A Comprehensive Look at the Tip Wage

Abstract

The Fair Labor Standards Act allows an employer to count tips received by employees as a credit toward the employer’s minimum wage requirements. This practice is especially prevalent in the restaurant and hospitality industry. In the past, some employers have been lax in their understanding of and compliance with the complicated regulations surrounding the tip wage and tip-pooling arrangements. Recently, however, employers have been hit with wage and hour investigations and legal actions and found themselves subject to significant liability. Employers, both large and small, are regularly shocked and amazed to find out that the wage policies they have had in place for years without any problem are in fact illegal and that they are now faced with paying doubled back wages for a 2-year and sometimes 3-year period. This article describes the regulations and how employers can avoid the pitfalls.