|By Lisa Nagele-Piazza, SHRM-SCP, J.D.Apr 23, 2018|
The Fair Labor Standards Act (FLSA) allows employers to pay workers who customarily receive tips less than the standard minimum wage as long as certain conditions are met—but the rule’s applicability has been diminished by state laws that set higher minimum wages or ban subminimum wages altogether.
Under federal law, employers can take a tip credit by paying tipped workers, such as servers and bartenders, as low as $2.13 an hour if those workers earn at least the standard minimum wage of $7.25 an hour once their tips are added in.
“The tip-credit wage recognizes that there are categories of employees who make a significant part of their income through tips received from customers,” said Liz Washko, an attorney with Ogletree Deakins in Nashville. Restaurants and other business with tipped employees often operate on thin profit margins, and paying tip-credit wages enables many of these businesses to stay in operation and turn a profit, she noted.
But employers must check the applicable state laws before taking a tip credit, said Libby Henninger, an attorney with Littler in Washington, D.C. Some states don’t allow a tip credit to be taken at all: Alaska, California, Minnesota, Montana, Nevada, Oregon and Washington. This means employers must pay servers in Alaska, for example, at least $9.84 an hour (the state’s minimum wage).
Several other states permit a tip credit but require that workers be paid a higher cash wage than what is required under federal law. For example, in Arizona, employers must pay tipped workers at least $7.50 an hour, and workers must earn at least $10.50 an hour (the state’s minimum wage) when tips are included.