How much can tip credits offset our minimum wage obligations?

Q. We have always paid our waiters less than the minimum wage because of the tips they earn. Are we permitted to count tips as part of the minimum wage as long as we notify our employees of this practice and their actual tips equal or exceed the tip credit?

A. While federal wage-and-hour laws allow employers to take a tip credit toward their minimum wage obligations, California law does not.

The federal Fair Labor Standards Act (FLSA) allows employers to credit a portion of the tips received by their tipped employees in an amount by which the minimum wage exceeds $2.13 per hour. Thus, under the FLSA the employer’s wage obligation to employees who customarily and regularly receive more than $30 per month in tips is $2.13.

Section 351 of the California Labor Code, however, prohibits employers from crediting any portion of a “gratuity” left for an employee by a patron against the wages the employer owes that employee.

Both the Industrial Welfare Commission (IWC) and California courts have interpreted Section 351 to have eliminated the IWC’s authority to allow a tip credit against the state minimum wage or to adopt a lower minimum wage for tipped employees.

FLSA Compliance D
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