How You Manage Tipped Employees Is Changing

How You Manage Tipped Employees Is Changing

]Three questions continually come up when trying to understand how wage and hour laws apply to tips.

  • If employees pool tips and distribute them, should a nontipped employee be entitled to them as well?
  • Does an employer have a right to those tips?
  • Are employers entitled to a tip credit?

A tip credit is connected to minimum wage. All employees are required to receive the minimum wage.

But an employer might only pay tipped employees below minimum wage. The employer will have to show that the employee earned at or above the minimum wage standard between the tips and wages.

  • The federal minimum wage is $7.25
  • With a tip credit, the employee cannot be paid less than $2.13

The Impact Of The Tip Credit

Think of a shared tip jar. Can an employer take the tips, distribute enough to meet minimum wage requirements, and then keep the rest? Consider this: could an employer use the shared tips to pay someone who doesn’t receive tips?

When people think of tips, the image of a restaurant usually comes up. Waiters and waitresses typically make tips. But what about the cooks? An employer could save a substantial amount of money by paying the cooks less than minimum wage and then using the waitresses’ tip money to bridge the gap. The people who are hurt the most are the waitresses because their tips are being given to another employee for the employer’s benefit.

Previous Solution: 80/20

Previously, there was the 80/20 rule. Only an employee who spent at least 80% of her time doing work directly connected to tips could take a tip credit. I.e., an employer could not use a tip credit for someone whose job wasn’t directly related to earning tips.

In December of 2020, the Department of Labor eliminated the 80/20 rule.

How To Proceed

Everything centers around the Tip Regulations Final Rule within the Fair Labor Standards Act (FLSA). These rulings were why the 80/20 rule was being eliminated.

The effective date was April 30, 2021—however that has been pushed back to December. There are 3 provisions, specifically, that have been delayed. They are tied to the 80/20 rule and the Department of Labor’s right to implement civil money penalties (CMPs). Here are 4 things you should know now:

  1. Employers can distribute tips to nontipped employees if they don’t use a tip credit. Employees can potentially earn more than minimum wage this way.
  2. Employers who use a tip credit and distribute tips must have accurate and current documentation of it.
  3. Supervisors and managers cannot keep tips meant for employees. If the tip is given to the supervisor or manager directly, they are allowed to keep it.
  4. Employers can take a tip credit for nontipped employees if the nontipped work is part of their job and they resume tipped work immediately before or afterward.

Feldman Legal Group

At Feldman Legal Group, we are proud to represent employees who have been subjected to illegal labor practices. If you are an employee whose tips are being taken or distributed unfairly, contact the Feldman Legal Group to request your assessment.