On June 23, 2021, the U.S. Department of Labor published a Notice of Proposed Rulemaking to limit the amount of non-tip producing work that a tipped employee can perform when an employee is taking a tip credit. 

According to the DOL, the proposed rule “clarifies when an employee is working in a tipped occupation and when a worker has performed such a substantial amount of non-tipped labor that an employer can no longer take a tip credit and must pay the full federal minimum wage to the worker.” 

Under the rule, if a tipped employee spends either more than 20 percent of their workweek, or more than 30 uninterrupted minutes at any time, on non-tipped work, the employer must pay the entirety of the federal minimum wage for that time. Work that does not directly support tip-earning would be considered non-tipped sidework for which the employer must pay at least the federal minimum wage.

Written comments to the rule are due by August 23, 2021.

The proposed regulations are likely to create new administrative time-tracking requirements for employers who currently make use of the tip credit. Note that California employers are subject to additional state laws that govern tip pooling.