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WHAT IS A TIP CREDIT AND WHO I...

WHAT IS A TIP CREDIT AND WHO IS ENTITLED TO IT?

Generally, under the provisions of the Fair Labor Standards Act (“FLSA”), employees in the United States are required to be paid at, or above, the minimum wage. The FLSA sets the national minimum wage at $7.25 per hour, but states can set their minimum wage at a higher rate. In Florida, the minimum wage is $8.25 per hour, however there are exceptions to the minimum wage requirement. One such exception to that rule is for employees who customarily and regularly receive more than $30 a week in tips.1 For those employees, their employers can take a tip credit against the minimum wage. In Florida, the maximum allowable tip credit is $3.02 per hour. The application of a tip credit can make a huge difference for employers. One recent study shows that in 2016 there were over 2.6 million waiters and waitresses, alone, in this country whose employers may be entitled to take a tip credit. That number is projected to increase to over 2.9 million by 2026.2

It is important for employers to understand their obligations regarding tipped employees, and it is equally important for employees to understand their rights. Beyond the initial threshold of $30 per week in tips, employers must follow the following guidelines and must provide the following information to tipped-employees:

1) The amount of cash wage the employer is paying a tipped employee, which must be at least $5.23 per hour3;

2) the additional amount claimed by the employer as a tip credit, which cannot exceed $3.02 (the difference between the minimum required cash wage of $5.23 and the current minimum wage of $8.25)4;

3) that the tip credit claimed by the employer cannot exceed the amount of tips actually received by the tipped employee;

4) that all tips received by the tipped employee are to be retained by the employee except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips; and

5) that the tip credit will not apply to any tipped employee unless the employee has been informed of these tip credit provisions.

If an employer fails to meet these guidelines they will be unable to claim the tip credit and would owe the employee at least the full minimum wage.

However, even if an employer claims a tip credit they’re not excused from paying the employee for overtime. Just as any other non-exempt employee, a tipped employee is obligated to be paid one and one-half times the regular rate at which he is employed for each hour worked above 40 hours per week.5 In calculating the tip credit for an overtime wages, the one and a half times rate is multiplied by the initial minimum wage, then the tip credit is applied to the overtime rate.6 For example if it tipped employee in Florida works 50 hours a week the first 40 hours are paid at the credited rate of $5.23 an hour, the next 10 hours are calculated by multiplying the minimum age of $8.25 an hour by 1.5 resulting in a rate in an overtime rate of $12.38 an hour. The $3.03 tip credit is then subtracted from the overtime rate, resulting in a rate of $9.36 an overtime hour for the tipped employee.

However, the reality of today’s work environment is that employees often wear more than one hat. The same waiter who earns tips, may also work as a host who does not receive tips. An employer is only able to receive a tip credit for the time that the employee works in a tipped job. In the situation described above, the employer would be able to take a tip credit for the time that the employee worked as a waiter, but for the time that he was working as a host he would have to be paid at least the full minimum wage. In other words, if an employee split her time equally between tipped work and non-tipped work, then the employer would be able to claim a tip credit for 50% of the time that she worked and for the other 50% the employer would have to pay at least the full minimum wage. There is, however, one slight exception, “[t]he FLSA permits an employer to take the tip credit for some time that the tipped employee spends in duties related to the tipped occupation, even though such duties are not by themselves directed toward producing tips. For example, a waitperson who spends some time cleaning and setting tables, making coffee, and occasionally washing dishes or glasses is considered to be engaged in a tipped occupation even though these duties are not tip producing. However, where a tipped employee spends a substantial amount of time (in excess of 20 percent in the workweek) performing related duties, no tip credit may be taken for the time spent in such duties.”7

The application of the tip credit under the FLSA, can be a complicated matter depending on the circumstances of employment. Regardless of whether an employer takes a tip credit, a tip is the sole property of the tipped employee and cannot go to the employer.8 Ultimately, the employer is responsible for making sure that the employee is paid at least minimum wage. If the tipped employees’ actual hourly wage (including tips they receive) does not equal the minimum wage, then the employer must make up the difference.

If you are an employee in Broward, Palm Beach or Miami-Dade Counties and feel that you have not been paid the wages that you are owed under the FLSA, or if you are an employer who has been accused of paying an employee below the minimum wage or just want to be sure that you are in compliance, the Law Office of Brandon J. Gibson, PLLC is here to help. Contact us today to schedule a consultation. We will hear the details of your case and help determine what options you have under the FLSA and Florida minimum wage laws.

Brandon

www.bjglawfirm.com

  1. See 29 U.S.C. § 203(t).
  2. See https://www.statista.com/statistics/218985/us-restaurant-industry-employment–waiters-and-waitresses/.
  3. This rate applies in Florida, the maximum tip credit allowed under the FLSA is 5.12 per hour.  Accordingly, the amount required by the FLSA is at least $2.13 per hour.
  4. See footnote No. 2.
  5. See 29 U.S.C. § 207(a).
  6. See 29 CFR 531.60.
  7. U.S. Department of Labor, Wage and Hourly Division Fact Sheet #15: Tipped Employees Under the Fair Labor Standards Act (FLSA); revised April 2018.
  8. Id.
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