question includes tip reports, tip-pool distribution records, and individual employee tip earnings broken down by pay period, across all seven at-issue properties and for the full lookback period.

2. Tip Credit Under FLSA — 29 U.S.C. § 203(m)

Section 203(m) of the FLSA permits an employer to take a "tip credit" — that is, to count a portion of an employee's tips toward the employer's minimum-wage obligation — provided that certain substantive and procedural conditions are met. At the federal level, the maximum tip credit is $5.12 per hour (the difference between the $7.25 federal minimum wage and the $2.13 minimum cash wage for tipped employees). However, because the Florida minimum wage ($14.00) substantially exceeds the federal minimum, and because the Florida tip credit is $3.02, the Florida framework is more restrictive and controls the analysis for VHG.

The critical procedural prerequisite for the tip credit is the notice requirement set forth in 29 U.S.C. § 203(m)(2)(A). Before taking the tip credit, the employer must inform each employee of the following:

(i) The amount of the cash wage the employer is paying the tipped employee, which must be at least the applicable tipped-employee minimum wage ($10.98 per hour under current Florida law, or $2.13 per hour at the federal level);

(ii) The additional amount claimed by the employer as a tip credit, which under Florida law currently cannot exceed $3.02 per hour;

(iii) That the tip credit claimed by the employer cannot exceed the amount of tips actually received by the employee;

(iv) That all tips received by the tipped employee are to be retained by the employee, except in the case of a valid tip-pooling arrangement complying with 29 U.S.C. § 203(m)(2)(B); and

(v) That the tip credit will not apply to any employee who has not been informed of the provisions set forth in items (i) through (iv) above.

This notice must be provided to each employee individually. Federal courts have consistently held that a general statement in an employee handbook, standing alone, may not satisfy the notice requirement unless the employer can demonstrate that each employee received the handbook, had an opportunity to review the relevant provisions, and acknowledged receipt. The adequacy of VHG's tip-credit notices — including whether they were provided at the time of hire, upon each annual rate change, and upon any modification to the tip-pool structure — is a key factual question for the audit.

The consequence of failing to provide the required notice is severe: the employer forfeits the tip credit entirely and must pay the full minimum wage for every hour worked by every affected employee during the period of non-compliance. This forfeiture is automatic and is not subject to a good-faith defense. The notice requirement is thus not merely a technical formality; it is a substantive precondition to the employer's right to take the credit.

3. Tip Pooling Under FLSA — 29 U.S.C. § 203(m)(2)(B)

The Consolidated Appropriations Act of 2018 ("CAA") amended FLSA § 203(m) to establish comprehensive rules governing tip-pooling arrangements. The rules differ depending on whether the employer takes a tip credit.

Where the employer takes a tip credit (as VHG reportedly does), tips may be pooled only among employees who "customarily and regularly receive tips." 29 U.S.C. § 203(m)(2)(B). Managers, supervisors, and employees who do not customarily and regularly receive tips are prohibited from participating in the tip pool. If any such ineligible individual participates in the pool — even a single individual at a single property — the tip credit is invalidated for all employees participating in that pool at that property for the duration of the ineligible individual's participation.

Where the employer does not take a tip credit (i.e., the employer pays the full minimum wage), the 2018 CAA amendments permit a broader tip-pooling arrangement in which tips may be shared with non-traditionally-tipped employees, such as back-of-house kitchen staff or dishwashers. However, even in this scenario, managers and supervisors are categorically prohibited from participating in or retaining any portion of the tip pool. 29 U.S.C. § 203(m)(2)(B).

The definition of "manager" and "supervisor" for purposes of tip-pool eligibility is derived from the FLSA and DOL regulations, but is not coextensive with the "executive exemption" test under 29 C.F.R. § 541.100. An employee who is classified as non-exempt for overtime purposes may nonetheless be a "supervisor" for tip-pool purposes if the employee exercises supervisory authority, such as the power to hire, fire, discipline, assign work, or direct the work of other employees. This distinction is particularly relevant to VHG's "lead" and "senior" front-desk and concierge roles, which are non-exempt hourly positions but may involve supervisory responsibilities. The demand letter specifically flags these roles as potentially tainting the tip pool.

The key question for VHG is: Does any employee in the tip pool at any of the seven at-issue properties exercise supervisory functions or fail to customarily and regularly receive tips? If the answer is yes at any property, the tip credit is invalidated for all pool participants at that property for the period of the ineligible employee's participation. This "taint" theory is one of the most powerful tools available to plaintiffs in tip-credit litigation because it leverages a single violation into system-wide liability.

The DOL's regulations at 29 C.F.R. Part 531 (specifically §§ 531.50 through 531.60) provide additional guidance on the requirements for valid tip-pooling arrangements, including the reasonable relationship between the employee's duties and the tip-generating activity, the proportion of tips that may be contributed to the pool, and the documentation requirements for pool allocations.

4. The 80/20 (and 80/20/30) Rule — Dual Jobs and Tip-Credit Limitations

The DOL's 2021 Final Rule on Tip Regulations, published at 86 Fed. Reg. 60,114 (effective December 28, 2021), reinstated and codified a framework for limiting the tip credit when a tipped employee spends a substantial portion of work time performing non-tip-generating duties. This framework, commonly known as the "80/20 rule" (and now expanded to the "80/20/30 rule"), provides as follows:

(a) An employer may not take a tip credit for any time spent by a tipped employee performing duties that are not part of the employee's tipped occupation (i.e., duties that do not directly generate tips or directly support tip-generating duties) if those non-tipped duties exceed 20% of the employee's hours worked in a given workweek. 29 C.F.R. § 531.56(f).

(b) Additionally, an employer may not take a tip credit for time spent performing "directly supporting work" (i.e., work that supports tip-generating duties but does not itself generate tips) if that work is performed for a continuous period exceeding 30 minutes. Even if the 20% weekly threshold is not exceeded, a continuous block of 30+ minutes of non-tipped work within a shift triggers the loss of the tip credit for that period.

This rule is directly relevant to VHG's front-desk and concierge employees. Front-desk associates perform a broad mix of duties, including guest check-in and check-out (which may be tip-generating), as well as substantial administrative and clerical tasks — answering phone calls, processing reservations, handling billing inquiries, preparing reports, performing computer data entry, and managing the property management system. Many of these administrative tasks arguably do not directly generate tips or directly support tip-generating activities. If front-desk employees spend more than 20% of their workweek on such tasks, or if they perform such tasks in continuous blocks exceeding 30 minutes, VHG may be improperly applying the tip credit for those hours.

The 80/20/30 analysis is highly fact-intensive and will require detailed information about the day-to-day duties of front-desk and concierge employees at each property. Potential investigative methods include review of job descriptions, employee interviews, supervisor interviews, and formal time-and-motion studies. The engagement of Ridgepoint Advisory Group LLC may be appropriate to design and conduct a representative time-study across the seven properties.

It is important to note that the 2021 Final Rule became effective on December 28, 2021, which is three days before VHG's transition to the Luminos payroll system on January 1, 2022. For the pre-Luminos period within the lookback window (January 14, 2021 through December 31, 2021), the 80/20 framework may or may not have been formally in effect depending on the exact enforcement posture of the DOL during the rulemaking process. However, for the post-January 2022 period — which comprises the vast majority of the lookback — the 80/20/30 rule unambiguously applies.

C. Interaction Between Florida and Federal Law

The relationship between the Florida constitutional minimum-wage provision and the federal FLSA is governed by the general preemption principle that state law may provide greater protections than federal law, but may not diminish them. In the wage-and-hour context, this means:

Florida law controls the minimum-wage amount because the Florida minimum wage ($14.00 per hour) exceeds the FLSA minimum ($7.25 per hour). An employer in Florida must pay at least the Florida minimum, and the availability of the tip credit under Florida law is determined by Art. X, § 24(f), which incorporates the FLSA's definition of "tipped employee" and tip-credit framework.

The FLSA's structural requirements for the tip credit — including the employee-notification requirements of § 203(m)(2)(A), the tip-pool composition rules of § 203(m)(2)(B), and the dual-jobs / 80/20/30 rule codified in the 2021 Final Rule — apply concurrently with and in addition to Florida law. Because the Florida constitutional provision cross-references the FLSA in defining "tipped employees" and the tip-credit mechanism, a violation of the FLSA's structural requirements (e.g., failure to provide notice, inclusion of ineligible employees in the tip pool) would also undermine the tip credit under Florida law.

A violation of either framework exposes VHG to liability under both statutes, with the important caveat that damages may not be duplicated. An employee may assert claims under both the Florida Constitution and the FLSA, and may recover under whichever provides the greater remedy, but may not recover the same wages twice. As a practical matter, the Florida constitutional claim is likely to be the more significant source of exposure because of its longer (five-year) limitations period and the absence of a good-faith defense to liquidated damages.

The differing limitations periods create an important strategic dynamic. Even if VHG successfully defeats FLSA claims for portions of the lookback period on statute-of-limitations grounds (e.g., arguing that violations prior to January 14, 2023, fall outside the three-year willful-violation window), the Florida constitutional claim would survive for the full five-year period back to January 14, 2021. This means that the pre-Luminos payroll records are relevant primarily — though not exclusively — to the Florida constitutional claim.

