New FLSA Tip Credit Provisions Let Employees Keep Their Tips

April 30, 2018

On March 23, 2018, Congress amended the provisions in the Fair Labor Standards Act (“FLSA”) governing tipped employees.

  • Background: Minimum Wage and Tip Pooling

The FLSA allows an employer to pay a reduced hourly wage of at least $2.13 per hour to tipped employees, provided the tipped employees receive enough tips to bring their hourly rate to the prevailing minimum wage. The employees’ tips include those they receive directly, as well as tips distributed from a valid tip pool.

The FLSA has two perquisites for an employer to pay employees a reduced tip credit rate.

  1.  The employer must have informed the employee of the requirements for tipped employees under the FLSA;
  2. The employee must be permitted to keep all of his or her tips, except for tips that are shared with other tipped employees under a valid tip pool.

Traditionally, these requirements only applied to employees making less than the standard federal minimum wage (currently $7.25 per hour). An employer who violated either of these prerequisites could be held liable for the different between the rate paid to the employee and the standard minimum wage.

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2011 Department of Labor Regulations

In 2011, the Department of Labor passed regulations regarding the FLSA tip credit provisions. The regulations provided that all tipped employees—not just those paid a rate less than $7.25 per hour—were entitled to keep all of their tips and could not be required to share tips with management of with non-tipped employees. This expanded the tip credit provisions to a significant number of employees who receive tips but still receive more than $7.25 per hour.

  • Recent Changes to the Law

The March 23, 2018 amendments changed the FLSA’s tip credit provisions in three ways.

  1.  Under the current law, employees who make over $7.25 per hour can be required to share tips with non-tipped employees who did not interact with customers, whereas employees who make less than $7.25 per hour cannot be required to share tips with non-tipped employees who did not interact with customers;
  2. No employees, regardless of how much they are paid per hour, can be required to share tips with their managers or their employer.
  3. Employees who are unlawfully required to share their tips with other employees who do not engage in customer service, or with management/ their employer, can recover the amount of tips taken from them, in addition to the difference between their actual pay rate and the standard minimum wage of $7.25 per hour.

The new tip-credit provisions clarify the long-standing requirement that only employees who engage in customer interaction may participate in employee tip pools. The recent amendments are particularly strict on the practice of management retaining tips, which is now prohibited for all tipped employees regardless of whether their wages are subject to a tip credit.

Having represented many tipped employees, the JTB Law Group knows that you work hard for your tips, and should be allowed to keep them. If you are not, you should contact us immediately.