In a surprise move, the Fair Labor Standards Act (FLSA) is amended through President Donald Trump’s spending bill that was passed March 23. The FLSA is a federal law that governs a number of wage issues, including the requirement that employers pay minimum wage to employees for every hour worked as well as an overtime premium for hours worked over 40 in a work week. FLSA compliance in the hospitality industry presents unique challenges, because many employees within the industry receive tips—and tips raise special issues with respect to wage and hour law.

Where you have employees who are customarily and regularly tipped, the FLSA provides that employers can take a tip credit which allows employers to pay eligible employees a direct hourly wage that is less than the federally mandated minimum wage. The current federal minimum hourly wage is $7.25. Therefore, with a tip credit, an employer can pay tipped employees less than minimum wage and use the tips to cover the difference. This is known as the tip credit; it is a credit that the employer takes toward the minimum wage.

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