Treatment Of Tipped Employees Under Minimum Wage Laws

Everyone knows that the current minimum wage under state and federal law is $7.25 an hour.  That’s an easy rule to apply to most employees.  But it can become complicated for workers who customarily and regularly receive tips and are thus considered “tipped employees.”  The rules change rather considerably for tipped employees.  Treatment of tipped employees for purposes of state and federal minimum wages contains a number of nuances, so I’m painting with very broad brushstrokes here.

It’s important to note that minimum wage is governed by both federal law and, in some instances, state law.  Federal law is always the same and applies to every state, but the states are free to enact minimum wage laws that provide a higher rate of pay than than mandated by federal law.  For example, Iowa requires that tipped employees be paid at least $4.35 an hour, while the federal minimum wage is $2.13 for tipped workers.  Employers must comply with the higher minimum wage, so Iowa employers must pay tipped employees at least $4.35 an hour, not the $2.13 minimum wage under federal law for tipped employees.

Tipped workers must still be paid the equivalent of the $7.25 minimum wage.  It’s just that employers of tipped employees get to count employees’ tips as a “tip credit” toward the mandatory minimum of $7.25 an hour.  Here’s how the tip credit system works:  Tipped employees are guaranteed at least $4.35 an hour.  In addition to the $4.35 minimum wage for tipped employees, tipped workers also get to keep their tips.  Employers get to count the tips towards the $7.25 minimum wage as a “tip credit.”    The $4.35 minimum wage for tipped employees plus the tips must equal the standard $7.25 per hour minimum wage, or the employer has to make up the difference by paying the tipped employee additional wages sufficient to equal $7.25 an hour.

Minimum wage for tipped employees can become really convoluted for jobs that require tipped employees to occasionally do non-tipped work, like a restaurant that requires its servers to assist with opening, closing, cleaning, and preparatory activities for which there are no customers and thus no possibility of receiving tips.  Whether the employer can still pay employees the tipped rate of $4.35 during such activities, or whether the standard $7.25 rate for non-tipped employees applies, depends on the facts of each case.  Federal and state law can sometimes mandate that employers who require employees to work “dual jobs” pay for non-tipped labor at the $7.25 non-tipped rate.

Minimum wage cases require analysis of federal and state statutes, U.S. Department of Labor and Iowa Department of Labor regulations, and court decisions.  I can help you with any employment law or labor law questions that you might have.  Please feel free to contact me for a free initial consultation about employment law or labor law.



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