V. Analysis of VHG's Compliance Risks

A. Threshold Issue: Do Front-Desk and Concierge Employees Qualify as "Tipped Employees"?

The foundational question in this analysis is whether VHG's front-desk associates and concierge staff meet the statutory definition of "tipped employee" — i.e., whether they are engaged in an occupation in which they "customarily and regularly" receive more than $30 per month in tips. 29 U.S.C. § 203(t). If they do not, VHG cannot take the tip credit at all, and the entire apparatus of tip-pool compliance, notice requirements, and make-whole obligations becomes moot — VHG would simply owe the full minimum wage for every hour worked by every affected employee.

Front-desk positions occupy an ambiguous place in the tipping landscape. Unlike servers, bartenders, valets, and bellhops — occupations that are universally recognized as customarily tipped — front-desk associates at hotels are not uniformly treated as tipped employees across the hospitality industry. Whether tips are customarily and regularly received at the front desk depends heavily on the type of establishment. Luxury resorts, boutique hotels, and full-service properties with high guest-interaction levels tend to generate more front-desk tips than limited-service, business-oriented, or economy properties. The DOL's Fact Sheet #15 on tipped employees does not specifically list front-desk hotel workers among the "commonly tipped" occupations, though it does reference "hotel bellhops" and "hotel maids who serve food or beverages to guests in their rooms."

For VHG, this threshold analysis must be conducted on a property-by-property basis. The seven at-issue properties encompass a range of hotel types. The Verimark Resort & Spa Boca Raton and the Verimark Key West Collection are resort-oriented properties that cater to leisure travelers who may be more inclined to tip front-desk staff for concierge-type services (arranging activities, upgrading rooms, providing local recommendations). The Verimark Grand Orlando, located near the theme-park corridor, serves a mix of leisure families and convention-goers. The Tampa Bay properties (Verimark Regency Tampa, Verimark Shores Clearwater, and Verimark Bayfront St. Petersburg) serve a mixed clientele, while the Verimark Oceanview Fort Lauderdale may draw both business and leisure travelers.

If VHG cannot demonstrate that front-desk employees at a given property customarily and regularly receive more than $30 per month in tips, the tip credit is unavailable at that property, and VHG's exposure on the tipped-employee claim at that property would be significant. The data needed to resolve this question — monthly and weekly tip reports, tip-pool distribution records, and individual employee tip-earnings data by pay period — is among the highest-priority items on the data collection list.

Concierge employees, by contrast, are more traditionally viewed as customarily tipped. Concierge services — arranging transportation, making restaurant reservations, sourcing event tickets, providing personalized guest services — are closely associated with tip receipt in the hospitality industry. Accordingly, the threshold "tipped employee" question is less likely to be a vulnerability with respect to concierge staff, though the data should still be verified for each property.

B. Validity of VHG's Tip-Pool Structure

Assuming that at least some front-desk and concierge employees qualify as tipped employees, the next question is whether VHG's tip-pool structure complies with FLSA § 203(m)(2)(B) and the DOL's implementing regulations.

Composition of the Pool. The most significant risk factor is the composition of the tip pool. Under the statute, when an employer takes a tip credit, the tip pool may include only employees who "customarily and regularly receive tips." Managers, supervisors, and non-customarily-tipped employees are categorically excluded. If any such ineligible employee participates in the pool — even one individual at one property — the tip credit is invalidated for all pool participants at that property for the entire period of the ineligible participant's inclusion.

Based on our preliminary understanding, VHG's tip pool includes front-desk associates, concierge staff, and potentially bellhops and porters. Bellhops and porters are customarily tipped occupations, so their inclusion does not present an immediate concern. The critical question is whether any of the following categories of employees also participate:

(i) "Lead" or "Senior" hourly employees: The demand letter specifically references "lead" and "senior" hourly roles at the front desk and concierge. If employees holding these titles exercise supervisory functions — such as assigning tasks to other front-desk associates, approving schedule changes, counseling or disciplining subordinates, or serving as the designated shift leader — they may be classified as "supervisors" for purposes of the tip-pool rules, even if they are non-exempt for overtime purposes. The determination of supervisory status under the tip-pool rules is functional, not based on job title alone, and must be assessed based on the actual duties performed by individuals in these roles. This analysis should be cross-referenced with the separate FLSA exemption classification memorandum, which is evaluating whether certain "lead" and "senior" roles are properly classified as non-exempt under the administrative exemption at 29 C.F.R. § 541.200.

(ii) Non-customarily-tipped employees: If any employees from housekeeping, maintenance, laundry, kitchen, or other back-of-house departments participate in the tip pool, the pool would be invalid because these positions do not customarily and regularly receive tips. Even if VHG pays the full minimum wage to such employees (which would permit broader tip sharing under the 2018 CAA amendments), the inclusion of non-customarily-tipped employees in the same pool with employees for whom VHG takes a tip credit would invalidate the credit.

(iii) Management personnel: If any salaried managers, assistant managers, or department heads receive distributions from the tip pool, the pool is per se invalid regardless of any other considerations.

Allocation Methodology. Even if the pool's composition is limited to eligible employees, the allocation methodology must be reasonable. The DOL does not prescribe a specific allocation formula, but unreasonable allocations — such as formulas that disproportionately favor certain participants at the expense of others, or formulas that do not bear a rational relationship to the tip-generating contributions of the participants — may be challenged. We need to determine whether VHG allocates pooled tips by hours worked, by position, by a fixed percentage, or by some other method, and whether the methodology has been consistent across properties and over time.

The "taint" theory is the most powerful lever in GLO's arsenal on this claim. If GLO can identify even a single ineligible participant in the tip pool at any one of the seven properties, it can argue that the tip credit is invalid for every employee in that pool for the entire period of the ineligible participant's inclusion. This could convert what might otherwise be a limited individual claim into a property-wide or even enterprise-wide liability event. The urgency of identifying all pool participants and their duties cannot be overstated.

C. Tip-Credit Notice Requirements

The FLSA's tip-credit notice requirement at 29 U.S.C. § 203(m)(2)(A) is a mandatory procedural precondition to the employer's right to take the tip credit. The employer must inform each employee, before the credit is utilized, of the five elements described in Section IV.B.2 above. Failure to provide this notice results in automatic forfeiture of the tip credit — the employer must pay the full minimum wage retroactively, with no good-faith defense.

The questions for VHG are:

Has VHG provided the required notice? The notice must be provided to each individual employee. A general provision in the employee handbook (currently version 7.2, effective January 1, 2025) may contribute to satisfying the notice requirement, but courts have generally held that a handbook provision alone is insufficient unless the employer can demonstrate that each employee received the handbook, had an opportunity to review the relevant provisions, and acknowledged receipt. Best practice — and the standard that will most reliably withstand judicial scrutiny — is a standalone tip-credit disclosure form, signed by the employee at the time of hire, that specifically addresses each of the five statutory elements.

When was the notice provided? The notice must be given before the tip credit is first utilized. For employees hired during the lookback period, this means the notice should have been provided at or before the start of employment. For employees who were already employed when VHG began taking the tip credit (if the tip-credit practice was implemented at some point during their employment), notice should have been provided before the change took effect.

Was the notice updated when rates changed? Because the Florida minimum wage has increased annually, the tip-credit amount and the applicable cash wage have changed each year on September 30. Best practice dictates that the employer provide updated notice to employees each time these amounts change, though there is some case-law division on whether the initial notice suffices if it describes the mechanism rather than the specific dollar amounts.

The audit must obtain: (a) copies of all tip-credit disclosures or notice forms provided to employees at hiring; (b) signed acknowledgment forms; (c) the relevant sections of all versions of the employee handbook from 2021 forward; (d) any standalone tip-credit disclosure documents; and (e) records of any communications to employees regarding changes to the tip credit or cash wage rate upon annual minimum-wage increases.

Additionally, an important subsidiary legal question is whether the Florida constitutional provision, by incorporating the FLSA's definition of "tipped employee" by reference, also incorporates the FLSA's notice requirement. Although Art. X, § 24(f) does not independently impose a notice requirement, its cross-reference to the FLSA framework arguably imports the entire § 203(m) apparatus, including the notice provision. Florida case law on this specific question should be researched during the audit phase.

D. Application of the Tip Credit — Computational Compliance

Even if VHG's tip-pool structure is valid and the required notice has been provided, VHG must ensure that its actual wage computations are correct. Specifically, for each workweek, the sum of the direct cash wage paid to each tipped employee plus the employee's actual tips received must equal or exceed the applicable Florida minimum wage. If tips are insufficient in any given workweek to bridge the gap between the cash wage and the full minimum wage, VHG has a "make-whole" obligation — it must pay the difference to bring the employee's total compensation up to the minimum wage for that workweek. 29 C.F.R. § 531.56(b).

This make-whole obligation is triggered on a workweek-by-workweek basis. The employer may not average tips over a longer period (e.g., a pay period, a month, or a year) to satisfy the minimum-wage threshold. If an employee's tips fall short in any single workweek, the employer must supplement the employee's wages for that specific week.

