Fundamental Payroll Certification (FPC) Practice Exam

Tip credit allows employers to pay less than the standard minimum wage to employees who regularly receive tips as part of their income. This is based on the understanding that tips will contribute to the employees' overall earnings. In many jurisdictions, employers can count a portion of the tips received by employees towards meeting their minimum wage obligations.

For example, if the minimum wage is set at a certain amount, the employer may only need to pay a lower direct wage to tipped employees, assuming their tips will make up the difference to meet or exceed the minimum wage requirement. This enables employers in industries like food service and hospitality to manage labor costs while still complying with minimum wage laws.

The other options do not accurately represent the purpose of tip credit. Increasing minimum wage for all employees doesn't reflect the specific nature of tip credit, which targets only those employees who earn tips. Utilizing tip credit for salaried positions contradicts the concept, as tip credit typically applies to hourly workers. Eliminating minimum wage laws is not within the scope of what tip credit does; rather, it works within the existing framework of those laws.