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Labor Department Updates Rule On Pooling Tips Among Employees

On Behalf of | Dec 30, 2020 | Employment Issues For Employers |

Last week, the U.S. Department of Labor issued a final rule on tip pooling between front-of-house and back-of-house employees. The rule authorizes such pooling, which includes workers who haven’t traditionally enjoyed a share in tips. However, in order to set up such a pool, you have to pay the full minimum wage to the workers.

In many states, tipped employees can receive a lower minimum wage as long as the remainder is made up by their tips.

For example, in Maryland, the minimum wage is $8.75 per hour. Employers can pay their tipped workers only $3.63 an hour in cash as long as those workers receive an additional $5.12 an hour in tips.

In Washington, D.C., the minimum cash wage for tipped workers is $3.89 as long as the tips bring their wages up to $13.25 per hour.

In Virginia, the minimum cash wage is $2.13, and the full minimum wage is $7.25 per hour.

The new rule seeks to allow employers to increase the overall wage of back-of-house workers like cooks and dishwashers by giving them a share in the tips received by front-of-house workers like waiters. In the past, back-of-house employees have been prohibited from sharing in the tips.

This new rule is the result of a compromise bill passed into law in 2018. Previously, a version of the tip-pooling proposal would have allowed managers, supervisors and even owners to participate in the tip pool. The final rule makes clear that only rank-and-file workers can participate in tip pools.

80/20 rule softened to allow more non-tipped work

Another aspect of the new rule is that it updates how much non-tipped work a tipped employee can perform while still receiving the lower minimum wage for tipped workers.

Previously, tipped workers were only eligible to receive the lower minimum wage as long as 80% of their time was spent on tipped work. This was called the “80/20” rule. If a tipped worker was assigned more than 20% of their work in non-tip-generating activities like cleaning, the employer had to pay them the standard minimum wage.

Under the new rule, the “80/20” language has been removed and replaced with language indicating that tipped workers must spend no more than a “reasonable time” on non-tipped duties or be paid the higher minimum wage. Some critics fear that the new language could encourage employers to schedule tipped workers for more untipped time but still pay them the lower minimum wage for non-tipped workers.

The new rule is expected to take effect in two months, unless the new administration decides to postpone or prevent that.