The federal Fair Labor Standards Act's "tip
credit" was among the many topics addressed by the U.S. Labor
Department's recent final rule. DOL's tip-related
pronouncements are a mixed-bag for employers.
The General Principles
The FLSA allows an employer to credit a portion of a tipped
employee's tips toward the FLSA-required minimum wage
(currently $7.25 per hour). Employers taking an FLSA tip credit
must pay a cash wage of not less than $2.13 per hour, so at present
they are limited to a tip credit of no more than $5.12 per hour
($7.25 − $2.13 = $5.12).
The FLSA defines tipped employees as those who are engaged in
occupations in which they "customarily and regularly"
receive more than $30 a month in tips. For FLSA tip credit
purposes, a "tip" is a payment that patrons decide in
their discretion whether or not to make, including how much to give
and for whom to leave it; so, not all "gratuities" are
"tips." This rule does not apply to service charges,
