Tipped Employee Wages

The Fair Labor Standards Act (FLSA) is a federal law that dictates that employers must pay overtime and minimum wages to qualified employees. The law specifically talks about tipped employees, who “customarily and regularly receive more than $30 per month in tips.” The FLSA gives employers two options when handling tipped employees: taking a tip credit and using a tip pool.

What is a tip credit?

Under the FLSA, employers are allowed to take a tip credit against any tipped employees hourly wage. This tip credit can be any amount between the required cash wage of $2.13 and the federal minimum wage of $7.25 per hour. This means the most tip credit an employer is allowed to take is $5.12 per hour ($7.25 – $2.13 = $5.12). Essentially, the employees tips make up for the tip credit amount. This is why most servers are only paid $2.13 per hour.

What is a tip pool?

The FLSA also outlines what constitutes as a valid tip pool. By law, all tips are the property of the employee who receives them. However, employers can require employees to contribute all or a portion of their tips to a tip pool, which is split among other employees who serve customers and regularly receive tips. Bartenders, waitresses, bellhops, front counter personnel, and bussers, for example, can all split the money put into a tip pool. However, if the money in a tip pool is going to maintenance workers, dishwashers, chefs or managers (employees who don’t customarily receive tips from customers), it is considered an invalid tip pool under the FLSA.

What about overtime?

Tipped employees are still entitled to overtime pay. Overtime hourly rates have to be calculated based on the minimum wage rate, not the minimum cash pay rate. Because of the tip credit rule, the math can get a little tricky. It’s best described with an example:

It’s important to remember that all tips received belong to the employee who receives them, unless they are shared in a valid tip pool. Also, the FLSA mandates that employers tell their employees about their tip credit and tip pool policies. The FLSA also has guidelines for specific situations, like credit card processing fees, service charges, and employees who hold dual jobs.

If you are a tipped employee and believe you haven’t been paid correctly for overtime hours or have contributed your tips to an invalid tip pool, you may be entitled to compensation from your employer. Please contact an experienced attorney today. The attorneys at Powers Taylor have experience handling these types of cases and will fight to get you the money you deserve. Contact us today for a free consultation.



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