Tip Rules Under the FLSA

The Fair Labor Standards Act permits an employer to take a credit against its minimum wage obligation for tips that its employees receive. Recent statutory, regulatory and case law developments make it advisable to review the rules. (Caution: State rules may impose stricter limits than the FLSA does. See Tipping and the Wage and Hour Rules, which contains a discussion of California law.)

Section 3(m) of the FLSA (29 U.S.C. section 203) permits an employer to take a tip credit toward its minimum wage obligation for tipped employees equal to the difference between $2.13 and the federal minimum wage (currently $7.25). That provision raises the following questions:

Who is a "tipped employee?" A tipped employee means any employee engaged in an occupation in which he or she customarily and regularly receives more than $30 a month in tips.

Do tips belong to the employer or the employee? Although the employer may take a credit, the tips belong by law to the employee. An employer may not keep tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion of an employee's tips.

May an employer require tipped employees to participate in a tip pool? Yes, if the employer does not take a tip credit, and pays its tipped employees a cash wage that equals or exceeds the minimum wage. Those who take a tip credit may not require tip pooling.

Who may the employer require to be included in a tip pool? Those employers who pay the full federal minimum wage without a tip credit may require tipped employees to share their tips with employees who are not customarily and regularly tipped, such as cooks and dishwashers. (This is a change from the prior rule under a DOL regulation that prohibited those who did not take a tip credit from requiring tips to be shared with untipped employees. The change resulted from Congressional action earlier this year.) However, as mentioned above, managers and supervisors may not participate in tip pools.

What about employees who perform some duties for which they regularly receive tips, and some for which they do not? The DOL's dual jobs regulation, and an interpretive guidance in Chapter 30 of the Wage and Hour Division's Field Operations Handbook (section 30d00(f)) require employers to pay their tipped employees a cash wage equal to at least the federal minimum wage for duties that they do not regularly receive tips for. The employer may apply a tip credit to time the tipped employee spends on incidental duties that are related to the tipped occupation, up to 20 percent of the total hours worked in the tipped occupation during the workweek. Related duties for a server could include such tasks as filling salt and pepper shakers while the restaurant is open, cleaning and setting tables, making coffee, and occasionally washing dishes. Cleaning bathrooms and washing windows do not constitute related duties.

The Ninth Circuit recently explored the applicable rules in March v. J. Alexander's LLC, Case No. 15-15791 (9th Cir. 9/18/2018).