The tip credit and your minimum wage

It is DTRH’s official reading of how much of its employees’ tips an employer may credit toward the minimum wage. Act 47-2021 does not expressly mention the tip credit, which is where the doubt came from; the Secretary concludes the credit is the difference between the state minimum wage and the $2.13 hourly direct payment set by federal law, also known as the base wage or cash wage.

It applies to tipped employees, who under the Fair Labor Standards Act, as the opinion cites it, are those who customarily and regularly receive more than $30 a month in tips. Act 47-2021’s increases apply to workers covered by the FLSA, except agricultural workers, government employees — other than those working in instrumentalities operating as private businesses — and so-called exempt employees.

• Customarily and regularly receiving more than $30 a month in tips: that is how the FLSA defines a tipped employee.Verified against the official source
• That the employer inform you beforehand if it is going to take the tip credit.Verified against the official source
• That the employer be able to prove you received the applicable minimum once the $2.13 hourly payment and the tips received are combined.Verified against the official source
• That the tips be, in fact, received by the employees.Verified against the official source

• The payroll records the employer must keep if it takes the credit: a notation identifying each employee whose wage is set partly by tips, the amount of tips the employee reports, the hourly amount credited, and hours and earnings separated by tipped and non-tipped occupation.

1. 1

   Step 1: The arithmetic, in one line

   State minimum wage minus $2.13 equals the maximum tip credit. The opinion computes it with the $10.50 state minimum that took effect on 1 July 2024: the maximum credit is $8.37. You are entitled to the full $10.50; what the law allows is for the employer to get there by putting in at least $2.13 of its own and counting your tips for the rest. As the state minimum rises the credit rises proportionally, unless legislation or a special mandatory decree of the Minimum Wage Evaluating Commission provides otherwise. That is why we do not publish any of these figures as permanent: confirm the minimum in force before doing your arithmetic.

2. 2

   Step 2: If the tips fall short

   The employer makes up the difference. The opinion says it in closing: only in cases where the tips received do not bring the worker to the state minimum wage in force must the employer make an additional direct contribution up to that sum. It is not optional and it does not depend on how the night went.

3. 3

   Step 3: The tips are yours

   A tip is a sum a customer presents as a gift or gratuity in recognition of a service received, and both the giving and the amount are determined solely by the customer. Tips are the employee’s property even when the employer takes no credit and pays the full minimum directly. The employer is forbidden to use tips for any purpose other than the credit or the tip pool, and may not take part of them for the business’s operating expenses. The only exception the opinion recognises is deducting the electronic-transaction processing charge when the tip is paid electronically: if card processing is 3% of the transaction, only that percentage may be deducted from the tip.

4. 4

   Step 4: The pool: who is in and who is out

   If the employer takes the credit, it may require pooling only among tipped employees. It must notify any required contribution to the pool, may credit only what each employee ultimately receives, may keep nothing for another purpose, and may not receive tips for itself nor let managers and supervisors share in the pool. By contrast, if the employer pays the full minimum and does not use the credit, it may let employees who do not customarily and regularly receive tips — dishwashers, cooks — into the pool. Distribution goes no later than the next regular payday, which in Puerto Rico may not exceed fifteen-day intervals. Federal regulation does not require handing over tips daily.

5. 5

   Step 5: When the work produces no tips

   There are two distinct rules here. First: when you do non-tip-producing work that directly supports tip-producing work, for more than thirty consecutive minutes or more than twenty per cent of your weekly shift, the employer must pay you the full minimum with no credit. For servers, that supporting work includes setting up the dining room, refilling salt, pepper and condiment dispensers, rolling silverware, folding napkins, sweeping or vacuuming, and setting and cleaning tables; for bartenders, cutting fruit, cleaning the bar and glasses, arranging bottles and fetching supplies. The second rule is blunter: for any work that does not directly support tip-producing functions — food preparation, cleaning kitchens and bathrooms, ordering supplies — the employer must pay the full minimum, with no credit, for all that time.

6. 6

   Step 6: Overtime hours

   The opinion does the arithmetic with the $10.50 minimum: the overtime hour is paid at time and a half, that is $15.75. But the employer may only use the tip credit up to the maximum allowed for a regular hour, $8.37. The result is that its direct contribution rises from $2.13 to $7.38 for that overtime hour. The tip credit must be the same for regular and overtime hours; and if the employer pays a direct contribution higher than $2.13 an hour, the available credit is reduced by that same amount.

7. 7

   Step 7: Where to complain

   The opinion gives two doors. If the employer withholds tips, you may complain to the Caribbean District Office of the federal Department of Labor’s Wage and Hour Division (WHD-DOL), which under the FLSA may impose civil penalties, recover the tips owed and an equal additional amount as damages. If you were paid less than the state minimum wage in force, you may contact DTRH’s Bureau of Labor Standards. Act 47-2021 sets penalties for violations of up to $5,000, and up to $10,000 for repeat offenders, plus compensation of double the damages suffered by the employee.

Claims for withheld tips go to the Caribbean District Office of the federal Department of Labor’s Wage and Hour Division. Claims for being paid below the state minimum go to DTRH’s Bureau of Labor Standards. The opinion publishes no addresses or phone numbers for those offices and we do not invent them here.

• Believing that if you receive tips your minimum wage is $2.13: the $2.13 is only the employer’s minimum direct contribution.
• Not claiming the difference when tips did not reach the state minimum.
• Accepting deductions from tips for business expenses other than the electronic-processing charge.
• Letting managers or supervisors share in the pool while the employer takes the tip credit.
• Spending more than thirty consecutive minutes, or over 20% of the week, on supporting work without being paid the full minimum.
• Accepting a larger tip credit on overtime hours: it is capped at the regular-hour maximum.
• Treating the $8.37 figure as fixed: it rises and falls with the state minimum wage.

These are the government pages this guide is based on.

• Departamento del Trabajo y Recursos Humanos (DTRH)

  Departamento del Trabajo

  www.trabajo.pr.gov

• Department of Labor and Human Resources — Secretary’s opinions

  dtrh

  www.trabajo.pr.gov