According to North Carolina administrative law, “tips are not wages” (13 NCAC 12.0303). This means as an employer, you are not allowed to require employees to receive their entire compensation from tips in lieu of wages.
Tips may be counted toward wages, however, to the extent as the employer is permitted to take a “tip credit” of at least $2.13 an hour in direct wages and applied as long as each employee receives enough in tips to make up the difference between the wages paid and the current minimum wage ($7.25). An employer can take advantage of a “tip credit” by paying tipped employees a cash wage of $2.13 plus an additional amount in tips that brings the total wage to the federal minimum wage. For an employer to use the “tip credit” to help meet the minimum wage requirement for employees, the employee must be informed of this fact and the employee must also be permitted to keep tips, unless the employee is part of a tip pool with other employees who regularly receive tips. For a tip pool to be valid, the employer must make sure that only employees who regularly receive tips participate.
North Carolina follows the federal minimum wage and tip credit. Be aware these amounts can change depending on changes to federal law. No state is permitted to pay a minimum wage or tip credit below the federal minimum guidelines.
The US Department of Labor (DOL)’s new Dual Jobs and final 80/20 tip credit rules are effective December 28, 2021, and change tip regulations under the Fair Labor Standards Act (FLSA). Employers are required to closely monitor tipped employees’ work in three categories:
- Time spent on tasks that produce tips – this is work that provides service to customers for which tipped employees receive tips.
- Time spent on tasks directly supporting tip-producing work – this is work performed in preparation of or to otherwise assist tip-producing customer service work. It may be paid at a tip credit rate, but only if the work is not performed for a substantial amount of time, which is defined as either (1) more than 30 continuous minutes, or (2) more than 20% of the hours in a workweek for which the employer has taken a tip credit.
- Time spent on tasks that are not part of the tipped occupation – any time spent in this category must be compensated at full minimum wage.
View these examples of how DOL believes hospitality work should be categorized. Employers who willfully or repeatedly violate the minimum wage or overtime pay requirements are subject to a civil money penalty of up to $1,000 for each such violation. Learn more about what’s next and how to adopt a compliance strategy.
Notice to Employees – A key requirement for taking the tip credit is notice to employees. Employers must notify employees in advance of the amount of cash wages they will be paid and the amount that wages will be increased using the tip credit. Employers must also notify employees in advance that employees are entitled to retain all tips.
Employers need not provide this information in writing. Of course, putting it in writing and obtaining an employee’s written acknowledgement of receipt would help prove that the information was provided.
The National Restaurant Association provides information on tip credit employee notice requirements and has developed two sample notices, which can be obtained from the association’s website. Version A is for those who do not require tip pooling, while Version B is for those who do. You may obtain these sample notices here.