Section 3(m) of the federal Fair Labor Standards Act allows a portion of the employee's FLSA-required minimum wages to consist of tips. Unfortunately, it is all-too-common for employers to make expensive mistakes where tips are concerned.

Fundamental Rules

Tipped employees are those engaged in occupations in which they customarily and regularly receive more than $30 a month in tips. Tips they actually receive may be counted as FLSA wages up to a current maximum of $5.12 per hour; the employer must pay them at least $2.13 an hour in addition to tips. The FLSA requires an employer to tell each tipped employee about the law's tip-credit provisions in advance. And, as we reported in May, the U.S. Labor Department now says that other notifications are also required.

The employee's creditable-tips-plus-wages total must come to at least the current minimum wage of $7.25; the employer must make up any shortfall. Employees must be allowed to keep their tips, except that they can be required to contribute to a tip-pool participated in only by other employees who customarily and regularly receive tips.