What must restaurant owners do to comply with the new tip credit rule recently revised by the U.S. Department of Labor?

  • By:admin

The U.S. Department of Labor has issued a final rule on the use of the tip credit under Section 3(m) of the Fair Labor Standards Act (FLSA).  Tip credit is the amount of hourly wage that a restaurant owner can add to the hourly wage actually paid to a tipped employee in order to satisfy the federal minimum wage of $7.25 per hour (i.e., an employer can pay a tipped employee $2.50 per hour and claim a tip credit of $5.00 per hour to meet the $7.25 minimum wage requirement).

Effective on May 5, 2011, restaurant owners must provide its employees with a notice including the following information in order to claim the tip credit:

  • The amount of wage the employer will pay the employee;
  • The amount the employer will credit against tips received;
  • The tip credit will be no greater than the value of tips actually received;
  • The tip credit cannot be applied unless the tipped employee has been informed of the tip credit provisions of the FLSA; and
  • Except for valid tip pooling, all tips received by the tipped employee must be retained by the employee.

The failure to provide the notice above can result in the restaurant owner’s inability to claim a tip credit and a potential violation of the federal minimum wage requirements.  Recently, The National Restaurant Association, Council of State Restaurant Associations and National Federation of Independent Business filed suit against the U.S. Department of Labor over this final rule.  http://www.restaurant.org/pressroom/pressrelease/?ID=2129

Contact our law office today to find out how you can properly comply with the FLSA and how to avoid costly legal actions against your business.

****The opinion above is not intended to be legal advice and does not create any attorney-client relationship between its author and the readers.  Please consult an attorney for information or advice specific to your legal issue. ****

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Torrance, CA 90501


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