Tipped Employees – 3rd in a 3-Part Series

Businesses may use tips received by tipped employees to take a tip credit against the minimum wage obligations if certain criteria are met under the federal Fair Labor Standards Act (FLSA). Employees must be given a minimum “cash wage” of $2.13 per hour. If the employee’s tips combined with this cash wage do not equal the minimum hourly wage (the current minimum wage in Florida is $7.67 – higher than the Federal minimum wage of $7.25) then the business must make up the difference.

Prior to taking the tip credit, businesses must notify the tipped employees of certain required information, such as:

• the amount of cash wage they will be paid
• the amount of tips to be credited as wages toward the minimum wage
• the right to retain all tips received by the employees unless the employees participate in a valid tip pooling arrangement limited to employees who customarily and regularly receive tips

Although notice can be provided verbally, the best way to defend against challenges to the notice requirement is to do this in writing and have each employee sign and date the notice, acknowledging that they have received and understand the notice.

Businesses can require tipped employees to split or pool tips among employees who customarily and regularly receive tips. To be valid, tip pooling arrangements must not be required to contribute a greater percentage of their tips to the pool than is “customary or reasonable.” In the past, contribution not exceeding 15% of the employee’s tips was considered reasonable, but there is no longer such a presumption. Where the tip pool includes ineligible employees, such as management or kitchen staff, the business must reimburse the tipped employees for the tips turned over to the ineligible employees.

If the tipped employees work overtime, it is important to be sure that their overtime pay amounts to one and a half times their regular rate of pay, which includes the amount of tip credit taken.

Finally, the U.S. Department of Labor has recently established that tipped employees must be allowed to retain their tips, even if the business does not take a tip credit or use tips to meet its minimum wage obligations.