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What is a tip credit?

Invoicing, time cards and scheduling glossary · 1 primary source

Under the FLSA, the part of the minimum wage an employer may cover with a tipped employee's tips: up to $5.12 an hour, with a cash wage of at least $2.13.

A tipped employee customarily and regularly receives more than $30 a month in tips. If cash wage plus tips do not reach the $7.25 federal minimum for the workweek, the employer pays the difference. Several states do not allow a tip credit at all or set higher cash wages.

Mandatory tip pools may include only regularly tipped staff when a tip credit is taken; cooks and dishwashers can share only if everyone in the pool gets the full minimum cash wage. Managers and supervisors may never take from the pool, and employers may never keep employees' tips.

Sources

US DOL Fact Sheet #15: Tipped Employees

Related terms

Overtime (federal)For non-exempt employees, pay of at least one and a half times the regular rate for hours worked over 40 in a workweek.
Regular rate of payThe hourly rate overtime is based on: all pay for the workweek's work divided by the hours worked, not just the base hourly wage.

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