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U.S. DOL Proposes Final Rule for Tip Credit and Tip Pooling

posted Oct 16, 2019, 10:00 AM by Allison Ayer

The United States Department of Labor has taken the next step to change the law concerning the tip credit, an important matter for restaurant and other hospitality businesses.   Here is the latest: 

On October 7, 2019, the DOL also took the next step to implement new rules concerning when employers with tipped employees can pay these service employees the FLSA tip credit wage.  The proposed Final Rule essentially incorporates what the DOL has proposed recently in prior guidance and opinion letters about the limitations of the tip credit. 

Tip Credit Wage - Briefly, the proposed Final Rule eliminates the longstanding 20% Rule for assessing when the tip credit wage can be taken, and replaces it with a rule that an employer may take a tip credit on ANY AMOUNT OF TIME an employee in a tipped occupation performs non-tipped duties, SO LONG AS they are related to and performed contemporaneously with the tipped duties, and they are performed for a reasonable time immediately before or after performing the tipped duties. 

The proposed Final Rule further clarifies when a non-tipped duty is related to a tip-producing duty (and therefore eligible for pay at the tip-credit wage).  Under the proposed Final Rule, a non-tipped duty is related to a tip-producing duty (and can therefore be paid at the tip-credit wage) if it is either listed in the dual jobs regulations OR if it is listed as a task of a tip-producing occupation in the Occupational Information Network (“O*NET”).  Those tasks include, among others: 

·        Removing dishes and glasses from tables or counters and take them to kitchen for cleaning. 

·        Cleaning tables or counters after patrons have finished dining. 

·        Preparing tables for meals, including setting up items such as linens, silverware, and glassware. 

·        Assisting the host or hostess by answering phones to take reservations or to-go orders, and by greeting, seating, and thanking guests. 

·        Performing cleaning duties, such as sweeping and mopping floors, vacuuming carpet, tidying up server station, taking out trash, or checking and cleaning bathroom. 

·        Preparing hot, cold, and mixed drinks for patrons, and chill bottles of wine. 

·        Rolling silverware, setting up food stations, or setting up dining areas to prepare for the next shift or for large parties. 

·        Stocking service areas with supplies such as coffee, food, tableware, and linens. 

·        Filling salt, pepper, sugar, cream, condiment, and napkin containers. 

·        Performing food preparation duties such as preparing salads, appetizers, and cold dishes, portioning desserts, and brewing coffee; and

·        Providing guests with information about local areas, including giving directions. 

 

This means that an employer may take a tip credit for any amount of time a server who is a tipped employee spends performing these newly defined “tip-related” duties.  If the duties are outside this list, they must be paid at the full minimum wage, unless the time spent in the task is de minimis

Under the proposed Final Rule, employers remain prohibited from keeping tips received by their employees, regardless of whether the employer takes a tip credit under the Fair Labor Standards Act.

Tip Pools.  The Final Rule also addresses tip pools. It prohibits managers and supervisors from keeping any portion of employee tips, including from a tip pool.  The duties test under the executive employee exemption for overtime is used to determine whether an employee is a manager or supervisor who may not keep employee tips.  An employee who owns 20% equity in the business and who is actively engaged in management is also considered a manager/supervisor who cannot share in tips.   

The proposed Final Rule further clarifies that an employer may exert control over an employee’s tips only in the following ways:  1) to distribute tips to the employees who received them (e.g. cashing out credit card tips at the end of a ship), 2) to institute a mandatory tip pool that complies with FLSA regulations, and 3) facilitate a tip pool by distributing tips to employees in the pool. 

Lastly, the Final Rule also permits employers that do NOT take an FLSA tip credit to include a broader group of workers, including back-of-the-house employees like cooks or dishwashers.  But this is only allowed if none of the employees are paid the lower tip-credit wage, i.e. they are all paid at least full minimum wage.  Even under the proposed Final Rule, back-of-the-house employees CANNOT participate in a mandatory tip pool with service workers who are paid the lower, tip credit hourly wage.  Tip credit employees CANNOT be part of a tip pool with employees who are paid full minimum wage.   

The issuance of the proposed Final Rule generally is good news for restaurant and hospitality businesses.  It is highly likely to become the law of the land after the expiration of the 60-day comment period, and will once and for all settle the legal standard for paying employees at the tip credit wage that has been up in the air for quite some time. 

With that said, as always, restaurants should be aware that they must also comply with the state’s minimum wage statutes and regulations, including the rules concerning the tip credit.  In New Hampshire, for example, mandatory tip pools are not permitted.  Tipped service employees are only allowed to pool tips if it is voluntary.  

Businesses should always raise their questions or concerns with their legal counsel about paying employee wages in compliance with applicable state and federal law.  

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