| The Fair Labor Standards Act (FLSA) is a federal law that requires most employers to pay a minimum wage and premium overtime pay to non-exempt employees. In addition to the FLSA, many state laws also regulate wages. Federal and state laws distinguish between regular employees and employees who regularly receive tips to supplement their income. Under these laws, employers generally do not have to directly pay tipped employees the standard minimum wage.
FLSA Requirements for Tipped Employees
The FLSA establishes a special category for tipped employees. Under the FLSA, "tipped" employees are those employees who regularly receive more than $30 per month in tips. Although the minimum wage for standard employees is $5.15 per hour under the FLSA, employers are required to pay tipped employees only $2.13 per hour in direct wages, as long as the employer can show that the $2.13 per hour, plus the amount of the employee's tips, meets or exceeds a $5.15 per hour pay rate. If it does not, the employer must make up any difference in pay between the employee's actual pay (wages plus tips) and the $5.15 per hour minimum wage requirement.
Employers who wish to use the so-called tip credit provision must follow certain steps before they may take the tip credit. Generally, these employers must:
- Let the tipped employee know about the tip credit before it is used.
- Be able to substantiate its claim that the employee's pay, with the tip credit, is meeting or exceeding the minimum wage.
- Let tipped employees keep their tips, even if the employer chooses not to take a tip credit. Employers may, however, institute a tip pooling arrangement under which employees who customarily and regularly receive tips are required to share their tips with one another.
State Law Requirements for Tipped Employees
Many state laws provide additional protections for tipped employees. Employers in the following states, for example, may not take a tip credit. Additionally, three of these states (Alaska, Oregon, and Washington) require a minimum wage in excess of $ 7.00 per hour.
- Alaska,
- California,
- Minnesota,
- Montana,
- Nevada,
- Oregon, and
- Washington.
Although 34 states allow a tip credit, most of them set a minimum cash wage that is higher than $2.13 per hour. Some states, like Connecticut, specify a different minimum cash wage, depending upon the job category. For example, beauty shop employees are required to be paid $7.10 per hour (Connecticut minimum wage) in direct wages, but hotel restaurant employees must be paid only $5.02 in direct wages, as long as their total compensation, with the tips, exceeds $7.10 per hour. Copyright 2010 LexisNexis, a division of Reed Elsevier Inc. |