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| Employment Standards Administration Wage and Hour Division |

Fact Sheet #15: Tipped Employees Under the Fair Labor Standards Act (FLSA)
This fact sheet provides general information concerning the application      of the FLSA to employees who receive tips.
Characteristics 
Tipped employees are those who customarily and regularly receive more than       $30 a month in tips. Tips actually received by tipped employees may be counted       as wages for purposes of the FLSA, but the employer must pay not less than       $2.13 an hour in direct wages. 
Requirements
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.

2) Be able to show that the employee receives at least the minimum wage      when direct wages and the tip credit allowance are combined.

3) Allow the tipped employee to retain all tips, whether or not the      employer elects to take a tip credit for tips received, except to the      extent the employee participates in a valid tip pooling arrangement.

If an employee's tips combined with the employer's direct wages of at least       $2.13 an hour do not equal the minimum hourly wage -- $5.15 an hour effective       9/1/97 -- the employer must make up the difference.

Youth Minimum Wage: The 1996 Amendments to the FLSA allow employers to      pay a youth minimum wage of not less that $4.25 an hour to employees who      are under 20 years of age during the first 90 consecutive calendar days      after initial employment by their employer. The law contains certain      protections for employees that prohibit employers from displacing any      employee in order to hire someone at the youth minimum wage.

Dual Jobs: When an employee is employed concurrently in both a tipped      and a non-tipped occupation, the tip credit is available only for the      hours spent in the tipped occupation. The Act permits an employer to take      the tip credit for time spent in duties related to the tipped occupation,      even though such duties are not by themselves directed toward producing      tips, provided such duties are incidental to the regular duties and are      generally assigned to such occupations. Where tipped employees are      routinely assigned to maintenance, or where tipped employees spend a      substantial amount of time (in excess of 20 percent) performing general      preparation work or maintenance, no tip credit may be taken for the time      spent in such duties.

Retention of Tips: The law forbids any arrangement between the employer      and the tipped employee whereby any part of the tip received becomes the      property of the employer. A tip is the sole property of the tipped      employee. Where an employer does not strictly observe the tip credit      provisions of the Act, no tip credit may be claimed and the employees are      entitled to receive the full cash minimum wage, in addition to retaining      tips they may\should have received.

Service Charges: A compulsory charge for service, for example, 15      percent of the bill, is not a tip. Such charges are part of the employer's      gross receipts. Where service charges are imposed and the employee      receives no tips, the employer must pay the entire minimum wage and      overtime required by the Act. 

Tip Pooling: The requirement that an employee must retain all tips does      not preclude tip splitting or pooling arrangements among employees who      customarily and regularly receive tips, such as waiters, waitresses,      bellhops, counter personnel (who serve customers), busboys/girls and      service bartenders. Tipped employees may not be required to share their      tips with employees who have not customarily and regularly participated in      tip pooling arrangements, such as dishwashers, cooks, chefs, and janitors.      Only those tips that are in excess of tips used for the tip credit may be      taken for a pool. Tipped employees cannot be required to contribute a      greater percentage of their tips than is customary and reasonable.

Credit Cards: Where tips are charged on a credit card and the employer       must pay the credit card company a percentage on each sale, then the employer       may pay the employee the tip, less that percentage. This charge on the tip       may not reduce the employee's wage below the required minimum wage. The       amount due the employee must be paid no later than the regular pay day and       may not be held while the employer is awaiting reimbursement from the credit       card company. 
Typical Problems
Minimum Wage Problems: Employee does not qualify as a "tipped      employee", tips are not sufficient to make up difference between      employer's direct wage obligation and the minimum wage; employee receives      tips only -- so the full minimum wage is owed; illegal deductions for      walk-outs, breakages and cash register shortages; and invalid tip pools.    

Overtime Problems: Failure to pay overtime on the full minimum wage;      failure to pay overtime on the regular rate including all service charges,      commissions, bonuses and other remuneration.
Where to Obtain Additional Information
This publication is for general information and is not to be considered       in the same light as official statements of position contained in the regulations.

**For additional information, visit our Wage-Hour website: http://www.wagehour.dol.gov       and/or call our Wage-Hour toll-free information and helpline, available       8am to 5pm in your time zone, 1-866-4USWAGE (1-866-487-9243).**

 

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