San Francisco partner Cheryl Orr was quoted in the third article in a series for SHRM on wage-and-hour compliance. “What Special Wage Rules Apply to Workers Who Customarily Receive Tips?” covers federal and state laws for tipped employees.
While the Fair Labor Standards Act (FLSA) has imposed certain rules on employers with tipped employees, many state and local laws are more generous and may differ in their restrictions. "Among other things, state laws may differ from federal law when it comes to the lawfulness of tip credits, mandatory tip pools and credit card transaction fee deductions from employee tips," Cheryl said.
Under the FLSA, employers may pay tipped employees as little as $2.13 per hour, as long as employers disclose certain mandates and employees are able to recoup $5.12 in gratuities to compensate for the federal $7.25 minimum wage. Cheryl stated that if state law prohibits tip credits or provides for a higher maximum tip credit, the state law controls.
Some jurisdictions also allow an employer to deduct credit card transaction fees from a worker’s earned tip. Cheryl noted that “[e]mployers must not only determine if credit card deductions are permissible in the states in which they operate, but also ensure such deductions do not lead to minimum wage and/or tip credit violations.”