Application of the FLSA’s Tip-Credit Requirements Remains Hotly Disputed

Employee Relations Law Journal Spring 2017

Michael D. Thompson, a Member of the Firm in the Employment, Labor & Workforce Management practice, in the firm’s Newark office, authored an article in the Employee Relations Law Journal, titled “Application of the FLSA’s Tip-Credit Requirements Remains Hotly Disputed.”

Following is an excerpt:

Over the past year, there has been an increased discussion of Fair Labor Standards Act (FLSA) requirements for tipped employees. The courts have focused on a number of issues related to tipped employees, including addressing who can participate in tip pools and whether certain deductions may be made from tips. The FLSA requires employers to pay a minimum wage of $7.25 per hour in most cases. Nevertheless, Section 203(m) of the FLSA provides that employers may take a “tip credit” and pay as little as $2.13 per hour to employees who customarily and regularly receive tips, so long as two criteria are satisfied:

  • the employee’s wages and tips are at least equal to the minimum wage, and
  • all tips “received” by a tipped employee are actually retained by the employee or added into a tip pool that aggregates the tips of a group of tipped employees.

Notably, 29 C.F.R. 53I.55 states that a “compulsory charge for service ...imposed on a customer by an employer’s establishment is not a tip ...” However, some states (such as New York) have their own requirements for determining whether a service charge will be considered a “tip.”