Tips and the Minimum Wage Laws – 2013 Update

As of the date this article goes to press, both the federal and the Pennsylvania minimum wage laws set the minimum wage at $7.25.  For some employers however, the minimum wage calculation can be more complicated than simply multiplying the number of hours worked by $7.25.

As is well known, restaurants use, and restaurant wait staff rely on, tips to make up the bulk of wait staff compensation.  Both the FLSA and the Pennsylvania Minimum Wage facilitate this practice by providing for a “tip credit.”  The tip credit permits the employer to rely on tips actually received by the employee to make up a portion of that employee’s minimum wage.  In Pennsylvania a restaurant owner must pay tipped employees $2.83 per hour, relying on a tip credit of $4.42 to make up the additional amount needed to reach the minimum wage of $7.25.

Use of the tip credit results in certain legal restrictions on the restaurant’s employee operations.  For example, a restaurant employer who relies on the tip credit must use care in pooling tips among its employees.  A restaurant owner who uses the tip credit cannot divert tip pool money to individuals who are not “traditionally tipped” individuals.  Effectively, this means that only wait staff can safely be compensated from  the pool; managers, cooks and kitchen staff cannot be compensated from the pool.    

In fact, if the restaurant employer desires to compensate non-wait staff employees  with money collected in the tip pool, it can do so only if the employer pays his wait staff direct wages that meet or exceed the minimum wage requirements without use of the tip credit.  In fact, if the employer pays the full $7.25 in direct wages to its wait staff, it is not relying on the tip credit at all; it can, from a legal perspective, do anything it wants with the tip pool money–even keep it.
Rod Fluck


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