Tip Credit

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Tip credit is a percentage or monetary amount set by federal or state law that can be deducted from the minimum wage of employees who receive tips. The law that favors the employee is honored.

For example, in one state, the allowed tip credit is 50 percent or $3.09. This means that an employer can pay an employee $3.08 an hour rather than the $6.15 minimum wage as long as the employee receives enough tips during a payroll period to earn the minimum wage for each hour worked. If the employee’s combined earnings (that is, wage, as adjusted by the tip credit, plus tips) average out to below the minimum wage, then the employer must make up the difference. You can run the Tip Exception Report to see a list of employees whose wages and declared tips are less than the minimum wage.

Since tip credits are determined on a state-by-state basis, it is necessary to refer to the relevant state documentation on this issue or you can refer to the Department of Labor Website information regarding tip credits at www.dol.gov.

Parent topic: Human Resources Administration

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