Tip Credits and Florida Minimum Wage Laws

Gomez, Rudy - 300dpi
Rudy Gomez

Background: The Fair Labor Standards Act (“FLSA”) and Florida minimum wage law allow an employer to take a tip credit toward its minimum wage obligation for “tipped employees”. A “tipped employee” is an employee who customarily and regularly receives more than $30 per month in tips. 29 U.S.C. § 203(t). An employer is permitted to take a tip credit equal to the difference between the minimum wage (currently $8.25 in Florida) and the required cash wage (currently must be at least $5.23 in Florida). Thus, the maximum tip credit that an employer can currently claim under the FLSA and Florida law is $3.02 per hour ($8.25 – $5.23). 

If an employee’s tips combined with the employer’s direct wages of at least $5.23 an hour do not equal the minimum hourly wage, the employer must make up the difference. A tip credit may be taken for a workweek only to the extent that an employee receives tips. If reported tips fall below the tip credit, the employer remains liable to pay wages for the difference between the credit taken and the tips received. 29 C.F.R. § 531.59. The employer cannot pay less than $5.23 per hour to tipped employees, but it can pay more.

General Requirements: If an employer elects to use the tip credit provision the employer must:

  1. Inform each tipped employee about the tip credit allowance before the credit is utilized (it is a good idea to have the employee sign a statement acknowledging that the tip credit has been explained to him/her, to show the employee was notified);
  2. Be able to show that the employee receives at least the minimum wage ($8.25 per hour) when direct wages and the tip credit allowance are combined; and
  3. Allow the tipped employee to retain all tips, regardless of whether the employer elects to take a tip credit for tips received, except to the extent the employee participates in a valid tip pooling arrangement. (Federal regulations currently treat tips as the employee’s property, regardless of whether the employer pays that employee the minimum wage or whether it uses a tip credit to satisfy the minimum wage requirement. 29 C.F.R. § 531.52.)

tip jarTip Pool: The requirement that an employee must retain all tips does not preclude a valid tip pooling or sharing arrangement among employees who customarily and regularly receive tips, such as waiters, waitresses, bellhops, counter personnel (who serve customers), bussers, and service bartenders. A valid tip pool consisting of employees paid on a tip credit basis cannot include employees who do not customarily and regularly received tips, such as dishwashers, cooks, chefs, and janitors.

Recently, the Department of Labor (“DOL”) passed a regulation that allows employers to require the sharing of tips with employees who do not customarily receive direct tips (such as restaurant cooks, dish washers, and similar workers), so long as the employer pays all employees required to share tips the full minimum wage of $8.25 per hour. See also, Malivuk v. Ameripark, LLC, 694 F. App’x 705 (11th Cir. 2017). Employers who use the tip credit option to satisfy the minimum wage obligation would not be allowed to require tip sharing with workers who do not customarily receive tips.

Dual Jobs: DOL regulation 29 C.F.R. §531.56(e), distinguishes between dual jobs and “related duties” that may be performed by a tipped employee without requiring the employer to pay the full minimum wage. The regulation provides:

restaurant table settingIn some situations an employee is employed in a dual job, as for example, where a maintenance man in a hotel also serves as a waiter. In such a situation the employee, if he customarily and regularly receives at least $30 a month in tips for his work as a waiter, is a tipped employee only with respect to his employment as a waiter. He is employed in two occupations, and no tip credit can be taken for his hours of employment in his occupation of maintenance man. Such a situation is distinguishable from that of a waitress who spends part of her time cleaning and setting tables, toasting bread, making coffee and occasionally washing dishes or glasses. It is like-wise distinguishable from the counterman who also prepares his own short orders or who, as part of a group of countermen, takes a turn as a short order cook for the group. Such related duties in an occupation that is a tipped occupation need not by themselves be directed toward producing tips.

“Tip” vs. Service Charge: A “tip” is a gratuity or gift paid by a customer to the employee at the customer’s discretion. A mandatory service charge assessed by an employer, even if it is paid to the employee, is not a “tip,” and the revenues generated from service charges cannot be used as a tip credit. 29 C.F.R. § 531.55. Mandatory “gratuities” are viewed as service charges and are considered to be “wages,” not tips paid by customers at their discretion.

Bottom Line: In the past few years there has been substantial litigation regarding the proper application of the tip credit, tip pooling and tip retention practices. Employers should carefully analyze their practices regarding tips to ensure compliance with the detailed Department of Labor Regulations and avoid costly litigation.

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