The key question is whether VHG's payroll system — currently Luminos TimeTrack — is configured to perform this calculation automatically. If the system has an automated make-whole alert or adjustment feature, and if that feature is properly configured with the correct Florida minimum-wage rate for each applicable period, the risk of computational non-compliance may be limited. However, if the system does not perform this calculation, or if the minimum-wage parameters were not updated timely when Florida's rate increased (on September 30 of each year), there may be systemic shortfalls across large numbers of employees and pay periods.

The risk of misconfiguration or failure to update system parameters is heightened by the rapid annual increases in the Florida minimum wage over the lookback period. From approximately $10.00 per hour in September 2021 to $14.00 per hour in September 2025, the Florida minimum wage increased by roughly $4.00 — a 40% increase over four years. Each adjustment required a corresponding update to VHG's payroll configuration, and each missed or delayed update would generate a wage shortfall for the affected period.

The Luminos TimeTrack system configuration data — specifically the pay codes assigned to tipped employees, the tip-credit calculation logic, the make-whole alert/adjustment settings, and the historical minimum-wage parameters — must be obtained and reviewed as part of the audit. This data has been requested from Shannon D. Prewitt at Luminos.

For the pre-Luminos period (January 14, 2021 through December 31, 2021), the computational compliance analysis will depend on whatever payroll records can be recovered from VHG's prior in-house system. If those records are unavailable or incomplete, forensic reconstruction by Ridgepoint Advisory Group LLC may be necessary.

E. The 80/20/30 Rule — Dual-Jobs Analysis

As discussed in Section IV.B.4 above, the DOL's 2021 Final Rule on Tip Regulations imposes limits on the tip credit when a tipped employee spends more than 20% of work hours on non-tip-generating duties, or performs such duties in a continuous block exceeding 30 minutes. This rule is directly applicable to front-desk employees, who perform a mix of guest-facing (potentially tip-generating) and administrative (non-tip-generating) tasks.

The characterization of front-desk duties is central to this analysis. Certain front-desk activities — such as greeting guests, providing personalized check-in and check-out service, offering room upgrades, fulfilling special requests, and providing destination recommendations — are arguably tip-generating activities because they involve the type of personal service for which guests customarily leave tips. Other front-desk duties — such as answering routine phone calls, processing credit-card transactions, performing night-audit reconciliations, entering reservation data into the property management system, filing registration cards, sorting mail, and restocking supplies at the desk — are administrative tasks that do not directly generate tips and may not even qualify as "directly supporting" tip-generating work.

If front-desk employees routinely spend more than 20% of their weekly hours on these administrative tasks, or if they perform such tasks in uninterrupted blocks exceeding 30 minutes (which is highly plausible during off-peak hours, night shifts, or administrative closing periods), VHG may have improperly applied the tip credit for those hours.

This analysis is highly fact-intensive and cannot be resolved based on documentary evidence alone. The audit should include, at a minimum:

(a) A review of job descriptions for front-desk and concierge positions at each of the seven properties, with particular attention to the relative emphasis on tip-generating vs. administrative duties;

(b) Interviews with front-desk associates, concierge staff, and front-office managers at a representative sample of properties to understand the actual day-to-day breakdown of duties;

(c) Analysis of shift schedules and staffing patterns to identify periods during which administrative tasks are likely to predominate (e.g., overnight shifts, early morning shifts, mid-week low-occupancy periods); and

(d) Consideration of whether formal time-and-motion studies should be conducted at one or more properties to quantify the proportion of tipped vs. non-tipped work. This is a potential scope item for the Ridgepoint Advisory Group LLC engagement.

The 2021 Final Rule's effective date of December 28, 2021, means that the 80/20/30 framework applies to substantially all of the post-Luminos period. For the brief pre-Luminos window within the lookback (January 14, 2021 through December 27, 2021), the applicability of the 80/20 standard is less clear due to the regulatory uncertainty that prevailed during the rulemaking process, though the underlying principle that an employer cannot take a tip credit for hours during which the employee is not engaged in a tipped occupation has long been recognized under DOL guidance.

F. Concierge-Specific Issues

Concierge employees are generally more readily classified as "customarily and regularly tipped" than front-desk employees. Concierge services — arranging transportation, securing dining reservations, recommending local attractions, booking tours and excursions, sourcing tickets to events, and providing highly personalized guest assistance — are closely associated with gratuity receipt in the full-service hotel industry. Accordingly, the threshold "tipped employee" question is less likely to be a point of vulnerability for concierge staff.

However, the same legal requirements that apply to front-desk employees also apply to concierge employees: the tip-pool composition rules, the notice requirements, the make-whole obligation, and the 80/20/30 dual-jobs rule. The audit should separately evaluate the following concierge-specific issues:

(a) Whether concierge employees participate in the same tip pool as front-desk associates or in a separate pool, and whether the composition of the concierge pool (if separate) includes any ineligible participants;

(b) The volume and regularity of tips received by concierge employees, to confirm that the $30-per-month threshold is met on a consistent basis;

(c) The proportion of concierge employees' time spent on non-tip-generating administrative tasks, which may include data entry, inventory management, vendor coordination, and report preparation; and

(d) Whether the allocation methodology for the tip pool fairly compensates concierge employees relative to other pool participants, given that concierge roles may generate a disproportionate share of the tips that flow into the pool.

VI. Statute of Limitations Considerations Specific to the Tipped-Employee Claim

The statute of limitations is a critical factor in assessing VHG's exposure on the tipped-employee claim, and the interplay between the Florida and federal limitations periods warrants separate discussion.

Florida Constitutional Claim — Five-Year Period. As discussed in Section IV.A.3, the Florida constitutional minimum-wage claim is subject to a five-year statute of limitations under Fla. Stat. § 95.11(2)(b). Measured from the January 14, 2026, date of the GLO demand letter — which we use as a proxy for the earliest plausible filing date — the five-year lookback reaches to January 14, 2021. This is the longest lookback period of any of the five allegation categories asserted in the demand letter, and it has significant practical consequences.

Most importantly, the five-year period encompasses approximately eighteen months of payroll data from the period prior to VHG's transition to the Luminos Payroll Solutions platform on January 1, 2022. During this pre-Luminos period, payroll was processed using VHG's in-house system, and the availability, completeness, and accessibility of records from that system are uncertain. Recovery and preservation of pre-Luminos data must be treated as a matter of urgency. If these records have been deleted, overwritten, or are otherwise irrecoverable, VHG may face adverse inferences or spoliation sanctions in any subsequent litigati

MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
This memorandum is protected by the attorney-client privilege and constitutes attorney work product prepared in anticipation of litigation. It is intended solely for the use of the individuals identified herein and is not to be disclosed to any third party without the prior written consent of outside counsel.
TO: Bernard Crawford, Responsible Partner Renata Vasquez, Billing Partner
FROM: Nadia Petrov, Lead Associate James Underwood, Working Associate
DATE: February 10, 2026
RE: Verimark Hospitality Group Inc. — Florida Tipped-Employee Minimum Wage Compliance Analysis (Front-Desk and Concierge Employees Participating in Tip Pools)
MATTER NO.: 1021-00005
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I. Executive Summary
This memorandum analyzes the compliance posture of Verimark Hospitality Group Inc. ("VHG") with respect to the Florida constitutional minimum-wage provision (Art. X, § 24, Florida Constitution) and the federal Fair Labor Standards Act, 29 U.S.C. § 203(m) (the "FLSA"), as those provisions apply to front-desk and concierge employees at the seven at-issue Verimark-branded properties who participate in pooled-tip arrangements. The analysis is undertaken in the context of a pre-litigation wage-and-hour audit prompted by the demand letter described below.
On January 14, 2026, the firm of Garza, Linden & Okafor LLP ("GLO"), through its attorneys Marco A. Garza and Priya N. Chandrasekaran, transmitted a demand letter to VHG General Counsel Devin K. Arroyo on behalf of former front-desk associate Daniela M. Serrano (Employee ID VHG-EMP-20220314-5587). The demand letter sets forth five categories of wage-and-hour claims. This memorandum is limited to Allegation No. 4: the alleged failure to pay the Florida minimum wage for tipped employees. The remaining four allegation categories — FLSA exemption misclassification, automatic meal-break deductions, pre-/post-shift compensability, and overtime computation errors — are addressed in separate, concurrently prepared memoranda.
The central factual predicate of Allegation No. 4 is that VHG has applied a tip credit to the wages of front-desk associates and concierge staff who participate in pooled-tip arrangements at the seven at-issue properties, but has done so in a manner that fails to comply with the substantive and procedural requirements of both Florida and federal law. Specifically, the demand letter asserts that (a) certain front-desk employees may not qualify as "tipped employees" eligible for the tip credit in the first instance; (b) the composition of VHG's tip pools includes employees who do not customarily and regularly receive tips, thereby invalidating the tip credit for all pool participants; (c) VHG has failed to provide the requisite notice to employees before taking the tip credit; and (d) VHG has not ensured that the sum of the direct cash wage plus pooled tips actually received equals or exceeds the applicable minimum wage in each workweek.
As of September 30, 2025, Florida's full minimum wage is $14.00 per hour. The tipped-employee minimum cash wage, after application of the $3.02 tip credit, is $10.98 per hour. The Florida constitutional minimum wage has increased annually over the lookback period, from approximately $10.00 per hour in 2021 to the current $14.00, meaning that VHG's compliance must be assessed at each historical rate.
VHG's potential exposure on this claim category alone is substantial. Under Fla. Stat. § 95.11(2)(b), actions founded on a statutory liability are subject to a five-year statute of limitations, which would extend the lookback period for the Florida constitutional claim to January 14, 2021 — approximately eighteen months prior to VHG's transition from its legacy in-house payroll system to the Luminos Payroll Solutions Inc. platform on January 1, 2022. This extended lookback creates both heightened exposure and significant practical challenges in reconstructing payroll data from the pre-Luminos period. The FLSA's shorter limitations periods (two years for non-willful violations, three years for willful violations) do not eliminate this extended Florida-law exposure.
We have identified four key areas of compliance risk that must be investigated during the forthcoming audit phase:
(a) Whether front-desk and concierge employees at the seven at-issue properties qualify as "tipped employees" under both Florida law and the FLSA — i.e., whether they are engaged in an occupation in which they "customarily and regularly" receive more than $30 per month in tips;
(b) Whether VHG's tip-pool structure satisfies applicable legal requirements, including whether any managers, supervisors, or non-customarily-tipped employees participate in the pool, which would invalidate the tip credit for all pool participants;
(c) Whether VHG has properly applied the tip credit — including whether it has provided the required individualized notice to each employee before utilizing the credit, and whether it has ensured that the sum of the cash wage plus actual tips received meets or exceeds the full minimum wage in each workweek; and
(d) Whether VHG's record-keeping practices satisfy the heightened documentation obligations applicable to tipped employees under both federal regulations (29 C.F.R. § 516.28) and the Florida constitutional provision.
Based on our preliminary assessment, we recommend the following immediate actions: (1) expedited review of tip-pool policies, payroll configurations in the Luminos TimeTrack system (account LTT-VHG-2022-0041), and pre-Luminos payroll records across all seven at-issue properties; (2) engagement of Ridgepoint Advisory Group LLC (Dr. Alicia Tran, lead forensic analyst) for forensic payroll reconstruction and computational verification, at an estimated cost of $85,000 to $120,000, within the board-authorized audit budget cap of $350,000; and (3) immediate issuance of a litigation hold covering all tip-related records from January 14, 2021 forward. These recommendations are elaborated in Section XI below.
II. Scope and Purpose of This Memorandum
This memorandum has been prepared for the following purposes:
First, to analyze Allegation No. 4 of the GLO demand letter: the alleged failure to pay the Florida minimum wage for tipped employees in compliance with Art. X, § 24, Florida Constitution, as it applies to certain front-desk and concierge roles at VHG's seven at-issue Florida properties whose employees received pooled tips.
Second, to identify the applicable legal framework under both Florida constitutional law and the federal Fair Labor Standards Act, including the substantive and procedural requirements for taking a tip credit, the rules governing tip-pool composition, the 80/20/30 dual-jobs rule, and the applicable notice and record-keeping obligations.
Third, to assess, to the extent possible at this preliminary stage, VHG's current and historical practices regarding tip pooling, tip-credit application, and wage payments to affected employees, drawing on the limited information obtained to date from VHG General Counsel Devin K. Arroyo and Director of Payroll & Workforce Compliance Enrique J. Fuentes.
Fourth, to identify the record-keeping obligations applicable to tipped employees under both federal and Florida law, and to evaluate VHG's compliance with those obligations based on information currently available.
Fifth, to flag the specific areas requiring further factual investigation during the document-collection and audit phases, and to prioritize the most critical data requests.
This memorandum is prepared in connection with the pre-litigation wage-and-hour audit scoping phase initiated following receipt of the GLO demand letter. The audit scope and methodology memorandum, which is a separate document being prepared concurrently, addresses how the broader audit will proceed across all five allegation categories, including the engagement of Ridgepoint Advisory Group LLC for forensic payroll analytics and the coordination of document-collection efforts among VHG, Luminos Payroll Solutions Inc., and the seven individual properties.
This memorandum does not address the merits of the remaining four allegation categories (FLSA exemption classification, automatic meal-break deductions, pre-/post-shift compensability, and overtime computation errors), each of which is the subject of a separate memorandum. Nor does it address conditional certification standards for the anticipated FLSA collective action or class certification under Florida Rule of Civil Procedure 1.220, which are addressed in a separate procedural memorandum. The joint-employer analysis relating to the Verimark Shores Clearwater property (owned by Palomar Realty Partners LLC, managed by VHG) is likewise addressed in a standalone memorandum. Cross-references to those companion memoranda are provided where relevant.
III. Factual Background
A. The Claimant and the Demand
Daniela M. Serrano (Employee ID VHG-EMP-20220314-5587) was employed by VHG as a front-desk associate (hourly, non-exempt) at the Verimark Regency Tampa, located at 1200 North Westshore Boulevard, Tampa, FL 33607. Ms. Serrano's employment commenced on March 14, 2022, and terminated on August 22, 2025. Based on VHG's preliminary records, Ms. Serrano was classified as a tipped employee for purposes of minimum-wage calculations and participated in the Verimark Regency Tampa's front-desk and concierge tip pool throughout her tenure.
On January 14, 2026, the law firm of Garza, Linden & Okafor LLP ("GLO"), by and through Marco A. Garza and Priya N. Chandrasekaran, transmitted a formal demand letter to VHG General Counsel Devin K. Arroyo. The demand letter asserts claims on behalf of Ms. Serrano and "all similarly situated current and former hourly, non-exempt employees" at Verimark-branded Florida properties. The letter sets forth five categories of wage-and-hour violations, the fourth of which — Allegation No. 4 — is the subject of this memorandum. The demand letter sets a response deadline of February 28, 2026.
Allegation No. 4 specifically asserts that Ms. Serrano and similarly situated front-desk and concierge employees participated in tip pools but were not paid the correct minimum wage when VHG applied the tip credit. The demand letter identifies several sub-theories: (i) that VHG's tip pools include employees who do not customarily and regularly receive tips, including certain "lead" and "senior" hourly employees who exercise supervisory functions; (ii) that VHG failed to provide individualized tip-credit notices to employees as required by 29 U.S.C. § 203(m)(2)(A); (iii) that VHG failed to ensure that the sum of the direct cash wage plus actual pooled tips equaled or exceeded the applicable Florida minimum wage in each workweek; and (iv) that front-desk employees perform substantial non-tip-generating duties for which the tip credit should not have been taken.
The putative class or collective described in the demand letter encompasses all current and former hourly, non-exempt employees at Verimark-branded Florida properties from January 2023 to the present — a group estimated at approximately 4,100 to 5,900 individuals. However, this temporal scope appears to have been framed with the FLSA's three-year willfulness period in mind. As discussed in Section VI below, the Florida constitutional claim potentially extends the lookback to January 14, 2021, which could substantially increase the number of putatively affected employees, particularly those who departed VHG before the January 2023 date used in the demand letter.
The demand letter seeks aggregate relief of $18.5 million across all five allegation categories, inclusive of back pay, liquidated damages, and attorneys' fees. The letter does not allocate this amount among the five categories. Our preliminary exposure assessment memo (prepared separately) provides a more granular analysis of the potential exposure by claim category; the tipped-employee analysis presented in Section VII of this memorandum contributes to that assessment.
