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Feds issue new tip-credit pooling rules

by on
in Human Resources,Overtime Labor Laws

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 and the state Minimum Wage Act allow an employer to pay a tipped employee an hourly wage less than the legal minimum wage. Ohio’s minimum wage stands at $7.40 per hour and permits a maximum tip credit of $3.70 per hour.

Businesses that gross less than $271,000 per year may pay the minimum wage of $7.25 per hour with a $5.12-per-hour tip credit. Any business, regardless of size, may pay 14- and 15-year-old employees the federal minimum wage and tip credit.

The general rule is that the tipped employee’s tips and hourly wage combined must equal at least the ­legal minimum wage.

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.

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

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