The FLSA permits an employer to take a tip credit for the amount between the direct cash wage it pays to an employee and the federal minimum wage. If an employee does not receive a sufficient amount in tips to equal the tip credit amount, the employer must make up any difference. Employers may only take this credit for employees who are engaged in an occupation in which they customarily and regularly receive more than 30 dollars per month in tips.
Employers are permitted to utilize a tip pooling or sharing arrangement. However, employers who take the tip credit may only implement a tip pool among traditionally tipped employees and may not include customarily non-tipped employees.
When determining whether an employee’s tips can be considered part of their wages for non-tipped work, such as setting tables or refilling ketchup bottles, the DOL previously utilized the 80/20 rule. Under that rule, employees are entitled to direct payment of the full minimum wage from their employers if their non-tipped work exceeds 20 percent of their total shift time. While the DOL seemingly abandoned the 80/20 rule in a 2018 opinion letter, there has been confusion as to whether the rule is still in effect.
Under the proposed rule, the following important changes would take place:
It is important to note that the proposed rule would not change the tip-pooling regulations for restaurants that take a tip credit. In those instances, only the tipped employees can participate in the pool. Furthermore, employers will still be prohibited from keeping employees’ tips in any circumstance.
The proposed rule would clearly eliminate the 80/20 rule, which should result in a reduction of the litigation against restaurant industry employers arising out of the difficulties associated with recordkeeping of the specific breakdown of tipped employees’ tasks throughout their shift. Under the 80/20 rule, employees could assert that their non-tipped work exceeded 20 percent of their shift, and as such, their employers improperly failed to pay them full minimum wages. Under the proposed rule, employers would now be permitted to take the tip credit for all time spent by an employee performing “related” non-tipped duties, effectively eliminating the 80/20 rule.
In states where a tip credit is not permitted by law, such as California, a significant disparity between the take-home compensation of servers and back-of-house crew members has made kitchen jobs extremely difficult to fill. Under the proposed rule, employers in those states who are not taking a tip credit could now implement a tip pool that includes the back-of-the-house employees, making it easier to fill those traditionally non-tipped jobs.
Employers with tipped employees should carefully review their tip credit and tip pooling policies to ensure that they will be in compliance under the proposed regulatory changes. Employers should also confirm that they are not operating any tip pooling or sharing arrangement that includes supervisors or managers and that they are distributing all employees’ tips properly and timely.
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