This week, our Charleston office held its Legal Grounds coffee break. The Legal Grounds event provides an opportunity for managers, owners, and human resources personnel in the food and beverage and hospitality industries to meet, socialize, and discuss legal issues they are currently facing in their business. The topics have ranged from employee handbook policies to staffing concerns. Most of the concerns facing this group have involved wage and hour issues, and many of those in attendance employ tipped employees.

If you employ tipped employees, you are probably familiar with the specific rules and regulations under the Fair Labor Standards Act (“FLSA”) governing tip pooling, paying tipped employees, and using a “tip credit” to pay tipped employees an hourly rate that is less than $7.25. As a general reminder, if claiming a tip credit against the minimum wage, the FLSA has specific informational requirements.

Before taking a tip credit, an employer must provide the following information to its tipped employees:

  1. The amount of the cash wage to be paid by the employer to the tipped employee, which must be at least $2.13 per hour;

  2. The amount claimed by the employer as a tip credit, which cannot exceed $5.12 (the difference between the minimum required cash wage of $2.13 and the current minimum wage of $7.25);

  3. That the tip credit claimed by the employer cannot exceed the amount of tips actually received by the tipped employee;

  4. That all tips received by the employee are to be retained by the employee except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips; and

  5. That the tip credit will not apply to any tipped employee unless the employee has been informed of these tip credit provisions.

Notification of the five items above can be by oral or written notice to tipped employees. However, as a general practice, written notice is preferred so that you have direct evidence of communicating the five required items to the employees prior to taking the tip credit. This can be accomplished by requiring employees to sign off on a notice at their time of hire. In the end, this small step can save money in the long run as an employer who fails to provide the required information cannot use the tip credit provisions and must pay tipped employees at least $7.25 per hour in wages and allow tipped employees to keep all tips received.