Mmmhm. So when you file your taxes, this is checked for. It's fairly easy to confirm compliance from the taxes info your boss files + the tips you're 100% extremely dutifully reporting, especially if you do something like automatic withholding (as I understand it a colossal pain for a tipped position unless you're in one of the many states that has passed rules to make the process less absurd). This is why it's important to report things like tips, because it's the #1 way bosses like that are caught.

Of course the economic reality discourages people from actually doing that, and thus we carve out yet more niche to stack exploitation in.