B. VHG's Workforce and Properties at Issue
Verimark Hospitality Group Inc. employs approximately 8,200 individuals across fourteen hotel and resort properties throughout the State of Florida. Of these, approximately 5,900 employees (roughly 72%) are classified as non-exempt hourly workers. The remaining approximately 2,300 employees hold salaried positions classified as exempt under various FLSA exemptions (the propriety of these classifications being the subject of the separate FLSA exemption classification memorandum).
The GLO demand letter identifies seven specific Verimark-branded properties as the focus of its claims. These seven properties, together with their approximate employee counts, are as follows:
The seven at-issue properties collectively employ 2,620 individuals, of whom approximately 1,895 are hourly, non-exempt workers. These properties span three distinct Florida markets: the Tampa Bay area (Properties 1, 3, and 4), the Orlando area (Property 2), and the South Florida coast (Properties 5, 6, and 7). This geographic distribution may be relevant to the analysis because tip volumes, tipping customs, and guest demographics may differ materially across these markets, potentially affecting both the "customarily and regularly tipped" threshold analysis and the magnitude of any wage shortfalls.
Front-desk associates and concierge staff represent a subset of the hourly workforce at each property. The exact number of employees holding these positions at each property, broken down by job code and time period, has not yet been determined. On February 3, 2026, Nadia Petrov transmitted a detailed data collection request to Enrique J. Fuentes, VHG's Director of Payroll & Workforce Compliance, seeking, among other things, headcount data by property, job code, and pay period for all front-desk and concierge positions over the full lookback period. We expect this data to be produced in the coming weeks as part of the initial audit document collection.
The Verimark Shores Clearwater property (Property 3) warrants special attention. This property is owned by Palomar Realty Partners LLC (Ricardo E. Montalvo, Managing Member) and is managed by VHG pursuant to a Hotel Management Agreement dated June 1, 2021 (reference HMA-2021-0601-PC). The management agreement governs the allocation of operational and employment responsibilities between Palomar and VHG. Whether VHG is the sole employer, or whether Palomar qualifies as a joint employer of the Clearwater property's workforce, has direct implications for liability allocation on the tipped-employee claim. This issue is addressed in a separate joint-employer analysis memorandum and is not further analyzed here.
C. Payroll and Timekeeping Systems
Since January 1, 2022, all VHG payroll processing and timekeeping across the fourteen Florida properties has been handled by Luminos Payroll Solutions Inc. ("Luminos"), through the Luminos TimeTrack platform. VHG's Luminos account is identified as LTT-VHG-2022-0041, and VHG's primary contact at Luminos is Shannon D. Prewitt, Senior Account Manager.
The Luminos TimeTrack system is responsible for calculating tip credits, processing tip-pool allocations, generating employee wage statements, and computing gross and net wages for all tipped and non-tipped hourly employees. The specific configuration settings within the Luminos system — including the pay codes assigned to tipped employees, the formula used to calculate the tip credit, the methodology for allocating pooled tips, and the parameters for triggering make-whole adjustments when tips fall short of the minimum-wage threshold — are of central importance to this analysis. On February 6, 2026, James Underwood transmitted a letter to Shannon D. Prewitt at Luminos requesting the preservation and production of all system configuration data, tip-credit calculation logic, and historical payroll records pertaining to tipped employees at the seven at-issue properties. A copy of this preservation and production request was provided to Devin K. Arroyo for VHG's records.
For the period prior to January 1, 2022, payroll processing was handled by VHG's prior in-house payroll system. This pre-Luminos period is directly relevant because the Florida constitutional minimum-wage claim carries a five-year statute of limitations that reaches back to January 14, 2021 — approximately eighteen months before the Luminos transition. Records from the legacy payroll system covering this period must be located, preserved, and produced. The availability and integrity of these records is uncertain at this stage. Malik P. Jefferson, VHG's Corporate IT Administrator, has been identified as the appropriate contact for locating legacy system data, though a formal request has not yet been transmitted. We recommend that this request be treated as a matter of urgency, as discussed in Section XI below.
The current VHG Employee Handbook is version 7.2, which became effective on January 1, 2025. Prior versions of the handbook — which are relevant to the tip-credit notice analysis, as they would contain the tip-pool policies and tip-credit disclosures in effect during earlier portions of the lookback period — have been requested from VP of Human Resources Carla S. Whitfield. Bernard Crawford made this request on February 4, 2026. As of the date of this memorandum, the prior versions have not yet been produced.
D. VHG's Tip-Pool Practices (Preliminary Understanding, Subject to Verification)
Our understanding of VHG's tip-pool practices is preliminary and based primarily on initial conversations with VHG General Counsel Devin K. Arroyo and Director of Payroll & Workforce Compliance Enrique J. Fuentes. All factual representations in this subsection are subject to verification during the audit phase and should not be relied upon as confirmed.
Based on these initial conversations, VHG operates a tip pool at some or all of the seven at-issue properties. The tip pool reportedly includes front-desk associates, concierge staff, and potentially bellhops and porters. The pooled tips are aggregated and distributed among participants according to a methodology that has not yet been fully described to us. VHG applies a tip credit to the minimum wage for these employees, paying a direct cash wage that is less than the full Florida minimum wage and relying on pooled tips to bridge the gap.
The following critical facts remain unconfirmed and are among the highest-priority items on our data collection request list:
• The precise job codes included in the tip pool at each of the seven properties;
• The allocation methodology used to distribute pooled tips (e.g., by hours worked, by position, by shift, or by some other formula);
• Whether the tip-pool policy has been consistently applied across all seven properties or whether practices vary from property to property;
• Whether any employees who do not "customarily and regularly" receive tips — including, but not limited to, housekeeping staff, maintenance personnel, or management-level employees — participate in or receive distributions from the tip pool;
• Whether any employees classified as "lead" or "senior" front-desk associates or concierge staff exercise supervisory functions that would disqualify them from tip-pool participation under FLSA § 203(m)(2)(B);
• The amount of the direct cash wage paid to tipped employees at each property and whether this amount has been updated in concert with annual increases to the Florida minimum wage;
• Whether VHG has a formal written tip-pool policy and, if so, the effective dates and contents of each version of that policy; and
• Whether VHG has provided individualized tip-credit notices to each employee before utilizing the tip credit, or whether the company has relied solely on general provisions in the employee handbook.
Until these facts are established, the compliance assessment in this memorandum necessarily proceeds on a conditional basis — analyzing the legal consequences that would follow from various factual scenarios.
IV. Legal Framework
A. Florida Constitutional Minimum Wage — Art. X, § 24, Florida Constitution
1. General Minimum Wage
Article X, Section 24 of the Florida Constitution, adopted by Florida voters in 2004 as Amendment 5, establishes a state minimum wage that exceeds the federal FLSA minimum of $7.25 per hour. The provision was subsequently amended by Florida voters in 2020 through Amendment 2, which mandated a series of annual increases to the state minimum wage culminating in a $15.00 per hour floor effective September 30, 2026.
The Florida minimum wage is adjusted annually on September 30 of each year. Effective September 30, 2025, the Florida minimum wage is $14.00 per hour. This rate applies to all employees in the state who are covered by the FLSA, as well as to additional employees who may fall within the scope of Florida's constitutional provision. Because the Florida minimum wage substantially exceeds the federal minimum, it is the controlling standard for minimum-wage compliance by VHG and all other Florida employers.
The Florida minimum wage applies broadly. Unlike the FLSA, which contains various exemptions from its minimum-wage requirements (e.g., for executive, administrative, and professional employees, as well as certain agricultural and seasonal workers), the Florida constitutional provision is phrased in sweeping terms and has been interpreted to apply to the same categories of employees covered by the FLSA, with limited exceptions. For purposes of this memorandum, there is no dispute that front-desk associates and concierge staff at VHG's properties are covered by both the FLSA and the Florida constitutional minimum wage.
2. Tipped-Employee Minimum Wage
Article X, Section 24(f) of the Florida Constitution permits employers to take a "tip credit" against the minimum wage for "tipped employees" as defined under the FLSA. This is a critical provision for the present analysis. By incorporating the FLSA's definition of "tipped employee" by reference, the Florida Constitution ties the availability of the tip credit in Florida to the federal statutory framework — including the definition of "tipped employee" at 29 U.S.C. § 203(t), the substantive and procedural requirements for the tip credit at 29 U.S.C. § 203(m), and the tip-pooling rules at 29 U.S.C. § 203(m)(2)(B).
The current tip credit under Florida law is $3.02 per hour, which yields a tipped-employee minimum cash wage of $10.98 per hour ($14.00 minus $3.02). The $3.02 tip-credit amount has historically been aligned with the amount permitted under FLSA regulations, though the relationship between the federal tip-credit amount and the Florida tip-credit amount should be confirmed for each year in the lookback period.
Because the Florida minimum wage has increased annually over the lookback period, and because the tip credit has remained at $3.02, the tipped-employee minimum cash wage has also increased annually. The following table summarizes the historical rates, to the extent they can be determined at this stage (exact historical rates are subject to confirmation during the research phase):
These historical rates are directly relevant to the compliance analysis because VHG must have adjusted both its direct cash wage and its tip-credit calculations each time the Florida minimum wage increased. Failure to timely update these parameters — whether in the Luminos system or the prior in-house payroll system — would result in a wage shortfall for every pay period following the missed adjustment.
3. Enforcement and Remedies
Article X, Section 24(d) of the Florida Constitution provides that employees may bring a civil action for unpaid minimum wages. The remedies available include:
• Back pay in the amount of unpaid minimum wages owed;
• Liquidated damages equal to the amount of unpaid wages (effectively doubling the back-pay recovery);
