Tips on Tips Part 1: Tip Credit

The Fair Labor Standards Act (FLSA) requires that an employer pay employees at least the minimum wage prescribed by law ($7.25 per hour). The same law permits employers in states that follow the federal tip credit (like Texas) to take a tip credit equal to the difference between the minimum wage and the cash wage of $2.13 per hour.

Employers may not take the federal tip credit unless the following requirements are met:

• A tip credit can be taken only against the wages of employees who customarily and regularly receive at least $30 per month in tips.
• The amount of the credit claimed can never be more than the employee actually received in tips. To the extent that the tips received by an employee are less than the permitted tip credit, the employer must pay the employee the difference between the tips reported and the minimum wage. The employer must be able to prove that the employee received tips in an amount at least equal to the amount of the tip credit claimed. Employees’ written statements are the best proof of tips received.
• The employer must notify tipped employees of the amount of tip credit taken.
• Employees must be allowed to retain all of their tips. This requirement prevents the management or employer from retaining any of the tips or using any of the tips to pay for such things as uniforms, breakage or losses.

This requirement does not prevent tip-pooling arrangements, which we will cover in Tips on Tips Part 2.

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