DOL Issues Proposed Rule for Tipped Employees
Posted on 10/18/2019 at 11:28 AM by Mike Staebell
Working to clarify the jumbled mess of FLSA tipped worker regulations, on October 8, 2019, the Department of Labor announced a proposed rule that incorporates recent court rulings and statutory changes to the FLSA.
The FLSA allows employers to take a credit towards the minimum wage for tipped employees. This “tip credit” is the difference between the required federal cash wage for tipped workers, currently $2.13 per hour, and the federal minimum wage of $7.25 per hour, resulting in a maximum tip credit of $5.12 per hour. In states with a higher minimum wage or a higher required cash wage for tipped workers, the allowable tip credit would be different. For example, the Iowa minimum wage is $7.25 per hour, and employers are required to pay tipped employees a minimum cash wage of $4.35 per hour. Iowa employers therefore, are entitled to a maximum tip credit of $7.25 - $4.35 = $2.90 per hour.
In 2018, as part of the Consolidated Appropriations Act of 2018 (CAA), Congress amended the FLSA to prohibit employers and managers from keeping employees’ tips. This prohibition applies whether the employer claims a tip credit and pays less than the minimum wage to tipped staff, or pays full minimum wage or greater (without a tip credit).
The newly proposed rule incorporates this 2018 CAA statutory amendment to the FLSA. Additionally, the proposed rule would allow employers who do not take a tip credit to establish a tip pool to be shared between workers who receive tips and are paid the full minimum wage and employees who do not traditionally receive tips, such as dishwashers and cooks (but not including owners or managers, of course). The proposed rule does not change the traditional FLSA provision that non-tipped ‘back-of-the-house’ workers may not legally be included in a tip-sharing pool with tipped employees who are paid less than full minimum wage.
The proposed rule also incorporates earlier changes the DOL made to its position on pay for duties that are related to tipped work, but for which the employee receives no tips—known as non-tipped work. Examples of such duties are rolling silverware, setting tables, or cleaning the dining area. Those changes were first announced in a November 2018 opinion letter. Prior to this 2018 opinion letter, the DOL position had been that related, non-tipped duties paid using the tip credit could not exceed 20% of the total hours in the workweek. Related non-tipped duties performed above the 20% threshold had to be paid at the full minimum wage.
The November 2018 Opinion Letter was followed by a revision to section 30d00(f) of DOL’s Wage and Hour Division Field Operations Handbook (FOH) to reflect the interpretation of non-tipped duties in the opinion letter, and a Field Assistance Bulletin was issued to that effect in February 2019.
Despite these changes in the DOL’s stated positions, some courts continued to enforce the 80-20 standard for non-tipped work, which only added to the confusion for employers surrounding their legal obligations under the FLSA.
Under the new proposed rule, the 80-20 measure would be history. Instead, the proposed rule would allow an employer to apply the tip credit to any amount of time an employee in a tipped occupation performs related non-tipped duties along with tipped duties. That is true so long as the employee performs non-tipped duties “contemporaneous with, or within a reasonable time immediately before or after, performing the tipped duties.” The proposed regulation also lists some examples of non-tipped duties that are related to a tip-producing occupation: “….a server may spend part of his or her time cleaning and setting tables, toasting bread, making coffee and occasionally washing dishes or glasses.”
The DOL also plans to use the Occupational Information Network (O*NET) to identify specific non-tipped duties that are related to a server’s tipped occupation. O*NET is a comprehensive database of job characteristics available to the public online at www.onetonline.com. The website provides information on work activities for over 900 occupations, and is used by federal agencies to classify workers into occupational categories.
The comment period deadline for this proposed rule is December 9, 2019. If you would like to submit comments, you may do so at http://www.regulations.gov.
Employers who have tipped employees should make every effort to understand and comply with the FLSA’s tipped employee rules—as they stand right now, and as they may be in the future, assuming this rule becomes final. (Remember, this blog discusses the proposed rule). This is particularly important because, when an employer violates the FLSA’s tip credit provisions, part of the remedy is restoring every tipped employee to the full minimum wage for the two or three-year investigative period. In addition, the DOL may assess employers with liquidated damages equal to the back pay due. Costs of defense, and the plaintiff’s attorney fees, may be awarded in private litigation, in addition to the lost pay and liquidated damages awarded to the plaintiff(s). Being the subject of either DOL investigation or private litigation may result in significant liability. Consulting with an employment law professional who is familiar with the FLSA tip rules can be critical to avoiding or minimizing such liability.
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