• Reasonable attorneys' fees and costs.
The liquidated-damages provision is mandatory and does not contain a good-faith defense analogous to FLSA § 260, which permits a court to reduce or eliminate liquidated damages under the FLSA upon a showing that the employer acted in good faith and had reasonable grounds to believe its practices complied with the Act. This distinction is significant: even if VHG can establish a good-faith defense that reduces or eliminates FLSA liquidated damages, the Florida constitutional provision would still impose automatic liquidated damages equal to the full amount of unpaid wages.
The statute of limitations for Florida constitutional minimum-wage claims is governed by Fla. Stat. § 95.11(2)(b), which provides a five-year limitations period for actions founded on a statutory liability. Florida courts have consistently applied this five-year period to claims under Art. X, § 24. This limitations period is significantly longer than the FLSA's two-year period for non-willful violations (29 U.S.C. § 255(a)) or three-year period for willful violations. The practical consequence is that the Florida constitutional claim in the present case could reach back to January 14, 2021 — the date five years prior to the date of the GLO demand letter, which functions as the earliest potential filing date for purposes of this preliminary limitations analysis.
This extended lookback is of particular concern because it encompasses approximately eighteen months of payroll data from VHG's pre-Luminos in-house payroll system (January 14, 2021 through December 31, 2021). Records from that system may be more difficult to locate, preserve, and analyze than records maintained in the current Luminos TimeTrack platform.
Finally, it bears noting that the Florida constitutional provision does not contain an administrative exhaustion requirement. An employee (or a putative class of employees) may file a civil action directly in state court without first filing a complaint with any administrative agency. This removes a procedural barrier that might otherwise provide VHG with additional time or an opportunity to resolve claims administratively before litigation.
B. Federal Fair Labor Standards Act — Tipped Employee Provisions
1. Definition of "Tipped Employee" — 29 U.S.C. § 203(t)
Under the FLSA, a "tipped employee" is defined as "any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips." 29 U.S.C. § 203(t). This definition establishes a threshold that must be satisfied before an employer can take a tip credit under 29 U.S.C. § 203(m).
The "customarily and regularly" standard is an objective one. It does not require that the employee receive tips in every workweek, but it does require that tipping is a customary feature of the occupation in which the employee is engaged at the employer's establishment. The Department of Labor's interpretive guidance and federal case law provide that occupations such as waitstaff, bartenders, bellhops, valets, and hairstylists are among those traditionally recognized as customarily tipped. Front-desk positions at hotels, however, are not universally recognized as customarily tipped occupations. Whether front-desk employees at a particular establishment satisfy the $30-per-month threshold depends on the specific factual circumstances at that establishment — including the type of hotel (resort vs. business-oriented), the guest demographic, the property's tipping culture, and whether the employer has actively encouraged or facilitated tipping at the front desk.
This threshold issue is of central importance to VHG's compliance analysis. If VHG has been treating front-desk associates as "tipped employees" and applying the tip credit to their wages, but those employees do not in fact "customarily and regularly" receive more than $30 per month in tips, then VHG's use of the tip credit is impermissible from the outset. In that event, VHG would owe each affected employee the full minimum wage — currently $14.00 per hour — for every hour worked during the applicable lookback period, without any offset for tips received.
The determination of whether front-desk employees meet the $30-per-month threshold must be made on a property-by-property basis. It is plausible that front-desk employees at the resort-style properties — particularly the Verimark Resort & Spa Boca Raton and the Verimark Key West Collection, which cater to leisure travelers — receive tips more regularly than front-desk employees at the urban, business-oriented properties such as the Verimark Bayfront St. Petersburg or the Verimark Grand Orlando. If so, the tip credit may be valid at some properties but not others, which would affect both liability and class/collective certification arguments.
The data needed to resolve this threshold question includes tip reports, tip-pool distribution records, and individual employee tip earnings broken down by pay period, across all seven at-issue properties and for the full lookback period.
2. Tip Credit Under FLSA — 29 U.S.C. § 203(m)
Section 203(m) of the FLSA permits an employer to take a "tip credit" — that is, to count a portion of an employee's tips toward the employer's minimum-wage obligation — provided that certain substantive and procedural conditions are met. At the federal level, the maximum tip credit is $5.12 per hour (the difference between the $7.25 federal minimum wage and the $2.13 minimum cash wage for tipped employees). However, because the Florida minimum wage ($14.00) substantially exceeds the federal minimum, and because the Florida tip credit is $3.02, the Florida framework is more restrictive and controls the analysis for VHG.
The critical procedural prerequisite for the tip credit is the notice requirement set forth in 29 U.S.C. § 203(m)(2)(A). Before taking the tip credit, the employer must inform each employee of the following:
(i) The amount of the cash wage the employer is paying the tipped employee, which must be at least the applicable tipped-employee minimum wage ($10.98 per hour under current Florida law, or $2.13 per hour at the federal level);
(ii) The additional amount claimed by the employer as a tip credit, which under Florida law currently cannot exceed $3.02 per hour;
(iii) That the tip credit claimed by the employer cannot exceed the amount of tips actually received by the employee;
(iv) That all tips received by the tipped employee are to be retained by the employee, except in the case of a valid tip-pooling arrangement complying with 29 U.S.C. § 203(m)(2)(B); and
(v) That the tip credit will not apply to any employee who has not been informed of the provisions set forth in items (i) through (iv) above.
This notice must be provided to each employee individually. Federal courts have consistently held that a general statement in an employee handbook, standing alone, may not satisfy the notice requirement unless the employer can demonstrate that each employee received the handbook, had an opportunity to review the relevant provisions, and acknowledged receipt. The adequacy of VHG's tip-credit notices — including whether they were provided at the time of hire, upon each annual rate change, and upon any modification to the tip-pool structure — is a key factual question for the audit.
The consequence of failing to provide the required notice is severe: the employer forfeits the tip credit entirely and must pay the full minimum wage for every hour worked by every affected employee during the period of non-compliance. This forfeiture is automatic and is not subject to a good-faith defense. The notice requirement is thus not merely a technical formality; it is a substantive precondition to the employer's right to take the credit.
3. Tip Pooling Under FLSA — 29 U.S.C. § 203(m)(2)(B)
The Consolidated Appropriations Act of 2018 ("CAA") amended FLSA § 203(m) to establish comprehensive rules governing tip-pooling arrangements. The rules differ depending on whether the employer takes a tip credit.
Where the employer takes a tip credit (as VHG reportedly does), tips may be pooled only among employees who "customarily and regularly receive tips." 29 U.S.C. § 203(m)(2)(B). Managers, supervisors, and employees who do not customarily and regularly receive tips are prohibited from participating in the tip pool. If any such ineligible individual participates in the pool — even a single individual at a single property — the tip credit is invalidated for all employees participating in that pool at that property for the duration of the ineligible individual's participation.
Where the employer does not take a tip credit (i.e., the employer pays the full minimum wage), the 2018 CAA amendments permit a broader tip-pooling arrangement in which tips may be shared with non-traditionally-tipped employees, such as back-of-house kitchen staff or dishwashers. However, even in this scenario, managers and supervisors are categorically prohibited from participating in or retaining any portion of the tip pool. 29 U.S.C. § 203(m)(2)(B).
The definition of "manager" and "supervisor" for purposes of tip-pool eligibility is derived from the FLSA and DOL regulations, but is not coextensive with the "executive exemption" test under 29 C.F.R. § 541.100. An employee who is classified as non-exempt for overtime purposes may nonetheless be a "supervisor" for tip-pool purposes if the employee exercises supervisory authority, such as the power to hire, fire, discipline, assign work, or direct the work of other employees. This distinction is particularly relevant to VHG's "lead" and "senior" front-desk and concierge roles, which are non-exempt hourly positions but may involve supervisory responsibilities. The demand letter specifically flags these roles as potentially tainting the tip pool.
The key question for VHG is: Does any employee in the tip pool at any of the seven at-issue properties exercise supervisory functions or fail to customarily and regularly receive tips? If the answer is yes at any property, the tip credit is invalidated for all pool participants at that property for the period of the ineligible employee's participation. This "taint" theory is one of the most powerful tools available to plaintiffs in tip-credit litigation because it leverages a single violation into system-wide liability.
The DOL's regulations at 29 C.F.R. Part 531 (specifically §§ 531.50 through 531.60) provide additional guidance on the requirements for valid tip-pooling arrangements, including the reasonable relationship between the employee's duties and the tip-generating activity, the proportion of tips that may be contributed to the pool, and the documentation requirements for pool allocations.
4. The 80/20 (and 80/20/30) Rule — Dual Jobs and Tip-Credit Limitations
The DOL's 2021 Final Rule on Tip Regulations, published at 86 Fed. Reg. 60,114 (effective December 28, 2021), reinstated and codified a framework for limiting the tip credit when a tipped employee spends a substantial portion of work time performing non-tip-generating duties. This framework, commonly known as the "80/20 rule" (and now expanded to the "80/20/30 rule"), provides as follows:
(a) An employer may not take a tip credit for any time spent by a tipped employee performing duties that are not part of the employee's tipped occupation (i.e., duties that do not directly generate tips or directly support tip-generating duties) if those non-tipped duties exceed 20% of the employee's hours worked in a given workweek. 29 C.F.R. § 531.56(f).
(b) Additionally, an employer may not take a tip credit for time spent performing "directly supporting work" (i.e., work that supports tip-generating duties but does not itself generate tips) if that work is performed for a continuous period exceeding 30 minutes. Even if the 20% weekly threshold is not exceeded, a continuous block of 30+ minutes of non-tipped work within a shift triggers the loss of the tip credit for that period.
