Under the federal Fair Labor Standards Act (FLSA), employees who work in occupations that historically have been tipped positions (such as restaurant servers or porters/bell hops) may be paid less than the standard $7.25 per hour minimum wage. Under the FLSA, only when several detailed conditions are met may these tipped employees be paid as little as $2.13 per hour in wages, with the employer taking a “tip credit” of up to $5.12 per hour. Before discussing these conditions, it must be noted that some states (such as California and Nevada) do not allow any tip credit at all – which means the employer must pay servers and similar employees the full state minimum wage. Many other states have significantly higher minimum wages and higher tipped minimum wages. For example, employers in New York City that employ more than 10 employees, must pay tipped employees at least $10 an hour (and nontipped employees at least $15 per hour).
State law aside, for an employer to be eligible under federal law to pay a tipped employee as little as $2.13 per hour, all of the following conditions must be met. If any of these conditions are not met, the employer’s tip credit may be destroyed and the employee may be owed the full minimum wage ($7.25 per hour).
The conditions for an employer to take a tip credit:
- The employee must actually be paid at least $2.13 for all time worked.
- If the employee is required to perform uncompensated work pre- or post-shift (e.g., clock out and then clean tables) or during an unpaid lunch or break, then the employee must be paid for that time as well. Otherwise, the employer’s tip credit is destroyed.
- The employee’s tips plus wages must total at least $7.25 per hour for all time worked each workweek.
- The employee must receive at least $30 per month in tips.
- The employee must perform customarily tipped work, which means the employee must have regular customer interaction.
- If even a tipped employee such as a server spends substantial amounts of his or her working day (e.g., more than 20%) performing nontipped activities, such as cleaning or wrapping utensils, the employer’s tip credit may be destroyed.
- The employee retains all tips paid by customers.
- Tips are the property of the employee and an employer is strictly forbidden from converting an employees’ tips to its own use.
- If there are any tip pools (that is, combining the tips of multiple employees), the tips in the tip pool may not be shared with anyone who does not have regular customer interaction (e.g., back of house staff such as cooks or dishwashers).
- The employer must adequately inform the tipped employee of the details of the tip credit and the details of any tip pooling (including the rules for contributions to the pool and payouts).
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If you have been paid less than the full minimum wage required by state or federal law and believe that any of these conditions has not been satisfied, or even if you have been paid the full minimum wage but your employer has taken your tips, you may have a claim under the FLSA and/or state law.