What is the tip credit?

Author: Michael Cardman, XpertHR Legal Editor

The Fair Labor Standards Act allows employers to count tips that wait staff, bartenders, bellhops, valets and other tipped employees receive toward their minimum wage obligations. Several states also allow employers to count tips toward state minimum wage obligations. Employers that wish to take advantage of the tip credit must pay a minimum cash wage, which is at least $2.13 under federal law. For example, if an employee received at least $5.12 per hour, then the employer could count that amount as a tip credit against the minimum wage and would have to pay the employee only $2.13 per hour in direct, cash wages.