By Lisa Haffer
The Department of Labor’s final tip rule is scheduled to take effect on December 28, 2021. As drafted, the final rule will limit the amount of time tipped employees can spend performing non-tip-producing work while still receiving cash wages as low as $2.13 per hour
Note: A lawsuit was filed on December 3, 2021 seeking an injunction against the implementation of the final rule. Details are provided below, and this article will be updated as developments arise.
The final rule:
While the Fair Labor Standards Act (FLSA) generally requires covered employers to pay their nonexempt employees at least the federal minimum wage (currently $7.25 per hour), an exception exists for employers with tipped employees. *Under this exception, an employer is permitted to pay cash wages as low as $2.13 per hour to tipped employees and count tips received by those employees as a credit (“tip credit”) against the balance of its minimum wage obligation. If a tipped employee does not earn enough tips to allow the employer to satisfy its minimum wage requirement, the employer must pay the remaining difference in cash.
* Tipped employees are defined as employees who customarily and regularly receive more than $30 a month in tips.
A brief history of the tip credit
* The DOL acknowledges that one person can be employed in dual occupations. Restaurants must pay the full federal minimum wage to employees for the time engaged in non-tipped occupations. The classic example used by the DOL is a person who works as both a maintenance person and a server for the same restaurant. The restaurant must pay the full federal minimum wage for the time engaged as a maintenance person, but can use the tip credit for all work, including side jobs, performed by tipped employees.
If not modified by legal challenge, the final rule would require employers to track three categories of tasks performed by tipped employees. Employers could take a tip credit only when the tipped employee is performing the first two types of work:
Examples of tip-producing work for a server generally include all responsibilities directly associated with providing table services, such as taking orders, recommending and providing food and drink, walking to the kitchen or bar to fetch prepared meals and drinks to bring to customers, and processing credit card and cash payments. Importantly, the DOL’s final rule provides for flexibility in a changing landscape. As an example, servers that receive tips as a result of taking phone orders and handing customers their carry-out meals can be categorized as performing tip-producing tasks.
Examples of tip-supporting work for a server generally include traditional tasks previously referred to as “side duties” such as refilling salt and pepper shakers, folding napkins, or rolling silverware. Employers historically have been permitted to claim the tip credit for all work performed by a tipped employee (including these types of side duties). Under the final rule, employers must pay the full federal minimum wage to employees who perform these same side duties for more than 30 continuous minutes or more than 20% of their workweek. Time in excess of 30 continuous minutes is not counted towards the 20% limit, because employers cannot take the tip credit for this excess time.
Examples of unrelated work that require full federal minimum wage payments regardless of the length of the task include preparing meals and cleaning bathrooms.
Employers must develop a system to address the difficult task of tracking the types and lengths of tasks performed by tipped employees. This includes tracking not only tip-producing and tip-supporting tasks, but idle time (which counts as tip-supporting) and tasks that aren’t part of the tipped occupation at all, such as preparing meals or cleaning bathrooms.
State law implications
It should be emphasized that the final rule applies only to federal wage requirements. The FLSA does not preempt more protective state or local laws. Restaurants should ensure that they are familiar with the tip credit rules in the states in which they operate.
On December 3, 2021, the Restaurant Law Center and the Texas Restaurant Association filed a lawsuit seeking to halt the implementation of the revised tip rule. Key takeaways from the assertions in the lawsuit include: