What is it?
Federal regulations allow restaurants a credit against paying the full minimum wage, so long as the employee customarily and regularly receives more than $30 per month in tips.
To take advantage of the tip credit, the following must occur:
- The employer must inform tipped employees about the tip credit provisions;
- The employer must maintain and preserve certain detailed records; and
- The tipped employee must retain all tips received.
Failure to inform the employee that the restaurant would be receiving a tip credit to offset its minimum wage obligation voids the credit, and makes the restaurant liable for the full minimum wage. In other words, the tip credit does not turn on whether the employee actually received the tips, but on whether the restaurant legally met its notice requirements.
What information must the employer pass along to the employee and how must the information be conveyed? Usually, oral or written notice of the relevant provisions is sufficient. In such circumstances, an effective employee handbook expresses the necessary information, and helps protect restaurants from litigation.
