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Safeguarding Tipped Employees

The Fair Labor Standards Act (FLSA) outlines a number of requirements regarding the payment of employees who regularly receive over $30 per month in tips. According to these requirements, tips are to remain property of the employee and cannot be confiscated by an employer except in cases where a tip credit or tip pool is applicable.

As defined in Section 3(m) of the FLSA, a tip credit is money deducted by an employer from an employee’s tips in order to meet the federal minimum wage of $7.25 per hour. The required cash wage for tipped employees is currently $2.13 per hour, thus the current maximum amount of tip credit that can be claimed by an employer is $5.12 per hour ($7.25 – $2.13). Employers utilizing the tip credit must be able to prove that provided cash wages plus tips earned by an employee equal $7.25 per hour. If the sum is less than this, the employer must make up the difference out of pocket.

In addition, employers cannot claim a tip credit that exceeds the tip amount received by an employee. Employers must also provide written or oral notice to all tipped employees of an impending tip credit. If they fail to do so, tipped employees may then retain all earned tips and must also be paid the full federal minimum wage of $7.25 per hour. Employers that attempt to “skim” money from an employee’s tips are at risk of losing their tip credit.

In tip credit situations regarding overtime payment, an employer must calculate employee overtime using the full minimum wage and not by using the lower cash wage payment of $2.13 per hour. Overtime and non-overtime hours are treated equally, in that an employer may not take a larger tip credit for one than would be taken for the other.

Employees who regularly receive tips through their occupation, such as waiters, waitresses, and bartenders, have the right to forego tip retention and establish tips pools in which they can pool their money together for more equal pay. No maximum contribution amount currently exists for tip pools. However, employers must notify tipped employees, either written or orally, of any established tip pool contribution amount and can only take a tip credit based off of the end number of tips received by each employee after pooling. It should also be noted that tip pools cannot be established by employees who do not regularly receive tips, such as cooks, dishwashers, and janitors.

Again, these FLSA requirements apply only to employees who regularly receive over $30 per month in tips as part of their occupation. For more information on requirements for tipped employees, please visit the FLSA website or get in touch with us here.