How Do FLSA Requirements Apply to Tipped Employees?

While the wage and overtime protections of the Fair Labor Standards Act (FLSA) apply to non-exempt employees, there are some unique differences in how these protections apply to "tipped employees." If you are unfamiliar with the tip-based wage system, this article will explain some of the basics.

What Is a "Tipped" Employee?

If you frequent restaurants at all, you are surely familiar with the expected 10%-15% tip for our waiters or waitresses. What many people don't realize, however, is that waiters, waitresses, and other employees who customarily receive tips, are paid differently than typical wage earners. A "tipped" employee is an employee who "customarily and regularly receive" receives over $30.00 in tips per month.

Only the tips that are actually received by an employee can be counted towards determining whether an employee is actually a tipped employee. The tips themselves are considered the property of the employee and can only be used by the employer as to reduce their minimum wage obligation. This is referred to as the "tip credit."

Understanding How the Tip Credit Works

The FLSA allows employers to count a tip credit against tipped employees' minimum wage. This credit is equivalent to the difference between minimum wage for a tipped employee, $2.13 at the time of this writing, and the required federal minimum wage, which is $7.25. Therefore, the maximum tip credit that can be claimed by an employer in Alabama in 2015 is $5.12 per hour.

What Is a Tip Pool?

Tips can also be used as part of a valid tip pool. The FLSA requirement that an employee retain all tips (as opposed to the employer) does not prohibit employees from participating in tip pooling or tip sharing arrangements among other tipped employees. The only exception is that a valid tip pool cannot include employees who are not routinely tipped, such as dishwashers, cooks, chefs, and janitors.

Requirements for Applying a Tip Credit

Employers have a legal obligation to notify their employees that they are implementing the tip credit. In fact, before an employer can use the credit, they must first provide specific information to all affected employees.

Each tipped employee must be notified of the following:

  • The cash wage paid to a tipped employee (no less than $2.13 per hour)
  • The value of a claimed tip credit (no more than $5.12 per hour)
  • A claimed credit cannot be greater than the value of tips an employee receives
  • The employee will retain all tips except in the case of a pooling arrangement, limited to employees who typically receive tips
  • Tip credit will not affect an employee unless they have been informed of these provisions

Notice of this information can be provided either in written form or verbally; however, if this information is not provided, the employer must pay the tipped employee no less than federal minimum wage ($7.25), while the employee keeps all tips that are received.

If you feel you have not received proper wages or your rights have been violated by an employer claiming tip credit, contact Wrady & Michel, LLC online or by phone at (205) 265-1880 to discuss your case with an experienced employment law attorney.

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