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 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 $5.12 per hour ($7.25 - $2.13 = $5.12).

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 that patrons decide in their discretion whether or not to make, including how much to give and for whom to leave it; so, not all "gratuities" are "tips." This rule does not apply to service charges, for example.

The law says that you may take a tip credit only if 1) the tipped employees have been "informed" of the law's provisions; and 2) the employees retain all of the tips they receive, except for amounts pooled among employees who customarily and regularly receive tips.