Payroll Articles
Tips and the Tip Credit
Under the FLSA, employers are required to pay tipped Employees only $2.13 per hour in wages, so long as the Employee's tips are enough to make up the remainder of the minimum hourly wage then in effect ($5.15 per hour). This means the employer can take a Tip Credit of up to $3.02 per hour. If the Employee's tips do not bring the Employee's total wages up to the current minimum wage, the employer must make up the difference. Tipped Employees are Employees who work in an occupation in which they regularly receive more than $30 a month in tips.
Conditions to be met. For employers to take advantage of the Tip Credit, they must meet the following conditions:
1. The tipped Employee must actually receive at least as much in tips as the credit taken by the
employer.
2. The Employee must be informed about the Tip Credit provisions of the law before the credit is taken.
3. All tips received by the Employee must be kept by the Employee, although tip pooling may be
required among Employees who are customarily and regularly tipped (not janitors, dishwashers,
salad makers, managers, etc.).
4. Credit card tips must be given to the Employee by the next payday, although the credit card
company's percentage charge for the use of the card may be deducted from the tip.
5. The Tip Credit may not be increased for overtime hours worked that are paid at a premium rate.
Service charges. Where service charges are automatically added to customers' bills and then turned over to Employees, these amounts are not tips and are considered wages when determining whether the minimum wage has been paid.
Some states have laws prohibiting the use of Tip Credits or providing for lower Tip Credit amounts than the FLSA. Where the result of applying these laws is more favorable to Employees than the FLSA, they must be followed by employers operating in those states. The employer must figure the minimum wage required under both federal and state law and then apply the one providing the higher cash payment to the Employee.