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Payroll & Taxes

Recent DOL Rules on Tip Regulations

Tonya Fletcher SPHR, SHRM-SCP
by Tonya Fletcher SPHR, SHRM-SCP on December 9, 2021

The U. S. Department of Labor (DOL) introduced the 80/20 rule in 1988, which stated that an employee was no longer a "tipped employee" when they spent more than 20% of their time in a workweek performing side work. After litigation and court opinions in the subsequent years, the DOL began dismantling the 80/20 rule in 2018. The DOL issued a rule in December 2020 which would have done away with the 80/20 rule. However, the DOL withdrew this rule prior to its effective date and, in June 2021, issued a proposal to strengthen the 80/20 rule. The final rule has been published.

Effective December 28, 2021, employers that wish to claim a minimum wage tip credit will soon need to make sure their employees don't spend too much time performing tasks that don't directly serve customers.

The final rule establishes three categories of work:

  • Tip-producing work, which is any work for which tipped employees receive tips (for example, waiting tables);
  • Directly supporting work, which is work that does not itself generate tips but that supports the tip-producing work of the tipped occupation because it assists a tipped employee to perform the work for which the employee receives tips (for example, folding napkins);
  • Work that is not part of a tipped occupation, which is any work that does not generate tips and does not directly support tip-producing work (for example, cleaning a bathroom).

Waiter takes orders from a couple seated at a table.Under the new rule, employers will be able to claim a tip credit only during the time their employees spend on tip-producing work or on directly supporting work that takes up no more than 20% of their workweek and no more than 30 continuous minutes at any one time.

The rule used the example of a restaurant server to explain that directly-supporting work is performed either in preparation for or to otherwise assist, an employee's tip-producing work for customers.

For example, if a server takes customer orders at a table, sets the table she is serving, brings beverages to a third table, picks up a slice of pie, adds ice cream, and delivers it to the first table, and puts on a fresh pot of coffee at the beverage station for all of her tables, before heading back to the second table to take customer orders, the server is performing tip-producing work for the entire time. Accordingly, there is no need for the server's employer to count any of this work toward the 20 percent or 30-minute limits.

On the other hand, if the server folds napkins for the dinner rush after lunch customers leave, or rolls silverware for 15 minutes at the end of the night while waiting for a final table of customers to pay their bill, this would be categorized as directly supporting work and would count against the 20 percent and 30-minute limits.

Waitress uses the computer to submit a customer's order.Under the rule, once an employee spends more than 20% of their workweek on directly-supporting work, the employer cannot take a tip credit for any additional time spent on such work within the same workweek. Instead, the employer must pay a direct cash wage equal to the full minimum wage for that time. To calculate 20% of directly supporting work, only calculate 20% based on the workweek, and any work paid at full minimum wage is excluded from the workweek calculation.

At the very least, you will want to make sure that your tipped employees do not perform directly supporting work for more than 30 minutes when no tip-producing work is happening. Consider developing a process where tipped employees can notify management of directly supporting work in excess (so you can adjust compensation as appropriate). Other options include assigning side work in blocks of time, and paying tipped employees the full minimum wage before and after their guest service shift. As employers struggle with compliance, some may wonder if it is really worth it to utilize the tip credit.

Waitress writes down customer's order.The U.S. Department of Labor (DOL) also published a final rule clarifying several amendments to section 3(m) of the Fair Labor Standards Act (FLSA) that concern tip pooling that took effect on November 23, 2021. The final rule makes clear that while managers and supervisors may not receive tips from mandatory tip pooling arrangements, managers or supervisors are not prohibited from contributing tips to eligible employees in mandatory tip pooling arrangements; they may keep tips only when the tip is based on service the manager or supervisor "directly" and "solely" provides; and, the final rule also confirms that employers that do not apply a tip credit towards employees' wages may allow non-managerial and non-supervisory back-of-house employees to participate in a tip pool.   

These requirements represent the latest modifications to regulations affecting worker gratuities. Employers should also keep in mind any state and local rules that may apply. Clients of FrankCrum stay up to date on evolving legislation and have access to a team of experts. Click here to learn how FrankCrum can help you.

Tonya Fletcher SPHR, SHRM-SCP
ABOUT THE AUTHOR
Tonya Fletcher SPHR, SHRM-SCP

Tonya is the Labor Compliance Manager at FrankCrum. In this role, she leads the FrankAdvice team of HR consultants and manages the delivery and content of best practice HR information to client owners and managers. When she’s not at work, Tonya enjoys international travel.