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What is the tip credit under FSLA?

On Behalf of | Sep 16, 2020 | Firm News |

Working in the service industry is hard and the pay is not always great. Many servers, bartenders, and other food service professionals rely on tips to fill out their employer-provided wages. In fact, New York and New Jersey service professionals who earn tips are generally entitled to their tips as part of their compensation for their work.

However, their employers can often offset their wage pay with the tip credit under the Fair Labor Standards Act. The information contained in this post should not be relied upon as legal advice. All individuals with wage and tip questions should seek the counsel of competent legal professionals.

What is the tip credit?

The government has set a minimum wage for all workers throughout the nation. However, employers of tipped workers do not necessarily have to pay these employees the minimum wage. They may apply the tip credit under the FLSA to pay a lower wage and offset the difference with the workers’ tips. For example, an employer can pay their tipped workers $2.13 per hour as wages and the minimum under the law and offset $5.12 of tips as a tip credit to reach the federal minimum wage rate.

Eligibility for the tip credit

Employers cannot choose to use the tip credit without meeting certain standards and notice provisions. Before the tip credit can be applied, workers subject to it must be informed of its use and function. They must know what their base wages will be and how much of their tips will be credited back under the tip credit. They must be allowed to keep their tips subject to rules regarding tip pooling and other situations.

Tips, wages, and problems often come hand in hand when employers attempt to utilize this part of FLSA without legal counsel or support. Guidance on how to utilize and implement the tip credit should be discussed with knowledgeable employment law attorneys.