Key terms regarding tips under FLSA

On Behalf of | Jan 11, 2022 | Fair Labor Standards Act (FLSA) |

The Fair Labor Standards Act (FLSA) establishes rules regarding how certain types of compensation may be used and distributed to workers in the United States. Of particular interest to employers of hospitality and restaurant workers are FLSA provisions concerning tipping, tip pools and tip credits. This post will examine these terms and how FLSA regulates the use of tips in employment.

What is a tip?

A tip is compensation given as a gratuity or in satisfaction of a job well done. For example, when a waiter at a restaurant performs excellent customer service, they may receive compensation for doing their job, but may also be tipped by their customers for the service they provided. A tip is money given for the performance of a service.

Who is considered a tipped employee under FLSA?

A tipped employee is one who receives at least $30 in tips regularly in the course of their work. When a worker receives a tip, it is there money and not the property of their employer. Sporadic tipping of a single tip may not be sufficient to consider a worker a tipped employee.

Why does classification as a tipped employee matter?

Classifying a worker as a tipped employee is important because allows an employer to use the tip credit. The tip credit allows an employer to lower the hourly wage of a tipped employee so that when combined with their tips their wages meet the minimum wage. If a worker qualifies, their employer can effectively make up pay to them through their tips through the employment of the tip credit.

What if workers pool their tips?

Pooling tips happens when tipped workers put their tips together and divide it amongst themselves. Workers may do this if they are all tipped employees; non-tipped employees may not be part of a tip pool. Tip pools may still count toward tips used for the tip credit.

When employers fail to account for their workers’ tips or fail to properly compensate them for monies owed using the tip credit, they can run into problems with FLSA and other laws. This can lead to headaches, expenses, and hardships for business owners and managers. One way that employers can avoid this significant issue is to work with trusted employment law attorneys as they develop their compensation plans. Early planning and structuring of tipped compensation can help keep employees paid, employers compliant with the law, and businesses running smoothly. It is never too early to have employment law questions answered and clarification sought on important workplace issues.