Recent Federal Court Ruling Affects Arizona Tip Credit

Date: October 04, 2017

Good news for restaurant-owning members

In the wake of the Ninth Circuit Court’s recent decision, NFIB has issued guidance to small-business owners with tipped employees. Businesses are still advised to consult with a trusted employment law attorney about their policies, but the court’s Marsh v. J. Alexander LLC decision makes life much easier for employers with tipped employees in Arizona.

Arizona is one of only three states in the Ninth Circuit that permits employers to use tip credits to satisfy federal minimum wage requirements. As explained by the NFIB Small Business Legal Center, employers must pay tipped employees a minimal base salary of at least $2.13 per hour, provided that the employee makes enough in tips. But the employer must pay a higher base wage if the employee’s tips are insufficient to satisfy minimum wage obligations.

In addition, the Legal Center’s guidance observes that some jurisdictions have imposed more stringent requirements on employers using tip credits for tipped employees. These jurisdictions require employers to calculate the time that tipped employees spend on tasks that are unlikely to generate tips, down to the minute—and exclude the use of tip-credits for these tasks if they account for more than 20 percent of the employee’s time. However, the good news is that the Ninth Circuit rejected this onerous requirement in Marsh. This means that employers may continue to use wage tip credits unless the tipped employee is working two separate jobs—with some clear division of labor.

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