DOL's New Tip-Credit Interpretations


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.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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