As a leader in tip distribution and automation, Gratuity Solutions understands the complexity of managing tips in compliance with federal regulations. The Fair Labor Standards Act (FLSA) sets strict guidelines for how employers handle tips, tip credits, and wage obligations for tipped employees. Staying compliant isn’t just about avoiding penalties it’s about building trust and transparency with your workforce.

Understanding Tip Credits

Under Section 3(m)(2)(A) of the FLSA, employers can take a tip credit toward their minimum wage and overtime obligations for tipped employees. However, this comes with clear responsibilities:

  • • Employees must receive enough tips plus direct wages to meet at least the federal minimum wage.
  • • Overtime pay must be calculated correctly based on FLSA standards.

Failing to meet these requirements can lead to costly violations and damage employee trust.

Key Compliance Areas

The Department of Labor’s regulations (Title 29 Part 531, Subpart D) outline several critical areas:

  • • Tip Credit Conditions – When and how employers can claim a tip credit.
  • •Restrictions on Tip Use – Employers cannot keep employees’ tips under any circumstances.
  • •Tip Pooling Rules – Who can participate and how tips must be redistributed.
  • •Dual Jobs – Handling employees who work both tipped and non-tipped roles.
  • •Overtime Calculations – Ensuring tipped employees receive proper overtime pay.

Employers must also maintain accurate records for tipped employees as required under 29 CFR § 516.28.

Recent Regulatory Updates (2020–2024)

The Department of Labor has strengthened protections for tipped employees through several rule changes:

  • • 2020 Tip Rule: Employers cannot keep tips, managers and supervisors cannot take tips from pools, and mandatory tip pools must be fully redistributed within the pay period.
  • •2021 CMP Rule: Restored penalties for employers who take tips and clarified rules for managers and supervisors.
  • •Dual Jobs Regulation: After legal challenges, the original dual jobs rule was reinstated in 2024.

These updates emphasize transparency and accountability in tip management.

Why This Matters for Your Business

Non-compliance can result in significant fines, legal exposure, and reputational harm. More importantly, improper tip handling erodes employee trust and morale. Businesses need systems that:

  • • Automate tip distribution.
  • •Maintain accurate records.
  • •Ensure compliance with FLSA and state laws.

How Gratuity Solutions Leads the Way

At Gratuity Solutions, we provide cutting-edge technology that automates tip distribution and ensures compliance with federal and state regulations. Our platform:

  • • Eliminates manual errors.
  • •Provides real-time reporting.
  • •Enhances transparency for employees and employers.

Ready to simplify compliance and boost efficiency?
Schedule a demo today and see how we can transform your tip management process.

Source: U.S. Department of Labor – Tip Regulations under the FLSA