Apply the Tip Credit

Key Points

  • Employers of employees such as waiters, waitresses, bartenders and bellhops who customarily and regularly receive more than $30 per month in tips may apply those tips as a credit against their minimum wage obligations under the Fair Labor Standards Act (FLSA). The credit can be as much as the difference between the required minimum cash wage of $2.13 per hour and the federal minimum wage rate (currently $7.25 per hour).
  • Before applying the tip credit, employers must notify employees about how the tip credit works. Employees may be informed orally, but written notification is preferable.
  • When tips are charged on a credit card and the employer must pay the credit card company a percentage on each sale, the employer may pay the employee the tip, less that percentage.
  • Employers that take advantage of the tip credit must also fulfill additional recordkeeping requirements.

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