Minimum Wage and Tips

Employers are generally required to pay their employees a minimum wage of not less than $7.25 per hour effective July 24, 2009.

Employers of tipped employees may consider such tips as part of the employee’s wages, but employers must pay a direct wage of at least $2.13 per hour if they claim a tip credit. A tipped employee is one who customarily and regularly receives more than $30 a month in tips.

Tips are the property of the employee. The employer is prohibited from using an employee’s tips for any reason other than as a credit against its minimum wage obligation to the employee (“tip credit”) or in furtherance of a valid tip pool. An employer can never demand that a tipped employee hand over their tips. For example, even where a tipped employee is paid $7.25 per hour in wages directly from the employer, the employee may not be required to turn over his or her tips to the employer (absent a valid tip pool).

A “tip credit” is where the employer uses a portion of the tips the employee receives to make up the difference between the $2.13 an hour direct wage and the $7.25 an hour minimum wage required by federal law. Thus, the maximum tip credit that an employer can currently claim is $5.12 per hour (the minimum wage of $7.25 minus the minimum required cash wage of $2.13).

The employer must inform a tipped employee of the following, either orally or in writing, before they may claim the tip credit:

  • The amount of cash wage the employer is paying a tipped employee, which must be at least $2.13 per hour;
  • The additional amount claimed by the employer as a tip credit, which cannot exceed $5.12 (the difference between the minimum required cash wage of $2.13 and the current minimum wage of $7.25);
  • That the tip credit claimed by the employer cannot exceed the amount of tips actually received by the tipped employee;
  • That all tips received by the tipped employee are to be retained by the employee except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips; and
  • That the tip credit will not apply to any tipped employee unless the employee has been informed of these tip credit provisions.

An employer who fails to provide the required information cannot use the tip credit provisions and therefore must pay the tipped employee at least the regular minimum wage rate of $7.25 per hour in wages.

Some states have a higher minimum wage than federal law. Some states don’t allow tipped employees to be paid less than state minimum wage. Some states, Georgia for example, does not have laws that provide stronger protection than federal law.

Tip Pools: The requirement that an employee must retain all tips does not prevent the establishment of a valid tip pooling or sharing arrangement among employees who customarily and regularly receive tips. The Department of Labor gives examples like waiters, waitresses, bellhops, counter personnel (who serve customers), bussers, and service bartenders. A valid tip pool may not include employees who do not customarily and regularly received tips, such as dishwashers, cooks, chefs, and janitors.

It is also improper for management personnel to participate in a tip pool. Some companies, like Starbucks, has been involved in a lot of litigation over their tip pools. Starbucks included “supervisors” in tip pools. Some courts ruled for Starbucks saying that the supervisors were not properly management because they didn’t hire, fire, or discipline. Other courts ruled against Starbucks for the opposite reason.