Roedel Parsons Koch Blache Balhoff & McCollister

Labor Department guidance simplifies employer tip credits

If your organization employs workers who customarily receive tips, you may have considered taking a federally authorized credit against some of their tips. The Fair Labor Standards Act requires that all covered workers be paid at least $7.25 an hour, but tips can be counted toward some of the minimum wage requirement. Employers can use the tip credit to pay as little as $2.13 an hour to tipped workers as long as their tips make up the remaining $5.12 per hour.

Unfortunately, taking the tip credit has been somewhat complex in the case of workers with mixed duties -- those who customarily receive at least $30 a month in tips but who spend part of their time doing work that is not traditionally tipped. In 2007, a federal court ruled that employers cannot take the tip credit when a worker spends more than 20 percent of their time on non-tipped duties that are unrelated to their tipped work.

There has been some upheaval in this area. During the George W. Bush administration, the Department of Labor's policy was to eliminate that 20-percent cap in unrelated, non-tipped duties. In other words, employers did not have to calculate the amount of time each employee spent on what. The Obama administration's DOL withdrew that policy. Now, the Trump administration has reinstated it.

"We do not intend to place a limitation on the amount of duties related to a tip-producing occupation that may be performed, so long as they are performed contemporaneously with direct customer-service duties and all other requirements of the act are met," reads the revived opinion letter issued recently.

The question of whether the non-tipped duties are related to the employee's tipped work has also been resolved. Now, jobs and duties listed as core or supplemental to tipped jobs in the tasks section of the details report in the Occupational Information Network (O*NET) will legally be considered directly related to tipped work. However, employers should be aware that duties not considered related per that report will not be considered related by the DOL.

This is widely considered a win for employers of tipped workers. The 20-percent cap on non-tipped duties was quite difficult for employers to implement, as it required closely tracking and categorizing the job duties of each tipped employee in what is typically a fast-moving work environment. Now, tipped employees can perform all kinds of work without affecting the employer's tip credit, as long as that work is reasonably contemporaneous with the tipped work and the employer complies with the FLSA (and other laws) in general.

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