
The Fair Labor Standards Act (FLSA) provides specific guidelines regarding tipped employees and their compensation. Whether an employer pays the full minimum wage or claims a tip credit, it is essential to understand how these rules apply especially as some of the busiest restaurant days are ahead with Valentine’s Day falling on a Friday this year. The FLSA’s guidelines provide the minimum level of protection that can be supplemented with greater protections under state law.
First, employees who qualify as a “tipped employee” are individuals that are engaged in an occupation where they customarily and regularly receive more than $30 per month in tips. As tipped employees, the FLSA permits employers to take a tip credit toward their minimum wage obligations. However, certain conditions must be met including:
- • Employers must pay tipped employees a direct (cash) wage of at least $2.13 per hour.
- • The employer can claim a tip credit equal to the difference between the cash wage and the federal minimum wage of $7.25 per hour, which currently amounts to a maximum of $5.12 per hour.
- • Employees must receive enough in tips to ensure their total earnings meet or exceed the federal minimum wage of $7.25 per hour.
- • If an employee’s total earnings fall below the minimum wage, the employer must make up the difference.
However, before taking a tip credit, employers must inform tipped employees of the following:
- 1. The cash wage the employer will pay (minimum $2.13 per hour).
- 2. The additional tip credit amount claimed by the employer (maximum $5.12 per hour).
- 3. That the tip credit cannot exceed the amount of tips actually received by the employee.
- 4. That all tips received by employees must be retained by them unless part of a valid tip pooling arrangement.
- 5. That the tip credit will not be applied unless the employee is informed of these provisions.
This notice can be given orally or in writing. Failure to provide notice means the employer cannot legally claim the tip credit.
Similar to the guidelines on how tips are supposed to be allocated or paid, there are specific restrictions on who is eligible to receive the tips. Regardless of whether an employer takes a tip credit, the FLSA prohibits employers from keeping any portion of employees’ tips for any purpose, whether directly or through a tip pool. Employers may not require employees to give their tips to the employer, a supervisor, or a manager, even if the employee is paid at least the federal minimum wage and no tip credit is taken. Only employees who customarily receive tips may participate in traditional tip pooling arrangements. However, if an employer pays the full minimum wage of $7.25 per hour, they may implement a nontraditional tip pool that includes non-tipped employees (e.g., cooks, dishwashers). Regardless of the type of tip pool, managers and supervisors may not receive tips unless they directly serve customers and receive tips for their service alone. To be clear, managers and supervisors are defined as individuals who:
- 1. Primarily manage the business or a recognized department or subdivision.
- 2. Regularly direct the work of at least two full-time employees or their equivalent.
- 3. Have the authority to hire or fire employees, or whose recommendations carry significant weight in such decisions.
- 4. Own at least a bona fide 20% equity interest in the business and are actively engaged in management.
Another example would be a restaurant manager who serves their own tables may keep tips received from those customers but cannot take tips from a tip pool or other employees.
Further, if an employee is working in dual jobs (e.g., a maintenance worker who also serves as a waiter) they can only receive tip credits for the hours spent in a tipped occupation. However, incidental tasks related to the tipped role (e.g., a server cleaning tables or preparing drinks) do not disqualify the employee from receiving tip credits.
In conclusion, understanding the ways that tips are handled under the FLSA is incredibly important for employees who want to make sure they are being compensated fairly. In addition to understanding tipping, the FLSA provides protections from retaliation for employees who speak up about compliance with the FLSA guidelines. If you think that there is something fishy going on with the tipping at your job, feel free to consult with a Houston Employment Attorney to discuss what can be done or what protections you may have under the law.