What must companies that rely on tips for compensation ensure?

Companies that rely on tips for compensation must ensure that the total earnings of their employees—comprising both their base pay and the tips they receive—amount to more than the federal minimum wage. This requirement is crucial for compliance with labor laws that protect workers' rights.

Under the Fair Labor Standards Act (FLSA), if an employer pays a base wage that is lower than the minimum wage (such as for tipped employees), the combination of that base wage plus tips must equal at least the federal minimum wage. If it does not, the employer is required to make up the difference. This provision is specifically designed to protect workers who depend on tips as a significant portion of their earnings, ensuring that they are fairly compensated for their work regardless of the variability of tips received from customers.

Maintaining this balance is essential not only for legal compliance but also for employee morale and retention, as ensuring that workers earn a livable wage fosters a more satisfied and motivated workforce.