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Feds issue new tip credit pooling rules

by on
in Employment Law,Human Resources

Employers are now free to set the percentage of employee tips that can be placed in a tip pool. In years past, several court decisions conflicted with the U.S. Department of Labor’s position restricting the amount of tips an employer could require to be pooled.

The ruling comes as part of a new regulation clarifying the tip-pooling issue and establishing notice requirements for employers that use a tip credit for tipped employees.

Both the federal Fair Labor Standards Act (FLSA) and New York’s Minimum Wage Act allow employers to pay tipped employees an hourly wage less than the legal minimum wage.

New York’s minimum wage law provides industry-specific guidance for tip credits. For example, in the restaurant industry, workers who receive tips that average between $1.60 and $2.35 per hour receive a $1.60 per hour tip credit. That means employers must pay them a minimum wage of $4.65 per hour. Workers whose tips average more than $2.35 per hour get a tip credit of $2.35 per hour.

Additionally, the law provides adjustments to the minimum wage for being on call, or if daily work hours are spread over 10 hours, or if they are required to wear uniforms.

Federal law allows a maximum tip credit of $5.12.

The general rule is that the tipped employee’s tips and hourly wage combined must equal at least the legal minimum wage. Both the federal minimum wage and the state minimum wage for restaurant workers stand at $7.25 per hour.

The new DOL ruling specifies that employers that wish to take a tip credit must inform tipped employees of their hourly wages and the amount of the tip credit. In addition, they must notify employees that:

  • The tip credit will be no greater than the value of tips actually received.
  • The tip credit cannot be applied unless the tipped employee has been informed of the tip credit provisions of the FLSA.
  • Except for valid tip pooling, em­­ployees are entitled to keep all tips they receive.

Note: Industry-specific rules make it tricky to pay tipped employees in New York.

Consult your attorney to determine if your tip credit, minimum wage and overtime policies comply with state and federal laws.

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