Understanding the Tip Credit - Part 2 of 3

Home/Wages/Minimum Wage/Understanding the Tip Credit – Part 2 of 3

The Tip Credit is a popular method of payment used by restaurants, bars, and other businesses. However, a surprisingly large percentage of business owners do not fully understand how to properly apply the Tip Credit in terms of overtime, minimum wage and participation. In this three part series, we will break down each of these components for the proper use of the Tip Credit.

Today we address minimum wage.  In short, any employee in Florida receiving wages subject to the Tip Credit must be paid no less than $5.08 per hour directly from the employer. This rule applies no matter how much the employee receives in tips.

Let’s look at two scenarios:

Scenario A – The employer pays $200 for a 40 hour work week and the employee additionally averages $750/week in tips.

Scenario B – The employer pays $300 for a 40 hour work week and the employee additionally averages $200/week in tips.

In both scenarios, the employee earns well in excess of the Florida minimum wage. Also, the employee in Scenario A earns far more than in Scenario B. However, the employer in Scenario A fails to meet the minimum wage threshold.

The critical issue is that the employer’s contribution must be equivalent to the minimum wage times the number of hours worked. The amount of tips earned by the employee doesn’t matter so long as the employee’s total pay exceeds minimum wage (in Florida, that would be $324/week at the present minimum wage rate of $8.10/hour for a 40 hour week).  Thus, Scenario A fails because the employer is paying only $5.00/hour and not the required $5.08/hour.

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