DOL Reveals Key Change for Tipped Workers

The Department of Labor has changed its regulations to clarify that "an employer may only take a tip credit when its tipped employees perform work that is part of the employee's tipped occupation." Read more for an overview of what this means for employers.

Employees in occupations where gratuities are common, such as restaurant waitstaff, have long fallen into a special category when it comes to minimum wage rules. Government regulations allow "an employer to satisfy a portion of its minimum wage obligation to a 'tipped employee' by taking a partial credit, known as a 'tip credit,' toward the minimum wage based on the amount of tips an employee receives provided that the employer meets certain requirements. An employer that elects to take a tip credit must pay the tipped employee a direct cash wage of at least $2.13 per hour." In such a situation, employees' tips must be sufficient to fulfill the remainder of the minimum wage. A recent change, however, limits employers' ability to use the tipped wage exception.

The new rule clarifies that the tip credit is applicable only when "tipped employees perform work that is part of the employee's tipped occupation. Work that is part of the tipped occupation includes work that produces tips as well as work that directly supports tip-producing work, provided the directly supporting work is not performed for a substantial amount of time."

What to do for now

The revised rule is lengthy and complicated. No doubt additional guidance will come. Meanwhile, the Society for Human Resource Management is providing advice for employers. Under the new rule, it notes, employers can take the tip credit only when employees are engaged in tip-producing activities or tasks that directly support those activities, as long as the employers follow the 80/20 rule: Employees spend no more than 20% of each week on non-tipped support tasks.

Employers must pay the full minimum wage when employees are put to work on non-tipped side duties for at least 30 continuous minutes, even if the 80/20 test is satisfied for the workweek.

Another provision notes that although managers and supervisors may contribute to mandatory tip pools, they can only keep those tips that they received directly from customers for work they personally provided.

This final rule is effective December 28, 2021.