New Federal Tip Rules Expected In October 2018

Since 1966, Section 3(m) of the Fair Labor Standards Act 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 (currently $2.13) and the federal minimum wage (currently $7.25). 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.

Congress amended the FLSA in 1974 to require that employers notify tipped employees of the use of the tip credit in advance, and to permit mandatory tip pooling among employees who "customarily and regularly receive tips." The U.S. Department of Labor's longstanding position following the 1974 amendments was that the limitation on mandatory tip pool participants to employees who "customarily and