The U.S. Supreme Court is being asked to decide what amounts to the future of tip credit for many businesses – particularly in the hospitality industry. In short, the issue is whether an employer can continue to pay tip credit employees on a tip credit basis if they spend more than 20% of their work time on duties that did not produce tips.

Background

All employees must be paid the minimum wage under federal and state law. The FLSA allows employers to satisfy the minimum wage requirement by taking a "tip credit." For employees who regularly receive more than $30.00/month in tips, the tip credit provisions of the FLSA permit an employer to pay its tipped employees not less than $2.13 per hour in cash wages and take a "tip credit" equal to the difference between the cash wages paid and the federal minimum wage.

The tip credit may not exceed the amount of tips actually received and under the current minimum wage may not exceed $5.12/hour. Therefore, for example, under federal law an employer could pay a tipped employee $2.13/hr and take a tip credit of $5.12/hr, provided the tipped employee makes sufficient tips to cover the tip credit.

The use of tip credit, though simple in its concept, can also be complicated by state laws. Some states forbid the use of tip credit, while others impose significant recordkeeping and/or notice requirements on the use of tip credit.