Use tip credit for some pay? Beware requiring ‘substantial’ work that doesn’t generate tips

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in Compensation and Benefits

Employees who work in occupations that customarily provide tip income don’t have to be paid the federal minimum wage. Instead, their employers can use the so-called tip credit. They can then pay the employees $2.13 per hour—if their tips bring the total hourly earnings up to $7.25 per hour.

But employers must be careful not to give the tipped employees too many additional duties to complete before, during or after their tip-generating activities. If more than about 20% of their time is spent on such activities, you may have to pay them the full minimum wage for those hours, regardless of how much they earn in tips during the shift.

Recent case: Gerald Fast and sev­eral of his fellow bartenders at an Applebee’s restaurant represent a class of more than 5,500 current and former servers and bartenders. Their lawsuit alleges that the restaurant’s use of the federal tip credit violated the Fair Labor Standards Act (FLSA) because ...(register to read more)

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