How Much Do Tipped Employees Need to be Paid?

If you have a business where many of your employees are paid by tipping, you need to understand how federal law, specifically the Fair Labor Standards Act (FLSA), treats tipped employees. There are some detailed rules about what employers can and cannot do, and even if you generally understand how the FLSA works with tipped employees, it is easy to get yourself in trouble.

Minimum Wage

The FLSA says that employees need to be paid at least minimum wage, and that they have to be paid overtime at a rate of time and a half, for any hours worked beyond 40 hours. There are specific rules about how to calculate salary, how to calculate 40 hours, and how to calculate the rate of pay for employees that work hours at different hourly rates, and there are numerous exceptions to the FLSA, but those are the basic rules.

The Tip Credit

In Florida, employers receive what is known as a tip credit—that is, a reduction in how much they have to pay to employees, if the employees receive a tip. An employer in Florida gets a reduction or credit of $3.02 per hour.

That amount assumes that the employee’s tips end up paying the employee at, or more than, the minimum wage. If the tips do not reach the minimum wage or more, the employer must make up the difference, even if the employer ends up not getting the benefit of the full $3.02 per hour.

For employees that work partially for tips, and other times, in job positions that do not get tips the employer can only take the tip credit for the hours that the employee works on the tip-paying job duties.

Tipping Pools

In many cases, businesses have tipping pools—basically, all the tips earned by each employee, go into a pot and are divided up amongst the tipped employees.

This is legal, and the employer can still claim the tip credit. But this is only if the only people who share in the tipping pool are all tipped employees.

So, if even one non-tipped employee shares in the tip pool, or if management takes some of the tip pool, or if the business takes some of the tips from the tip pool “off the top,” or similar practices—that is not a valid tipping pool, and the employer must pay the full minimum wage to the employees.

What’s a Tip?

In many cases, it isn’t so easy to tell what is or what is not a tip.

A tip is anything that is paid voluntarily by the customer, in any amount that the customer wants. There is some authority, and some government agency rules and opinions, that say that whenever there is a mandatory service charge, where the customer must pay it, that is not a tip—even if the employer opts to voluntarily give some of it to the employee.

Employment law legal needs? We can help. Call the West Palm Beach business litigation attorneys at Pike & Lustig today.

Sources:

dol.gov/agencies/whd/fact-sheets/15-tipped-employees-flsa#:~:text=Sums%20distributed%20to%20employees%20from,of%20pay%20for%20computing%20overtime.

dol.gov/agencies/whd/state/minimum-wage/tipped