Employees deserve to be compensated appropriately and most employers want to ensure they are complying with all applicable wage and hour laws. However, issues can get tricky when it comes to employees who receive tips.
Under the law, employers are allowed to use what’s known as “tip credits” to make up for minimum hourly wages paid to certain employees.
What is a tip credit?
In basic terms, when an employee receives a tip, the law states that an employer can use that tip to go towards the required minimum wage they pay that employee. So, in certain situations, a sub-minimum wage is allowed.
However, there are limits to when a sub-minimum wage is allowed and to whom.
Limits on tip credits
The U.S. Department of Labor has put into place limits on when employers can take tip credits. The limits were clarified late last year. A few takeaways include the following:
- Tip credits can only be used during certain times: An employer can take a tip credit only for hours an employee is doing work that involves “tip producing tasks.”
- The 80/20 rule: Employers are only allowed to take a tip credit during tip producing tasks as long as the tip producing tasks encompass less than 20 percent of the total hours an employee works during a workweek.80 percent of an employees job cannot be tip producing work – hence the 80/20 rule.
Federal minimum wage and tip credits
Under the Fair Labor Standards Act, the current federal minimum wage is $7.25 and employers are only allowed to use a maximum $5.12 in tip credits against the $7.25 hourly wage.
In the state of Florida, however, the minimum wage is $10.00 and the maximum tip credit employers are allowed is $3.02.
A note to employees and employers alike
Minimum wage, tipping and tip credits can get complicated. Both employers who operate in and employees working in a service-type position should take note of these laws in their state. Seeking guidance from an employment law attorney if questions or concerns arise is encouraged.