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Restaurant Tip Law

Restaurant tip laws, or "guidelines," are established by the U.S. Department of Labor through the FLSA (Fair Labor Standards Act). Essentially, the DOL establishes standards that all restaurants must adhere to regarding minimum wage and overtime pay.

If you have an employee who you pay on a weekly salary basis, as opposed to hourly, that employee is considered exempt from minimum wage and tip regulations. But in restaurants, most employees (servers, bussers, dishwashers, kitchen help and others) are non-exempt, meaning you must pay them, and treat their tips, in accordance with FLSA guidelines.

Here's how restaurant tip laws work: Restaurant owners must see to it that their tipped employees earn at least the federal minimum wage (which is currently $7.25 an hour). But how you arrive at that $7.25 figure is where the tip credit comes in. Let's say that employee earns tips as part of his or her job (tipped employees are defined as those who customarily and regularly receive more than $30 per month in tips).

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 is $5.12 per hour (the minimum wage of $7.25 minus the minimum required cash wage of $2.13).

But what if an employee works in both a tipped and a non-tipped capacity, such as a maintenance person and a waitperson? The tip credit is available only for the hours spent by the employee in the tipped occupation.

And how about tips charged on a credit card? The employer must pay the credit card company a percentage on each sale, and the employer may pay the employee the tip, less that percentage.

Valiant provides restaurant payroll services as well as web-based workforce management solutions to the restaurant industry to help control costs, reduce back office expenses and stay in compliance. Contact Valiant for a no-obligation restaurant compliance evaluation.

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