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June 29, 2021
Plan Now for Changes Coming for Tipped Worker Pay

by Tammy Binford

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Employers of tipped workers need to start exploring how their pay and timekeeping policies may need to change once a new rule from the U.S. Department of Labor (DOL) is finalized.

The DOL announced a Notice of Proposed Rulemaking on June 21 that includes limitations on the amount of non-tip-producing work a tipped employee can perform when the employer is taking a tip credit. Taking a credit refers to the practice of paying a tipped minimum wage instead of the full minimum wage of $7.25 an hour. The Fair Labor Standards Act (FLSA) allows employers with tipped workers to pay as little as $2.13 per hour as long as the workers’ tips bring the hourly pay up to at least $7.25.

The proposed rule is meant to clarify when an employee is working in a tipped job and when the worker has performed such a substantial amount of nontipped work that the employer can no longer take the tip credit and instead must pay the full minimum wage.

The proposed rule also is meant to clarify that an employer may take a tip credit only when tipped employees perform labor that is part of their tipped occupation. The DOL says work considered part of the tipped occupation includes labor that produces tips as well as labor that directly supports tip-producing work so long as the employee doesn’t perform the non-tip-producing work for a substantial amount of time.

The DOL gives the example of a restaurant server waiting on tables and earning tips. Labor that supports that tip-producing work includes folding napkins or refilling salt and pepper shakers.

The proposed rule says that if an employee’s non-tip-producing work exceeds 20 percent of all the hours the employee works during the workweek or exceeds 30 continuous minutes, he or she is no longer performing labor that is part of the tipped occupation, and therefore, the employer may not take a tip credit for that work.

Heavy Logistical Burdens

Lisa Koblin, an attorney with Saul Ewing Arnstein & Lehr LLP in Philadelphia, Pennsylvania, isn’t surprised the DOL is making modifications to wage and hour mandates put in place under the prior administration, and while the objective of the proposed rule is to provide clarification, it also adds to the burdens employers face.

Under the proposed rule, “the employer has to be keeping track of tipped employees’ whereabouts almost minute by minute,” Koblin says. Any period of non-tip-producing work past the 30-minute or 20 percent limit has to be carved out so the employee is paid at least the full minimum instead of the tipped minimum wage.

Koblin says the timekeeping and logistical burdens may lead employers to cut back on the number of server positions.

Advice for Employers

The DOL is inviting comments from the public on the proposed rule at www.regulations.gov. The comment period closes August 23. It is not known when a final rule might be issued.

Koblin says it is too soon to know whether the proposed rule will be significantly revised before being finalized or if a final rule will offer more clarity on how it can be implemented.

Koblin hopes the administration will incorporate feedback received during the comment period, but her advice to employers is to start planning now. She says employers should assess their current compensation and timekeeping policies to determine how they will be able to comply with a new final rule.

Tammy Binford writes and edits news alerts and newsletter articles on labor and employment law topics for BLR web and print publications.

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