A wage-and-hour mechanism allowing employers to pay tipped employees a lower cash wage, with tips making up the difference to minimum wage.
The federal tip credit lets employers pay tipped employees a cash wage of $2.13/hour as long as tips bring the total compensation to at least the federal minimum wage ($7.25). Some states have higher cash wage floors (CA, NV, MN, MT, OR, WA require full minimum wage regardless of tips).
FLSA's 80/20 rule (and its 2021 update) limits how much non-tipped work a tipped employee can do without losing tip credit eligibility. Tip pool rules also constrain how tips can be shared among workers.
PEOs operating in hospitality handle tip credit + 80/20 + tip pool compliance — areas where wage-and-hour exposure is concentrated.
A wage-and-hour mechanism allowing employers to pay tipped employees a lower cash wage, with tips making up the difference to minimum wage.
The federal tip credit lets employers pay tipped employees a cash wage of $2.13/hour as long as tips bring the total compensation to at least the federal minimum wage ($7.25).
Most PEO buying decisions touch several related concepts at once. Tip credit typically comes up alongside the other terms in this category. Closely related terms include Fair Labor Standards Act (FLSA), Minimum wage.
This is one entry from our PEO glossary covering payroll, benefits, workers comp, HR compliance, and PEO mechanics. Browse all terms.
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