If you have tipped employees, then you should be aware of the Department of Labor’s new regulations. The requirements for how employers administer tips will be changing on December 28, 2021. This summary will explain the changes and provide some context for affected employers and employees.
On October 29, the Department of Labor, Wage and Hour Division submitted a final rule which clarifies that an employer can only take a tip credit when its tipped employees do work that is part of the employee’s tipped occupation. “Tipped employees” are any employees “engaged in an occupation” wherein they customarily and regularly receive more than $30 a month in tips. The Department of Labor is authorized to define what it means to be “engaged in an occupation” that regularly receives tips. Tip-producing work is “any work performed by a tipped employee that provides service to customers for which the tipped employee receives tips.” The rule is whether the tipped employee can receive tips because they are performing that task for a customer. The rule uses the following example:
“A bartender who retrieves a particular beer from the storeroom at the request of a customer sitting at the bar, is performing tip-producing work, even though a bartender who retrieves a case of beer from the storeroom to stock the bar in preparation for serving customers, would be performing directly supporting work.”
86 FR 60114, 60128.
The new rule reverts to a pre-2018 rule and provides that the tip credit is available only for jobs in which a worker engages in the tipped occupation for more than 80% of their time (the 80/20 rule, which you might be familiar with). A second, non-tipped job for that employer does not count towards this determination and requires payment in minimum wage. Further, if the employee engages in work “directly supporting” the tipped work, they must be paid minimum wage for the time they spend doing so exceeding 20% of their time or 30 continuous minutes.
For several decades, the department has recognized that employees may perform dual jobs, meaning that an employee can be employed to perform both tipped and non-tipped work in the course of their employment. In those situations, employers were authorized to take tip credit for the time spent in duties related to the tipped occupation even if those duties didn’t directly produce tips. These duties could include maintenance, preparatory work, or closing, for example. Before 2018, the department used the “80/20” rule, which stipulated that if employees spent 80% of a shift engaging in tipped duties, the tip credit could be claimed. Since 2018, as long as those duties were related to tipped work, the credit could be claimed.
a. Dual Jobs
The dual jobs language remains the same under § 531.56(e), meaning that an employee is now considered tipped only for the hours the employee spends working in the tipped occupation. The major change comes in section § 531.56 (f), which now defines “engaging in a tipped occupation” as only that time when the employee performs work that is part of the tipped occupation. “An employee must be performing the work of a tipped occupation in order to be ‘engaged in’ a tipped occupation, and therefore to be a tipped employee for whom an employee may take a tip credit under FLSA section 3(m)(2)(A)” under the DOL’s new guidelines, per 86 FR at 60121. Thus, the work an employee does that is not part of his tipped occupation does not permit a tip credit to be taken, such as maintenance work.
b.Directly Supporting Jobs
The Department also promulgated a regulation limiting directly supporting work that is part of a tipped occupation to less than a substantial amount of time. Tipped employees often do engage in work that directly supports their tipped occupation but does not itself garner tips. For example, a server folding napkins or a bartender cutting limes before the shift begins does not provide tips, but it does directly support the tipped portion of their occupation.
Tasks that are performed in preparation of or otherwise assist tip-producing customer service work are directly supporting jobs. The department clarifies in the new regulation that if an employee spends more than 20% of their time engaging in directly supporting work or performs directly supporting work for a continuous period of time exceeding 30 minutes, then they are no longer considered to be engaging in a tipped occupation for that time and must be compensated at minimum wage. Work paid at the minimum wage does not count towards this tolerance – this means that directly supporting work in which an employee is compensated at minimum wage after working for 30 consecutive minutes would not count towards the 80/20 determination.
a. The Server and Maintenance Person
Bill is employed at Restaurant A. He works as both a server and does maintenance when his boss requests it. In this case, only Bill’s work as a server is tipped. The maintenance work that he does must be compensated at the Federal minimum wage, so the employer is unable to claim the tip credit for those hours.
b. The Napkin Folder
Laura folds napkins for the first 15 minutes of her shift. The lunch rush hits and for the next 5 hours, she is busy rushing back and forth engaging in tipped work. The restaurant dies down for the last 15 minutes of her shift and she continues to clean and fold napkins before clocking out.
The tip credit is available for Laura’s entire shift. She engaged in tipped work for more than 80% of her time and did not engage in directly supporting work for more than 20% of the time or 30 continuous minutes.
c. The Bored Bartender
Jordan preps fruit for 30 minutes before the bar opens. Jordan is then idle for another 30 minutes before the first customer enters. Under the new rule, Jordan must be paid the minimum wage for the last 30 minutes because more than 30 continuous minutes were spent on directly supporting work.
The new regulations will likely make timekeeping and bookkeeping more difficult for employers. Employees may also receive increased wages because of the requirement that they be compensated at the minimum wage for some time that may have been previously covered by the tip credit.
Employers are encouraged to reach out to the experienced labor and employment attorneys at Mansour Gavin for counsel and plans for tracking non-tip producing work and compliance in general.