Tip Credits under the Fair Labor Standards Act
The Fair Labor Standards Act (“FLSA”) generally permits employers to pay tipped employees less than the minimum hourly wage, provided that the tips the employee receives are at least equal to the difference between the required cash wage (which must be at least $2.13 per hour) and the federal minimum wage and the employee is given appropriate notice. This is known as the “tip credit” rule.
Newly-Published DOL Regulations Resurrect the 80/20 Rule
Although the Department of Labor (“DOL”) previously promulgated proposed FLSA regulations for tipped employees in December 2020, their enactment was repeatedly delayed until the proposed regulations were eventually abandoned. The DOL recently announced the publication of its final rule, which officially withdrew the 2020 proposed rule that allowed employers to take the tip credit for tipped employees performing “dual jobs” of both tipped and non-tipped duties, and returned to the traditional view of the 80-20 rule under which an employer can only take a tip credit on work that directly supports tip-producing work if it is less than 20 percent of all hours worked during the workweek.
The DOL’s new rule also requires that work that directly supports tip-producing work must be less than 30 continuous minutes to qualify for the tip credit, as well as clarifying what is considered tip work, work that directly supports tip-producing work, and non-tipped work. Numerous examples of duties...
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