The "Tip Credit" Allowance

A tipped employee is one who customarily and regularly receives more than $30 per month in tips. An employer of a tipped employee is only required to pay $2.13 per hour in direct wages if that amount combined with the tips received at least equals the federal minimum wage. If the employee's tips combined with the employer's direct wages of at least $2.13 per hour do not equal the federal minimum hourly wage, the employer must make up the difference. Many states, however, require higher direct wage amounts for tipped employees. Georgia does not.

If an employer wants to use the tip credit allowance, the employer must:

1. Inform each tipped employee about the tip credit allowance before applying it to the employee;

2. Be able to show that the employee receives at least minimum wage when direct wages and tips actually earned are combined. This means keeping accurate records of the tips and wages; and

3. Allow the tipped employee to keep all tips (unless the employee participates in a valid tip pooling arrangement with other tipped employees). Under no circumstances is the employer permitted to keep any part of the tips.

Importantly, if the combined amount of tips and actual wages is less than minimum wage, the employer must make up the difference. Many employers do not make up the difference, and are therefore unable to claim the tip credit allowance.

In addition, it is common for employees to engage in both tip producing work and work that produces no tips. For example, a waiter or waitress may wait tables all shift and then have kitchen cleaning duties after the restaurant closes. As the waiter/waitress has no ability to earn tips while cleaning the kitchen, the tip credit allowance cannot be taken for the hours spent cleaning the kitchen. For these hours, minimum wage must be paid.

Further, under no circumstances may a non-exempt employee be paid tips only, no matter how much in tips may be earned. This is a common violation of the FLSA. » Back to top