The Fair Labor Standards Act (FLSA) includes specific requirements for calculating minimum wage and overtime pay for tipped employees. The statute allows employers the option of satisfying their minimum wage obligation to tipped employees by paying them a reduced cash wage and treating a portion of employee tips as a credit toward the remainder. This so-called tip credit is the difference between the required cash wage and the minimum wage.

Application of the tip credit is complicated by employee notice requirements and differing state and local standards. For example, state or local law may require a higher minimum wage, a higher cash wage, or prohibit tip credits entirely.

Whether and under what circumstances employers can require employee participation in tip pooling arrangements can also be problematic. For employers that take a tip credit, federal law provides that valid mandatory tip pools may only include employees who regularly and customarily receive tips. State and local law, however, may impose other restrictions on tip pooling or prohibit tip pooling arrangements altogether.

Tipped employees are also subject to generally applicable wage and hour standards, including:

This Toolkit provides resources concerning wage and hour compliance and litigation issues involving tipped employees under the FLSA. For resources addressing state and local wage and hour law, including tipped employee issues, see State Wage and Hour Claims Toolkit.