June 2022

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Dept. of Labor amends rules for tipped employees

01/06/22

Author: ADP Admin/Wednesday, January 5, 2022/Categories: Compliance Corner , Federal Compliance Update

The U.S. Department of Labor (DOL) has issued a final rule establishing limits on the amount of time tipped employees can spend performing work that isn’t “tip-producing work” and still be paid at the reduced cash wage for tipped employees under the Fair Labor Standards Act (FLSA). The final rule becomes effective on December 28, 2021.

Background:

The FLSA requires employers to pay non-exempt employees at least the minimum wage, currently $7.25 per hour under federal law. However, employers may pay a “tipped employee” a cash wage of $2.13 per hour if the employee receives at least $5.12 in tips. If the combined direct wage and total tips received by an employee is less than the minimum wage for all hours worked in a workweek, the employer must make up the difference. Under the FLSA, a “tipped employee” is any employee engaged in an occupation in which they customarily and regularly receive more than $30 a month in tips.

In place since 1988, the 80/20 Rule requires employers to pay tipped employees the full minimum wage, rather than the lower tipped wage, if an employee spends more than 20% of their time performing non-tipped duties.

New Final Rule

The final rule amends the 80/20 Rule and adds a “30-Minute” Rule, which doesn’t’ allow the tip credit when a tipped employee spends more than 30 continuous minutes performing work that isn’t considered tip-producing work.

The final rule also sets forth three categories of work and explains when the tip credit is allowed:

1) Tip-producing work

Employers may pay an employee engaged in “tip-producing work” using the tip credit without any limitation on the hours engaged in tip-producing work. Tip-producing work is considered any work performed by a tipped employee that provides service to customers for which the employee receives tips, as well as work that directly supports the tip-producing work, if the directly supporting work isn’t performed for a substantial amount of time.

2) Work that isn’t part of the tipped occupation

Under the final rule, work that isn’t part of the tipped occupation is any work that doesn’t provide service to customers for which tipped employees receive tips, as well as work that doesn’t directly support tip-producing work. For example, work such as preparing food, including salads, and cleaning the kitchen or bathrooms, isn’t considered part of the tipped occupation of a server. The DOL provides that an employer may not use the tip credit for any of the time spent performing these types of tasks.

3) Work that isn’t “tip-producing” but that is “directly supporting” of tip-producing work

The final rule allows employers to take a tip credit when an employee is engaged in work that isn’t “tip-producing” but that is “directly supporting” tip-producing work. Examples of “directly supporting” work include a server performing dining room prep work, such as refilling salt and pepper shakers and ketchup bottles, rolling silverware, folding napkins, sweeping or vacuuming under tables in the dining area, and setting and bussing tables. 

However, employers can’t take the tip credit for “directly-supporting” work if it’s performed for a “substantial amount of time,” which the final rule defines as either: (a) more than 20% of the hours in the workweek for which the employer has taken a tip credit; or (b) a continuous period of time that exceeds 30 minutes.

Compliance Recommendations:

Employers subject to the FLSA with tipped employees should adhere to the provisions of the tipped employee final rule as outlined above. Please contact your dedicated service professional with any questions.

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