Department of Labor Proposes Thirty-Minute Maximum for Tip Credit Wages for Sidework

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On June 21, 2021, the U.S. Department of Labor (DOL) announced that it will propose new regulations limiting the amount of time that tipped employees, like food servers or bartenders, can perform on non-tipped work before they would be owed a full minimum wage from their employer.  The public will have until August 23, 2021 to comment on the DOL’s proposed regulations.  Under the Fair Labor Standards Act (FLSA), employees engaged in work for which they are regularly and customarily tipped may be paid $2.13 per hour in direct wages, provided they make at least enough in tips to cover the balance of the federal minimum wage of $7.25.  This is commonly referred to as the “tip credit.”  The DOL is now proposing a much stricter standard that could impose onerous and costly obligations on employers whose tipped employees also perform non-tipped sidework.

Under the proposed regulations, if tipped employees spend either more than 20 percent of their workweek or more than 30 uninterrupted minutes, at any time, on non-tipped work, like washing dishes, the employer must pay the entirety of the federal minimum wage for that time.  For purposes of the rules, tipped work would be considered work that produces tips – like waiting tables for a waiter or waitress – as well as work that “directly supports” tip-producing work – like cleaning a table to prepare for customers.  Work that does not directly support tip-earning, such as cleaning bathrooms and food preparation, would be considered non-tipped sidework for which the employer must pay at least the minimum wage directly.

For employers that currently make use of the tip credit and have employees engaged in both tip-producing and non-tip producing work, these regulations have the potential to create new administrative time-tracking requirements and higher labor costs.  These employers should monitor the DOL’s proposed regulations and consider submitting a comment to the Department about how the regulations may impact them.  The DOL included instructions for submitting comments with its announcement of its proposal.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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