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DOL Policy Makes It Simpler For Employers To Claim Tip Credit

Some employees customarily receive tips, but those tips aren't always in addition to the worker's wage. Many tipped workers are minimum-wage earners, and the law allows some of those tips to be counted toward ensuring they earn that minimum wage.

For example, the federal minimum wage is $7.25 per hour. When a customarily tipped worker such as a waiter or bartender earns tips, the amount they earn can be subtracted from the employer's minimum wage obligation, up to a certain point. The law allows bars and restaurants to pay as little as $2.13 per hour to a tipped worker who earns at least $5.12 per hour in tips.

Employers can take a tip credit for customarily tipped workers, who are defined as earning at least $30 per month in tips. They cannot take a tip credit for other workers, even when they receive tips. Over time, however, employers and workers alike have wondered about people with mixed job duties, such as waiters who spend a significant minority of their time performing general cleaning and maintenance.

During the George W. Bush administration, the U.S. Department of Labor Wage and Hour Division's policy was that employers could take the tip credit for all hours worked by a customarily tipped employee, even when some of those hours involved non-tipped duties.

A 2007 federal district court decision found that employers can never take a tip credit for non-tipped duties, and prohibited the tip credit for unrelated duties when they exceed 20 percent of the worker's time. The Obama administration's policy echoed this ruling.

Now, the Trump administration's DOL has moved the ball back in the direction of the Bush administration's policy. It will no longer enforce a limitation on the tip credit for non-tipped duties, as long as those duties are performed contemporaneously with tipped work and all other requirements of the Fair Labor Standards Act are met.

This is a big improvement from the point of view of employers. The 20-percent limitation on non-tipped duties required employers to engage in a painstaking effort to track the classification of each job duty performed by a tipped employee, all in a fast-paced environment while people are trying to perform quality customer service. Now, they no longer need to scrutinize each duty and calculate a partial tip credit.

We caution employers that this new guidance only applies to federal law. Maryland and Virginia also allow tip credits, and this rule does not affect the states' own regulation of non-tipped duties. The rule does, however, apply to tipped employees in Washington, D.C., which follows federal law.

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