If you’ve been paying attention to the news relating to wage and hour law (and really, who isn’t?), you may recently have heard quite a bit about new federal rules on tipped employees, and more recently Congress stepping in with new legislation. There has been a lot of rhetoric on all sides, though not always

There’s been plenty of press this week regarding the U.S. Department of Labor’s proposed rules governing employer treatment of tips. Commentators are debating whether the proposed changes are a sensible return to the four corners of the Fair Labor Standards Act or a cash-grab for the restaurant industry at the expense of workers. We’ll leave

TipJar_cropped14346183.jpgHospitality industry employers take note: If you claim a “tip credit” toward the minimum wage for any of your employees, you need to make sure that all tips are properly distributed to employees. A recent case from the Fifth Circuit Court of Appeals involving a Texas restaurant chain illustrates the hazards of making a mistake with the tip credit rules. Steele v. Leasing Enterprises, Ltd. (.pdf)

Here’s a summary of this cautionary tale:

Tip Credit Background

Under the Fair Labor Standards Act, employers are require to pay most employees at least $7.25 per hour. The FLSA allows tips received by employees to count for up to $5.12 of this total, meaning that an employer can pay tipped employees as little as $2.13 per hour so long as their tips are sufficient to make up the difference between their hourly wage and the federal minimum wage. But there are some restrictions. Employers can take advantage of this “tip credit” only if three conditions are met:
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US Department of Labor logo.jpgRecently on Twitter, I commented that revising the FLSA regulations won’t be quick or easy. Speaking of Twitter, if you’re not following @WageHourInsight yet, why not? I find lots of interesting tidbits every day that don’t make it here to the blog, and you can follow along with some of the more free-wheeling conversations HR professionals have on the very same topics we discuss here. 

My comment on Twitter should come with the added caveat: if they’re revised correctly. Merely increasing the minimum salary (the focus of the Secretary’s recent blog post) for the white collar exemption is not enough. Want some examples? DOL Secretary Perez referred to the Family Dollar case as an example of where the “primary duty” test revisions by the Bush administration swept up far more employees than he believes the FLSA intended. Need another? Tip credits. 


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