Question

How does the tipped minimum wage differ from the FLSA minimum wage.

Answer 1

Tip credit is the difference between the state minimum wage and the cash wage an employee is paid.

The Fair Labor Standards Act (FLSA) permits employers to pay employees less than the standard. That being said, if an employee doesn’t earn enough from tips to meet PA’s minimum wage requirement, the employer has to make up the difference.

If an employee has two jobs and one job is to spend some of their shift doing non-tipped work, the employer can take a tip credit for the time spent on non-tipped duties. The employer can do this if the non-tipped work relates to the tipped work an employee does and is completed immediately before, after, or during tipped worked.

Some places charge a mandatory service charge from individuals or parties of a certain sizes. Under FLSA, a service charge cannot be considered a tip and any portion of that service charge, if any, that is given to the employee cannot be used by the employer towards the tip credit.

Tipped employees are those who customarily and regularly receive more than $30 per month in tips. Tips are the property of the employee. The employer is prohibited from using an employee’s tips for any reason other than as a credit against its minimum wage obligation to the employee (“tip credit”) or in furtherance of a valid tip pool. Only tips actually received by the employee may be counted in determining whether the employee is a tipped employee and in applying the tip credit.

Tip Credit: Section 3(m) of the FLSA permits an employer to take a tip credit toward its minimum wage obligation for tipped employees equal to the difference between the required cash wage (which must be at least $2.13) and the federal minimum wage. Thus, the maximum tip credit that an employer can currently claim under the FLSA section 3(m) is $5.12 per hour (the minimum wage of $7.25 minus the minimum required cash wage of $2.13). Under certain circumstances, an employer may be able to claim an additional overtime tip credit against its overtime obligations.