Under the FLSA, an employer is required to pay employees the minimum wage. Then section 3(m) defines the term of the wage and allows an employer to claim a tip credit in satisfying the minimum wage obligation.  This allows restaurants to pay tipped employees a minimum wage of $2.13, but employers must make sure that earned tips make up the difference between the $2.13 and the statutory minimum wage.

In 2011, the Labor Dept amended a long-standing rule that allowed employers at restaurants to pool tips to give all employees, both tipped and non-tipped, incentives to better serve customers. In the 2011 directive, the Labor Dept ruled that only tipped employees were eligible for tip income, thus employers could not pool tips and give them to non-tipped employees. The Labor Dept’s directive even prohibited the use of pooling even if all employees were paid the statutory minimum wage.

Recently, a federal court in Oregon ruled against the revised regulation stating that restaurant employers  could pool tips and that the Labor Dept.’s revised regulation was inconsistent with the federal wage and hour law and thus invalid.