This rule is directly relevant to VHG's front-desk and concierge employees. Front-desk associates perform a broad mix of duties, including guest check-in and check-out (which may be tip-generating), as well as substantial administrative and clerical tasks — answering phone calls, processing reservations, handling billing inquiries, preparing reports, performing computer data entry, and managing the property management system. Many of these administrative tasks arguably do not directly generate tips or directly support tip-generating activities. If front-desk employees spend more than 20% of their workweek on such tasks, or if they perform such tasks in continuous blocks exceeding 30 minutes, VHG may be improperly applying the tip credit for those hours.
The 80/20/30 analysis is highly fact-intensive and will require detailed information about the day-to-day duties of front-desk and concierge employees at each property. Potential investigative methods include review of job descriptions, employee interviews, supervisor interviews, and formal time-and-motion studies. The engagement of Ridgepoint Advisory Group LLC may be appropriate to design and conduct a representative time-study across the seven properties.
It is important to note that the 2021 Final Rule became effective on December 28, 2021, which is three days before VHG's transition to the Luminos payroll system on January 1, 2022. For the pre-Luminos period within the lookback window (January 14, 2021 through December 31, 2021), the 80/20 framework may or may not have been formally in effect depending on the exact enforcement posture of the DOL during the rulemaking process. However, for the post-January 2022 period — which comprises the vast majority of the lookback — the 80/20/30 rule unambiguously applies.
C. Interaction Between Florida and Federal Law
The relationship between the Florida constitutional minimum-wage provision and the federal FLSA is governed by the general preemption principle that state law may provide greater protections than federal law, but may not diminish them. In the wage-and-hour context, this means:
Florida law controls the minimum-wage amount because the Florida minimum wage ($14.00 per hour) exceeds the FLSA minimum ($7.25 per hour). An employer in Florida must pay at least the Florida minimum, and the availability of the tip credit under Florida law is determined by Art. X, § 24(f), which incorporates the FLSA's definition of "tipped employee" and tip-credit framework.
The FLSA's structural requirements for the tip credit — including the employee-notification requirements of § 203(m)(2)(A), the tip-pool composition rules of § 203(m)(2)(B), and the dual-jobs / 80/20/30 rule codified in the 2021 Final Rule — apply concurrently with and in addition to Florida law. Because the Florida constitutional provision cross-references the FLSA in defining "tipped employees" and the tip-credit mechanism, a violation of the FLSA's structural requirements (e.g., failure to provide notice, inclusion of ineligible employees in the tip pool) would also undermine the tip credit under Florida law.
A violation of either framework exposes VHG to liability under both statutes, with the important caveat that damages may not be duplicated. An employee may assert claims under both the Florida Constitution and the FLSA, and may recover under whichever provides the greater remedy, but may not recover the same wages twice. As a practical matter, the Florida constitutional claim is likely to be the more significant source of exposure because of its longer (five-year) limitations period and the absence of a good-faith defense to liquidated damages.
The differing limitations periods create an important strategic dynamic. Even if VHG successfully defeats FLSA claims for portions of the lookback period on statute-of-limitations grounds (e.g., arguing that violations prior to January 14, 2023, fall outside the three-year willful-violation window), the Florida constitutional claim would survive for the full five-year period back to January 14, 2021. This means that the pre-Luminos payroll records are relevant primarily — though not exclusively — to the Florida constitutional claim.
V. Analysis of VHG's Compliance Risks
A. Threshold Issue: Do Front-Desk and Concierge Employees Qualify as "Tipped Employees"?
The foundational question in this analysis is whether VHG's front-desk associates and concierge staff meet the statutory definition of "tipped employee" — i.e., whether they are engaged in an occupation in which they "customarily and regularly" receive more than $30 per month in tips. 29 U.S.C. § 203(t). If they do not, VHG cannot take the tip credit at all, and the entire apparatus of tip-pool compliance, notice requirements, and make-whole obligations becomes moot — VHG would simply owe the full minimum wage for every hour worked by every affected employee.
Front-desk positions occupy an ambiguous place in the tipping landscape. Unlike servers, bartenders, valets, and bellhops — occupations that are universally recognized as customarily tipped — front-desk associates at hotels are not uniformly treated as tipped employees across the hospitality industry. Whether tips are customarily and regularly received at the front desk depends heavily on the type of establishment. Luxury resorts, boutique hotels, and full-service properties with high guest-interaction levels tend to generate more front-desk tips than limited-service, business-oriented, or economy properties. The DOL's Fact Sheet #15 on tipped employees does not specifically list front-desk hotel workers among the "commonly tipped" occupations, though it does reference "hotel bellhops" and "hotel maids who serve food or beverages to guests in their rooms."
For VHG, this threshold analysis must be conducted on a property-by-property basis. The seven at-issue properties encompass a range of hotel types. The Verimark Resort & Spa Boca Raton and the Verimark Key West Collection are resort-oriented properties that cater to leisure travelers who may be more inclined to tip front-desk staff for concierge-type services (arranging activities, upgrading rooms, providing local recommendations). The Verimark Grand Orlando, located near the theme-park corridor, serves a mix of leisure families and convention-goers. The Tampa Bay properties (Verimark Regency Tampa, Verimark Shores Clearwater, and Verimark Bayfront St. Petersburg) serve a mixed clientele, while the Verimark Oceanview Fort Lauderdale may draw both business and leisure travelers.
If VHG cannot demonstrate that front-desk employees at a given property customarily and regularly receive more than $30 per month in tips, the tip credit is unavailable at that property, and VHG's exposure on the tipped-employee claim at that property would be significant. The data needed to resolve this question — monthly and weekly tip reports, tip-pool distribution records, and individual employee tip-earnings data by pay period — is among the highest-priority items on the data collection list.
Concierge employees, by contrast, are more traditionally viewed as customarily tipped. Concierge services — arranging transportation, making restaurant reservations, sourcing event tickets, providing personalized guest services — are closely associated with tip receipt in the hospitality industry. Accordingly, the threshold "tipped employee" question is less likely to be a vulnerability with respect to concierge staff, though the data should still be verified for each property.
B. Validity of VHG's Tip-Pool Structure
Assuming that at least some front-desk and concierge employees qualify as tipped employees, the next question is whether VHG's tip-pool structure complies with FLSA § 203(m)(2)(B) and the DOL's implementing regulations.
Composition of the Pool. The most significant risk factor is the composition of the tip pool. Under the statute, when an employer takes a tip credit, the tip pool may include only employees who "customarily and regularly receive tips." Managers, supervisors, and non-customarily-tipped employees are categorically excluded. If any such ineligible employee participates in the pool — even one individual at one property — the tip credit is invalidated for all pool participants at that property for the entire period of the ineligible participant's inclusion.
Based on our preliminary understanding, VHG's tip pool includes front-desk associates, concierge staff, and potentially bellhops and porters. Bellhops and porters are customarily tipped occupations, so their inclusion does not present an immediate concern. The critical question is whether any of the following categories of employees also participate:
(i) "Lead" or "Senior" hourly employees: The demand letter specifically references "lead" and "senior" hourly roles at the front desk and concierge. If employees holding these titles exercise supervisory functions — such as assigning tasks to other front-desk associates, approving schedule changes, counseling or disciplining subordinates, or serving as the designated shift leader — they may be classified as "supervisors" for purposes of the tip-pool rules, even if they are non-exempt for overtime purposes. The determination of supervisory status under the tip-pool rules is functional, not based on job title alone, and must be assessed based on the actual duties performed by individuals in these roles. This analysis should be cross-referenced with the separate FLSA exemption classification memorandum, which is evaluating whether certain "lead" and "senior" roles are properly classified as non-exempt under the administrative exemption at 29 C.F.R. § 541.200.
(ii) Non-customarily-tipped employees: If any employees from housekeeping, maintenance, laundry, kitchen, or other back-of-house departments participate in the tip pool, the pool would be invalid because these positions do not customarily and regularly receive tips. Even if VHG pays the full minimum wage to such employees (which would permit broader tip sharing under the 2018 CAA amendments), the inclusion of non-customarily-tipped employees in the same pool with employees for whom VHG takes a tip credit would invalidate the credit.
(iii) Management personnel: If any salaried managers, assistant managers, or department heads receive distributions from the tip pool, the pool is per se invalid regardless of any other considerations.
Allocation Methodology. Even if the pool's composition is limited to eligible employees, the allocation methodology must be reasonable. The DOL does not prescribe a specific allocation formula, but unreasonable allocations — such as formulas that disproportionately favor certain participants at the expense of others, or formulas that do not bear a rational relationship to the tip-generating contributions of the participants — may be challenged. We need to determine whether VHG allocates pooled tips by hours worked, by position, by a fixed percentage, or by some other method, and whether the methodology has been consistent across properties and over time.
The "taint" theory is the most powerful lever in GLO's arsenal on this claim. If GLO can identify even a single ineligible participant in the tip pool at any one of the seven properties, it can argue that the tip credit is invalid for every employee in that pool for the entire period of the ineligible participant's inclusion. This could convert what might otherwise be a limited individual claim into a property-wide or even enterprise-wide liability event. The urgency of identifying all pool participants and their duties cannot be overstated.
C. Tip-Credit Notice Requirements
The FLSA's tip-credit notice requirement at 29 U.S.C. § 203(m)(2)(A) is a mandatory procedural precondition to the employer's right to take the tip credit. The employer must inform each employee, before the credit is utilized, of the five elements described in Section IV.B.2 above. Failure to provide this notice results in automatic forfeiture of the tip credit — the employer must pay the full minimum wage retroactively, with no good-faith defense.
