Ongoing Confusion About Tips, Even From The White House

by Franczek Radelet P.C.

Tip-Hand11366723.jpgRecently, I explained that revising the FLSA regulations will not be easy, and highlighted tip credits as one such area in particular. In my last post, I discussed yet another case involving the miscalculation of wages for tipped employees. This time, a large restaurant operator coughed up $2.86 million to settle a lawsuit alleging a number of violations of the complex tip regulations. It is clear that tip credits will continue to be an issue. Unfortunately, though, recent debate seems to be focused not on the unnecessarily complexity of the FLSA regulations, but on a fictional “tipped minimum wage.” To me, this phrase is almost as misleading as “wage theft,” a topic others have addressed recently. That’s unfortunate, and employers need to speak up to get this debate back on track.

A few weeks ago, as part of its early April equal pay push, the White House’s National Economic Council, Council of Economic Advisers, and Domestic Policy Council, in conjunction with the Department of Labor, put together a report about the “Importance of Ensuring a Robust Tipped Minimum Wage.” When I saw mention of it on Twitter (and you are following @WageHourInsight on Twitter, right?), I did a double-take. Did Secretary Perez release new FLSA regulations and I missed it? Nope—he told SHRM’s Employment Law and Legislative Conference in Washington D.C. that he had no “precise answer” about the timeline for new regulations.

So what’s this “Tipped Minimum Wage” business all about? The introduction repeats the same “tipped minimum wage” phrase several more times before it finally hints at what Section 3(m) of the FLSA actually says. The answer: there is no federal “tipped minimum wage,” just a tip credit. The FLSA’s minimum wage for employees like those at the TGI Friday’s restaurants (see our last post) is the same $7.25/hour as for every other non-exempt employee.

Even if bills like the one pending in New Jersey that would shrink the tip credit become law, the minimum wage would still be $7.25/hour for tipped workers. It isn’t until page six of the report that the White House clearly explains what it is referencing:

Employers must pay tipped workers at least a tipped minimum wage of $2.13 per hour, and if workers’ tipped earnings are less than the amount needed to ensure they earn the full minimum wage, their employer must make up the difference to ensure their total pay meets or exceeds the full minimum wage.

It’s that last piece that should be the focus, not the fiction of a tipped minimum wage. If the employee’s cash wages plus the tips they earn do not add up to at least $7.25 per hour, then the employer must make up the difference or they violate the FLSA.

The report observes that 10% of workers in predominantly tipped occupations “report hourly wages below the full Federal minimum wage, including tips.” How do you fix this? Not by raising the minimum wage, or by shrinking the tip credit. The answer is the buried on page seven: “The rules for tipped workers are complicated and can be confusing for employers and employees alike.” Less confusing rules would lead to better compliance and more justifiable punishments for those who ignore them.


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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