Legal Alert: Department of Labor Clarifies "Tip Credit" Regulations


On April 5, 2011 the Department of Labor issued final regulations impacting an employer's use of a "tip credit" for tipped employees.

Generally, all employers covered by the Fair Labor Standards Act (FLSA) are required to pay non-exempt employees at least the federal minimum wage, currently $7.25 per hour. Under the FLSA's tip-credit provisions, an employer is allowed to pay tipped employees a cash wage of $2.13 and offset the remaining amount of the minimum wage by taking a "tip credit." In other words, an employer taking the maximum tip credit must pay a tipped employee a cash wage of $2.13, but it can use up to $5.12 of the employee's tips as a credit toward the rest of the minimum wage payment. However, an employer may only take the tip credit if (1) the employee has been informed by the employer of the provisions of the FLSA's tip credit subsection, and (2) the employee retains all tips received (except amounts paid into a valid "tip pool" to be shared among employees that 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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