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Legal Alert: Imposed Gratuity Cannot be Used for Tip Credit Under the FLSA

Date   Dec 2, 2005

A recently issued Department of Labor (DOL) opinion letter reminds employers that gratuities imposed by employers on customers cannot be used by the employer to satisfy the Fair Labor Standards Act's (FLSA) minimum wage and overtime requirements for tipped employees.

A recently issued Department of Labor (DOL) opinion letter reminds employers that gratuities imposed by employers on customers cannot be used by the employer to satisfy the Fair Labor Standards Act's (FLSA) minimum wage and overtime requirements for tipped employees. A copy of the opinion letter is attached to this Alert.

The FLSA permits employers to pay tipped employees (employees who regularly and customarily receive more than $30 per month in tips) $2.13 per hour in cash wages if they receive additional amounts in tips that would equal the difference between the cash wage paid and the current federal minimum wage ($5.15 per hour).

The DOL issued an opinion letter in response to a question regarding whether a 15% imposed gratuity added to every reservation and transferred directly to chauffeurs employed by the company seeking the opinion could be used to satisfy the FLSA's minimum wage and overtime requirements. The DOL responded that such an imposed gratuity could not be used in this manner because it is not voluntary. The regulations issued by the DOL interpreting the FLSA distinguish between a tip voluntarily paid by the customer and a mandatory charge imposed on a customer. Accordingly, employees who receive such imposed gratuities, such as the chauffeurs described in the opinion letter or those who receive compulsory service charges added to restaurant bills when there is a large party, must be paid the entire minimum wage and overtime required by the FLSA, unless the employee receives enough bona fide tips to qualify the employee as a tipped employee.

Employers' Bottom Line:

While the DOL's opinion letters are advisory only and do not constitute binding law, they do provide insight into how the agency interprets the FLSA in a particular situation. Meeting the requirements of the FLSA can, in many employment situations, be quite complicated . If you have any questions regarding FLSA compliance or any other labor or employment related issue, please contact the Ford & Harrison attorney with whom you usually work.