Are tips considered part of compensation for a tipped employee in calculating minimum wage?
Yes. The Small Business Job Protection Act of 1996 sets employers’ cash obligation at no less than $2.13 an hour. Tips MAY BE counted toward the remainder of the minimum wage obligation. However, if an employee’s tips combined with the employer’s cash wage of $2.13 an hour do not equal the minimum hourly wage, the employer must make up the difference. Employers are required to explain the tip credit provisions to their employees in writing, and must explain that all tips received by the employees must be retained by them. If the employer fails to tell employees that part of their tips will be credited toward the minimum wage, the employer will be barred from taking credit for tips and could face a back pay award. Some states allow a lower tip credit than is permitted under the FLSA. Please contact a local tax expert to find out what specifically applies to your circumstance.
