The Fair Labor Standards Act (FLSA) permits an employer to take a tip credit toward its minimum wage obligation for tipped employees equal to the difference between the required cash wage (which must be at least $2.13) and the federal minimum wage (currently $7.25). However, Florida employers must follow the state minimum wage because it is higher than the federal law. So, in Florida, effective January 1, 2017, the new minimum wage for tipped employees will become $5.08 per hour plus tips (to meet the minimum wage of $8.10 per hour).
To comply with the federal tip credit rules, an employer must provide oral or written notice to the tipped employees of the use of the tip credit in advance. 29 C.F.R. § 531.59(b). Employers using the tip credit must be able to show that tipped employees receive at least the minimum wage when direct wages and the tip credit amount are combined. If the employee’s tips combined with the direct wages do not equal the minimum wage, the employer must make up the difference during the pay period.
Tips are the employee’s property whether or not the employer has taken a tip credit under the FLSA. The employer is prohibited from using an employee’s tips, whether or not it has taken a tip credit, for any reason other than that which is statutorily permitted: (1) as a credit against its wage obligations to the employee, or (2) in furtherance of a valid tip pool.
Improper tip pools: An employer may not take the employee’s tips to further an invalid tip pool, such as one that includes employees who do not customarily and regularly receive tips, like cooks, janitors, or dishwashers. An invalid tip pool will invalidate the tip credit, and the employer will be responsible for paying the tip credit amount to the employee.
Retention of Tips: A tip is the sole property of the tipped employee regardless of whether the employer takes a tip credit. The FLSA prohibits any arrangement between the employer and the tipped employee whereby any part of the tip received becomes the property of the employer (except as discussed below related to credit card charges).
Tip Pooling Arrangements: The FLSA does not impose a maximum contribution amount or percentage on valid mandatory tip pools. The employer, however, must notify tipped employees of any required tip pool contribution amount, may only take a tip credit for the amount of tips each tipped employee ultimately receives, and may not retain any of the employees’ tips for any other purpose.
Dual Jobs: When an employee is employed by one employer in both a tipped and a non-tipped occupation, such as an employee employed both as a maintenance person and a waitperson, the tip credit is available only for the hours spent by the employee in the tipped occupation. Where a tipped employee spends a substantial amount of time (in excess of 20 percent in the workweek) performing non-tipped related duties, no tip credit may be taken for the time spent in such duties.
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. Sums distributed to employees from service charges cannot be counted as tips received, but may be used to satisfy the employer’s minimum wage and overtime obligations under the FLSA. If an employee receives tips in addition to the compulsory service charge, those tips may be considered in determining whether the employee is a tipped employee and in the application of the tip credit.
Credit Cards: Where tips are charged on a credit card and the employer must pay the credit card company a percentage on each sale, the employer may pay the employee the tip, less that percentage. For example, where a credit card company charges an employer 3 percent on all sales charged to its credit service, the employer may pay the tipped employee 97 percent of the tips without violating the FLSA.
Deductions for Walkouts and Register Shortages: Deductions for walk-outs, breakage, or cash register shortages that reduces the employee’s wages below the minimum wage are not permissible.
Overtime for Tipped Employees: Where the employer takes the tip credit, overtime is calculated on the full minimum wage, not the lower direct (or cash) wage payment.
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