The questions for VHG are:
Has VHG provided the required notice? The notice must be provided to each individual employee. A general provision in the employee handbook (currently version 7.2, effective January 1, 2025) may contribute to satisfying the notice requirement, but courts have generally held that a handbook provision alone is insufficient unless the employer can demonstrate that each employee received the handbook, had an opportunity to review the relevant provisions, and acknowledged receipt. Best practice — and the standard that will most reliably withstand judicial scrutiny — is a standalone tip-credit disclosure form, signed by the employee at the time of hire, that specifically addresses each of the five statutory elements.
When was the notice provided? The notice must be given before the tip credit is first utilized. For employees hired during the lookback period, this means the notice should have been provided at or before the start of employment. For employees who were already employed when VHG began taking the tip credit (if the tip-credit practice was implemented at some point during their employment), notice should have been provided before the change took effect.
Was the notice updated when rates changed? Because the Florida minimum wage has increased annually, the tip-credit amount and the applicable cash wage have changed each year on September 30. Best practice dictates that the employer provide updated notice to employees each time these amounts change, though there is some case-law division on whether the initial notice suffices if it describes the mechanism rather than the specific dollar amounts.
The audit must obtain: (a) copies of all tip-credit disclosures or notice forms provided to employees at hiring; (b) signed acknowledgment forms; (c) the relevant sections of all versions of the employee handbook from 2021 forward; (d) any standalone tip-credit disclosure documents; and (e) records of any communications to employees regarding changes to the tip credit or cash wage rate upon annual minimum-wage increases.
Additionally, an important subsidiary legal question is whether the Florida constitutional provision, by incorporating the FLSA's definition of "tipped employee" by reference, also incorporates the FLSA's notice requirement. Although Art. X, § 24(f) does not independently impose a notice requirement, its cross-reference to the FLSA framework arguably imports the entire § 203(m) apparatus, including the notice provision. Florida case law on this specific question should be researched during the audit phase.
D. Application of the Tip Credit — Computational Compliance
Even if VHG's tip-pool structure is valid and the required notice has been provided, VHG must ensure that its actual wage computations are correct. Specifically, for each workweek, the sum of the direct cash wage paid to each tipped employee plus the employee's actual tips received must equal or exceed the applicable Florida minimum wage. If tips are insufficient in any given workweek to bridge the gap between the cash wage and the full minimum wage, VHG has a "make-whole" obligation — it must pay the difference to bring the employee's total compensation up to the minimum wage for that workweek. 29 C.F.R. § 531.56(b).
This make-whole obligation is triggered on a workweek-by-workweek basis. The employer may not average tips over a longer period (e.g., a pay period, a month, or a year) to satisfy the minimum-wage threshold. If an employee's tips fall short in any single workweek, the employer must supplement the employee's wages for that specific week.
The key question is whether VHG's payroll system — currently Luminos TimeTrack — is configured to perform this calculation automatically. If the system has an automated make-whole alert or adjustment feature, and if that feature is properly configured with the correct Florida minimum-wage rate for each applicable period, the risk of computational non-compliance may be limited. However, if the system does not perform this calculation, or if the minimum-wage parameters were not updated timely when Florida's rate increased (on September 30 of each year), there may be systemic shortfalls across large numbers of employees and pay periods.
The risk of misconfiguration or failure to update system parameters is heightened by the rapid annual increases in the Florida minimum wage over the lookback period. From approximately $10.00 per hour in September 2021 to $14.00 per hour in September 2025, the Florida minimum wage increased by roughly $4.00 — a 40% increase over four years. Each adjustment required a corresponding update to VHG's payroll configuration, and each missed or delayed update would generate a wage shortfall for the affected period.
The Luminos TimeTrack system configuration data — specifically the pay codes assigned to tipped employees, the tip-credit calculation logic, the make-whole alert/adjustment settings, and the historical minimum-wage parameters — must be obtained and reviewed as part of the audit. This data has been requested from Shannon D. Prewitt at Luminos.
For the pre-Luminos period (January 14, 2021 through December 31, 2021), the computational compliance analysis will depend on whatever payroll records can be recovered from VHG's prior in-house system. If those records are unavailable or incomplete, forensic reconstruction by Ridgepoint Advisory Group LLC may be necessary.
E. The 80/20/30 Rule — Dual-Jobs Analysis
As discussed in Section IV.B.4 above, the DOL's 2021 Final Rule on Tip Regulations imposes limits on the tip credit when a tipped employee spends more than 20% of work hours on non-tip-generating duties, or performs such duties in a continuous block exceeding 30 minutes. This rule is directly applicable to front-desk employees, who perform a mix of guest-facing (potentially tip-generating) and administrative (non-tip-generating) tasks.
The characterization of front-desk duties is central to this analysis. Certain front-desk activities — such as greeting guests, providing personalized check-in and check-out service, offering room upgrades, fulfilling special requests, and providing destination recommendations — are arguably tip-generating activities because they involve the type of personal service for which guests customarily leave tips. Other front-desk duties — such as answering routine phone calls, processing credit-card transactions, performing night-audit reconciliations, entering reservation data into the property management system, filing registration cards, sorting mail, and restocking supplies at the desk — are administrative tasks that do not directly generate tips and may not even qualify as "directly supporting" tip-generating work.
If front-desk employees routinely spend more than 20% of their weekly hours on these administrative tasks, or if they perform such tasks in uninterrupted blocks exceeding 30 minutes (which is highly plausible during off-peak hours, night shifts, or administrative closing periods), VHG may have improperly applied the tip credit for those hours.
This analysis is highly fact-intensive and cannot be resolved based on documentary evidence alone. The audit should include, at a minimum:
(a) A review of job descriptions for front-desk and concierge positions at each of the seven properties, with particular attention to the relative emphasis on tip-generating vs. administrative duties;
(b) Interviews with front-desk associates, concierge staff, and front-office managers at a representative sample of properties to understand the actual day-to-day breakdown of duties;
(c) Analysis of shift schedules and staffing patterns to identify periods during which administrative tasks are likely to predominate (e.g., overnight shifts, early morning shifts, mid-week low-occupancy periods); and
(d) Consideration of whether formal time-and-motion studies should be conducted at one or more properties to quantify the proportion of tipped vs. non-tipped work. This is a potential scope item for the Ridgepoint Advisory Group LLC engagement.
The 2021 Final Rule's effective date of December 28, 2021, means that the 80/20/30 framework applies to substantially all of the post-Luminos period. For the brief pre-Luminos window within the lookback (January 14, 2021 through December 27, 2021), the applicability of the 80/20 standard is less clear due to the regulatory uncertainty that prevailed during the rulemaking process, though the underlying principle that an employer cannot take a tip credit for hours during which the employee is not engaged in a tipped occupation has long been recognized under DOL guidance.
F. Concierge-Specific Issues
Concierge employees are generally more readily classified as "customarily and regularly tipped" than front-desk employees. Concierge services — arranging transportation, securing dining reservations, recommending local attractions, booking tours and excursions, sourcing tickets to events, and providing highly personalized guest assistance — are closely associated with gratuity receipt in the full-service hotel industry. Accordingly, the threshold "tipped employee" question is less likely to be a point of vulnerability for concierge staff.
However, the same legal requirements that apply to front-desk employees also apply to concierge employees: the tip-pool composition rules, the notice requirements, the make-whole obligation, and the 80/20/30 dual-jobs rule. The audit should separately evaluate the following concierge-specific issues:
(a) Whether concierge employees participate in the same tip pool as front-desk associates or in a separate pool, and whether the composition of the concierge pool (if separate) includes any ineligible participants;
(b) The volume and regularity of tips received by concierge employees, to confirm that the $30-per-month threshold is met on a consistent basis;
(c) The proportion of concierge employees' time spent on non-tip-generating administrative tasks, which may include data entry, inventory management, vendor coordination, and report preparation; and
(d) Whether the allocation methodology for the tip pool fairly compensates concierge employees relative to other pool participants, given that concierge roles may generate a disproportionate share of the tips that flow into the pool.
VI. Statute of Limitations Considerations Specific to the Tipped-Employee Claim
The statute of limitations is a critical factor in assessing VHG's exposure on the tipped-employee claim, and the interplay between the Florida and federal limitations periods warrants separate discussion.
Florida Constitutional Claim — Five-Year Period. As discussed in Section IV.A.3, the Florida constitutional minimum-wage claim is subject to a five-year statute of limitations under Fla. Stat. § 95.11(2)(b). Measured from the January 14, 2026, date of the GLO demand letter — which we use as a proxy for the earliest plausible filing date — the five-year lookback reaches to January 14, 2021. This is the longest lookback period of any of the five allegation categories asserted in the demand letter, and it has significant practical consequences.
Most importantly, the five-year period encompasses approximately eighteen months of payroll data from the period prior to VHG's transition to the Luminos Payroll Solutions platform on January 1, 2022. During this pre-Luminos period, payroll was processed using VHG's in-house system, and the availability, completeness, and accessibility of records from that system are uncertain. Recovery and preservation of pre-Luminos data must be treated as a matter of urgency. If these records have been deleted, overwritten, or are otherwise irrecoverable, VHG may face adverse inferences or spoliation sanctions in any subsequent litigati

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