The Treatment of Tips under the FLSA: Tip Credits

Section 3(m) of the FLSA and the corresponding regulations allow employers to use a tip credit—paying employees below minimum wage and crediting the tips the employees receive to make up the difference between the hourly wage paid by the employer and the minimum wage.  29 U.S.C § 203(m); 29 C.F.R. §531.59.  Thus, a “tip credit” is the amount of an employee’s tips that the employer can use to make up the difference between $2.13 per hour and the $7.25 minimum wage. 29 U.S.C. § 203(m).  If an employee’s tips and the wage paid by the employer are less than the prevailing minimum wage, employers are required to make up any difference between the combination of the employee’s hourly rate and tips and the prevailing minimum wage.  Davis v. B&S, Inc., 38 F. Supp. 2d 707, 712 (N.D. Ind. 1998) (holding that it is an employer’s obligation to ensure that the tipped employee receives at least the minimum wage when the direct wage and his received tips are combined); 29 U.S.C. §203(m).

If an employer elects to use the tip credit provision, the employer must: (1) inform each tipped employee about the tip credit allowance (including amount to be credited) before the credit is utilized and (2) be able to show that the employee receives at least the minimum wage when direct wages and the tip credit allowance are combined.  Winans v. W.A.S., Inc., 772 P.2d 1001 (Wash. 1989).

Please be sure to visit our website at http://RobertBFitzpatrick.com