Do You Use The FLSA Tip Credit?

Kegler Brown E-mployment Alert

Under the federal wage-hour law, an employer can pay a “tipped employee” less than the minimum wage (as long as the employee’s total compensation equals at least the minimum wage).

Two recent developments affect tipped employee compensation:

  • The Department of Labor published new regulations on April 5, 2011. The regulations raise the tip credit from $4.42/hr. to $5.12/hr. Therefore, an employer may pay a tipped employee $5.12/hr. less than the minimum wage, as long as the employee's aggregate compensation equals or exceeds the minimum wage.
  • Also, the Eighth Circuit Court of Appeals issued a ruling in April that is important for employers of tipped employees. The Court approved and applied the Department of Labor interpretation, set forth in its Field Operations Handbook, that disallows use of the tip credit if the employee spends more than 20% of his or her time performing "related but non-tipped work." (In this case, restaurant bartenders and servers claimed that they spent more than 20% of their time doing tasks like wiping glasses, cleaning blenders, taking inventory, sweeping, stocking serving areas, rolling silverware and napkins, cleaning after closing, etc.). Thus, if an employee spends more than 20% of his or her working time for these routine, non-tipped activities, the employer cannot take advantage of the tip credit.