The wages of tipped employees, such as waiters or valets, must satisfy the Fair Labor Standards Act (FLSA). To qualify as a tipped employee, the position must generate more than $30 in tips every month. Pooling tips is allowed under the law, but otherwise tips are the sole property of the generating employee. Tips usually fluctuate, but tipped employees are still entitled to the federal minimum wage.
Applying Tip Credit
Tipped employees are entitled to make the minimum wage, which is currently set at $7.25. Of that, the employer must pay at least $2.13 an hour, assuming the employee generates enough tips to equal or exceed minimum wage. The remaining $5.12 an hour can be claimed as tip credit. If the employee’s total tips do not amount to at least $5.12 an hour, the employer is responsible for making up the difference.
Either in writing or orally, employers must inform their tipped employees about the following in order to claim the federal tip credit:
- How much the employer will pay in wages
- How much the employer will pay in tip credit
- Tip credit can’t surpass value of generated tips
- Tip credit is only applicable if employees are properly informed of related FLSA rules
- Except for valid tip pools, all tips must be kept by the generating employee
Pooling or Sharing Tips
Under the FLSA, pooling or sharing tips is allowed between positions that typically earn tips. For example, wait staff may pool tips with bartenders, hosts and bussers. However, tipped employees cannot be asked to pool tips with positions that don’t usually generate tips, such as cooks, managers and dishwashers. There are not set rules regarding the quantity of tips for valid tip pools. However, employers are required to inform their staff of in-house policies, and tip money can only be used for paying tipped employees.
The Rules for Dual Jobs
If you’ve ever managed wait staff, you understand that sometimes your employees will do tasks of untipped positions. For instance, during a slow or morning shift, you may have your staff help in the kitchen or bus tables. Even though these employees aren’t actually contributing to top generation in these tasks, you may still use your tip credit for their payment. However, if that employee spends more than 20 percent of the shift doing the duties of an untipped position, your tip credit is not applicable and you’ll be responsible for providing the appropriate wage.
The Difference Between Service Charges and Tips
Even if you haven’t worked in the food industry recently, you’ve probably noticed extra delivery charges or service fees on your pizza orders. Perhaps you’ve noticed a mandatory 15 percent charge for “parties greater than 6.” These charges are service charges and can’t be counted as tips or for your tip credit. You can however use it for overtime and minimum wage payments. Any tips received outside of the service charge may be used for tip credit under FLSA.
Navigating Credit Card Fees
If you’ve ever paid for a restaurant meal using a card, you know all about that extra line for a tip. What you may not already know is that there is a 3 percent fee to the restaurant for each card transaction. To help offset the costs, employers are allowed to get a portion of the fee from the employee’s tip. For example if an employee receives a $10 tip, the employer can take $0.30 for the card fee. Employers should note that regardless of the status of the credit card payment, employees are entitled to full compensation for their tips on or before the normal payday. If a tipped employee system is right for your business, be sure you understand all FLSA regulations regarding an enterprise of your size and location. Keep your employees informed and maintain accurate records.
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