The federal Fair Labor Standards Act's "tip credit" was among the many topics addressed by the U.S. Labor Department's recent Final Rule. DOL's tip-related pronouncements are a mixed-bag for employers.

The General Principles

The FLSA's Section 3(m) allows an employer to credit a portion of a tipped employee's tips toward the FLSA-required minimum wage (currently $7.25 per hour). Employers taking an FLSA tip credit must pay a cash wage of not less than $2.13 per hour, so at present they are limited to a tip credit of no more than ($7.25 - $2.13) = $5.12 per hour. The FLSA defines "tipped employees" as those who are engaged in occupations in which they customarily and regularly receive more than $30 a month in tips. For FLSA tip credit purposes, a "tip" is a payment the patron decides in his or her discretion whether to make, and as to which the patron can decide how much to give and for whom to leave it; not all "gratuities" are "tips".