Under the Fair Labor Standards Act (FLSA), employers are allowed to pay their tipped employees less than the minimum wage as long as they follow certain rules. A tipped employee is a worker in a position where he or she customarily and normally receives more than $30 a month worth of tips. The difference between the hourly-salary rate paid by the employer and the standard federal minimum wage is what we call a tip credit. In Illinois, for example, where the minimum wage is $8.25, tipped employees can be paid as little as $4.95 per hour if the tip credit rules are followed.

On May 5, 2011, an amended Department of Labor regulation took effect, changing some of the tip credit requirements for restaurant employers. The DOL‘s Final Rule amended the tip regulations on three basic matters: the ownership of employee tips, arrangements for tip-pooling, and required notification to employees. In June 2011, the National Restaurant Association, the Council of State Restaurant Associations, and National Federation of Independent Business filed a lawsuit against the DOL, asking the court to stop the DOL’s enforcement of the new rules. The lawsuit is still pending, but employers with tipped employees should speak to an employment attorney to determine whether their pay practices are in compliance with state and federal laws.