Must a company pay tipped employees minimum wage for all hours taken as vacation time, or is it permissible to pay only the tip credit wage?

The  U.S. Department of Labor (DOL) does not address paid time off for tipped employees. According to the DOL, "The Fair Labor Standards Act (FLSA) does not require payment for time not worked, such as vacations, sick leave or federal or other holidays. These benefits are matters of agreement between an employer and an employee (or the employee's representative)."

It is common for employers to pay employees at their regular rate of pay for vacation hours; however, tipped employees are customarily paid a lower base rate in addition to gratuities received from customers (i.e., the tip credit). In these circumstances, employers will need to decide whether the lower tip credit rate will be used when paying tipped employees for time not worked, or if a higher rate, such as the full minimum wage, will be paid.

Generally, minimum wage laws apply to actual hours worked by an employee, and employers have discretion in the rate of pay for time not worked. In states and localities with paid leave requirements, employers must check the specific law to determine the appropriate rate of pay to use for paid time off.