Wage and Hour classification: Tipped employees and federal audits

Employees who normally make more than $30 per month in tips are subject to a unique set of protections under the Fair Labor Standards Act. For employers, it’s wise to brush up on these wage and hour classifications. Here’s the crux of the law for tipped employees: they can be paid a base of as little as $2.13 per hour, but their total wages must reach at least $7.25 per hour, which is the federal minimum wage. This situation can pose a problem to a business if it’s not careful.

Let’s consider the following example: Imagine a small bakery that expands, adding a few tables and an espresso bar. A few wait staffers are hired. The bakery remains the core business, but the snack bar performs decently enough, and tips are a regular part of the servers’ income.

Now, the bakery has a new set of rules to follow. For starters, as the U.S. Department of Labor notes, an “employer who elects to use the tip credit provision must inform the employee in advance and must be able to show that the employee receives at least the applicable minimum wage . . . when direct wages and the tip credit allowance are combined.” Furthermore, the bakery must be aware that employees keep all tips unless a “valid tip pooling or sharing arrangement” is in place.

Regardless of the business, rules must be followed to make sure employees are receiving the minimum wage — or the business could be subject to a federal wage and hour audit, or perhaps even a lawsuit, which have increased in number in recent years.

If you’d like to learn more about wage and hour classification or other employee benefits issues, please contact a Plexus client representative at 847-307-6100 (Chicago) or 972-770-5010 (Dallas/Oklahoma), or visit us on the Web at plexusgroupe.com.


Allen, Richard and Young, Kevin. Another Year, Another All-Time High For Wage and Hour Litigation.” WageHourLitigation.com (Seyfarth Shaw LLP), November 20, 2015.

Handy Reference Guide to the Fair Labor Standards Act.” United States Department of Labor, Wage and Hour Division, November 2014.