For Tip Credit, Employers Must be Transparent with Employees

By October 20, 2020October 21st, 2020Employment Law, Payroll

Employers with employees who receive part of their compensation in the form of tips must provide oral or written notice to their employees that they are taking a tip credit. With the understanding that most tipped employees make up the difference of the minimum wage of $7.25/hour through tips, employers are allowed to use the “tip credit” to pay employees $2.13/hour. An employer who fails to provide the required information to their employee cannot use the section 3(m) tip credit and therefore must pay the tipped employee at least $7.25 per hour in wages and allow the tipped employee to keep all tips received. While oral communication of this arrangement is legally sufficient, we recommend that all employers who plan to use the tip credit, communicate that information to their employees in writing or direct them to the DOL website for more information: https://www.dol.gov/agencies/whd/fact-sheets/15-flsa-tipped-employees