Under the FLSA, tipped employees (individuals engaged in occupations in which they customarily and regularly receive more than $30 a month in tips) may be paid less then federal minimum wage. The employer may consider tips as part of wages when calculating an employee’s minimum wage, but the employer must pay the employee at least $2.13 an hour.

The employer who elects to use tips as a credit against an employee’s minimum wage must inform the employee in advance and must be able to show that the employee receives at least the applicable minimum wage (see above) when wages and tips are combined. If an employee’s tips combined with the employer’s direct wages of at least $2.13 an hour do not equal the minimum hourly wage, the employer must make up the difference.

An employee must retain all of their tips, except to the extent that they participate in a valid tip pooling or sharing arrangement. A tip is the sole property of the tipped employee regardless of whether the employer takes a tip credit. The FLSA prohibits any arrangement between the employer and the tipped employee whereby any part of the tip received becomes the property of the employer.

To read more about “Tipped Employees” under the FLSA, please see U.S. Department of Labor Fact Sheet #15.