212.627.8100Tip credits allow employers to combine hourly wages and tips to pay employees the federal minimum wage, so long as minimum cash payment requirements are also met (which must be at least $2.13 per hour). An employer will “credit” some of the tips back to the employee on their paycheck. Employers must fully distribute tips to the employees directly or through a mandatory tip pool.
The Department of Labor (DOL) issued new tip regulations in December 2020 and recently postponed the effective date of some of those rules (“Tip Final Rule”) which interprets 2018 amendments to the Fair Labor Standards Act (FLSA).
Most of the provisions of the Tip Final Rule became effective on April 30, 2021. As adopted, the regulations prohibit employers, managers, or supervisors from keeping their employees’ tips for any purpose, even if the employer takes a tip credit. Any tip pool cannot include employers, managers, or supervisors. The tips must be distributed at least as often as paychecks.
A key change under the Tip Final Rule is that employers who do not take tip credits can create a tip pool with tipped and non-tipped workers. As a result, restaurant servers, bussers, and service bartenders, and other tipped workers, can now pool their tips with non-tipped workers like cooks, dishwashers, custodians, and dishwashers. The employer must pay the full minimum wage to both tipped and non-tipped workers who belong to this non-traditional tip pool.
The effective date of certain portions of the Tip Final Rule is delayed until December 31, 2021. One of those governs how tip credits apply to employees performing tipped and non-tipped duties (also known as the dual jobs provision). Under the current 80/20 approach, a tipped worker must spend least 80% of their time in tipped duties to receive a tip credit. In other words, if you are a tipped worker who spends more than 20% of the workweek cleaning dishes and setting tables, you cannot receive a tip credit. Instead, the employer would pay at least the full minimum wage.
The Tip Final Rule instead proposes that tipped employees may take a tip credit if the non-tipped duties are related to the duties that produce tips. These duties must be done “contemporaneously” or “for a reasonable time immediately before or after” tipped duties, like a waiter who cleans the table after a customer leaves. According to the Economic Policy Institute, the 80/20 approach is more clear and protective for workers, particularly women and people of color who are more often tipped workers. Workers have spent more time on non-tipped duties as a result of the COVID-19 pandemic. The Department will take time to study this issue further.
The partial delay gives the DOL time to make a notice of proposed rulemaking about changes related to civil money penalties, managers and supervisors keeping employee tips, and recordkeeping requirements. The Department may also use this time to potentially revise the rule relating to the tip credit for tipped employees who perform dual jobs. Public comments are encouraged and accepted until May 24, 2021. If you are a worker who will be affected by these changes, public comments are a way to voice any concerns or questions for the Department to consider.
The COVID-19 pandemic has been extremely difficult for restaurant and food service employees, especially those whose low wages are tied to tips. Wages from tipped-service work is unpredictable—and have declined by at least 50% because of COVID-19—and the risk of wage and hour violations is high. Even as restaurants are reopening, these workers and other tipped workers are still in a vulnerable place. Hopefully, the Department can use the partial delay of the Tip Final Rule to make thoughtful and beneficial decisions to support essential workers.