Blanchard & Walker Weekly

Topic of the Week  Tipped Employees

The issue of tipped workers is one many people can understand. One out of two Americans work in the restaurant industry at some point. Or their children work in restaurants. Or they eat out. However, Understanding your rights as a tipped employee can be complicated. What if you do tipped and non-tipped work? What if you work overtime? What’s the minimum wage for a tipped employee? Here are some answers to a few common of those questions. 

1. I work at a job where I receive tips as part of my pay. Are there special laws that apply to me?

If you work in a job where you "customarily and regularly" make more than $30 per month in tips, then under federal law you are considered a tipped employee and subject to special laws on minimum wage and overtime pay. Many states also have special laws for tipped employees, and some may have different standards for qualification as a tipped employee than the federal standard. 

2. Who is covered by the laws on tipped employees?

More than a hundred million American workers are protected (or "covered") by the FLSA.

There are two ways in which an employee can be covered: "enterprise coverage" and "individual coverage." Either standard is sufficient for you to be covered and entitled to receive the minimum wage.

Enterprise coverage: Employees who work for certain businesses or organizations (or "enterprises") are covered by the FLSA. These enterprises, which must have at least two employees, are:

  • those which do at least $500,000 a year in business; or
  • hospitals, businesses providing medical or nursing care for residents, schools and preschools, and government agencies

Individual coverage: Even when there is no enterprise coverage, employees are protected by the FLSA if their work regularly involves them in commerce between states ("interstate commerce"). In its own words, the law covers individual workers who are "engaged in commerce or in the production of goods for commerce."

  • Examples of employees who are involved in interstate commerce include those who: produce goods (such as a worker assembling components in a factory or a secretary typing letters in an office) that will be sent out of state, regularly make telephone calls to persons located in other States, handle records of interstate transactions, travel to other States on their jobs, and do janitorial work in buildings where goods are produced for shipment outside the State.

Domestic service workers (such as housekeepers, full-time babysitters, chauffeurs and cooks) are normally covered by the law, as long as:

  • their cash wages from one employer are at least $1,000 in a calendar year (or the amount designated pursuant to an adjustment provision in the Internal Revenue Code), or
  • they work a total of more than 8 hours a week for one or more employers.
3. Can my employer pay me less in wages because I receive tips?

Yes, under certain circumstances. Under federal law, 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 your 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, or calculate the offset differently. 

In order to take advantage of the tip offset provision under federal law, your employer must:

  • inform you in advance about the tip credit allowance (including amount to be credited) before the credit is utilized;
  • ensure that you receive at least the minimum wage when direct wages and the tips you receive are combined; and
  • allow you to keep all tips, whether or not the employer elects to take a tip credit for tips received, except to the extent you participate in a valid tip pooling arrangement (as discussed in more detail below).

Thought of the Week

"When you tip, you think you’re giving them something extra, but you’re subsidizing a multimillion-dollar industry (in reference to states where the wage is $2.13; California is not one of them). It epitomizes the dangerous future this country is heading toward with growing income inequity and unbridled power on the part of corporations. People generally know there’s inequality, but they don’t understand the scale of it. It’s not just low wage – it’s no wage after taxes, and it comes out of Jim Crow."

–Saru Jayaraman | Director of Food Labor Research Center at the University of California, Berkeley | Co-founder and President of the Restaurant Opportunities Centers United | Co-founder of One Fair Wage

Weekly Comic by Jerry King

Weekly Comic by Jerry King

Blog of the Week

Top Five News Headlines

    List of the Week

    from Economic Policy Institute

    Facts about tipped workers and the tipped minimum wage

    • Contrary to popular opinion, the vast majority of minimum-wage earners are not teenagers or college students working part-time jobs.
    • Having a separate, lower minimum wage for tipped workers perpetuates racial and gender inequities, and results in worse economic outcomes for tipped workers.
    • Wage theft is particularly acute in food and drink service, and restaurants across the country have been found to be in violation of wage and hour laws.
    • Research has also shown that the practice of tipping is often discriminatory, with white service workers receiving larger tips than black service workers for the same quality of service.


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