Benefits and Compensation, HR Management & Compliance

‘Easy’ Part of Tip Rule Takes Effect, Other Provisions in for More Study

Portions of the U.S. Department of Labor’s (DOL) 2020 tipped worker rule are set to take effect April 30, but the Biden administration intends to delay the effective date and continue studying other parts of the rule, which was a product of the previous administration.

tipped workers

The provisions of the rule taking effect April 30 are the “easy” parts, says Richard J. Morgan, an attorney with Burr & Foreman LLP in Columbia, South Carolina, and those parts don’t represent much of a change from common practice. The more controversial, “real-meat” portions of the rule are being delayed until December 31.

What Is changing

Allison Oasis Kahn, an attorney with Carlton Fields in West Palm Beach, Florida, says there are three big takeaways for employers as of April 30:

  • Employers can’t keep tips received by workers even if they pay the workers the full minimum wage and do not take a “tip credit” toward the minimum wage obligation. (Current federal law allows employers to pay tipped workers as little as $2.13 an hour if the workers’ tips bring them up to at least the full minimum wage. The current federal minimum wage is $7.25 an hour, but many state and local governments require higher minimums.)
  • Employers that pay the full minimum wage instead of taking a tip credit can require employees to put their tips in a tip pool that includes certain workers who don’t customarily and regularly receive tips as long as the employer meets new record-keeping requirements. Workers who enhance a customer’s experience, such as cooks, janitors, and dishwashers, can be included in those nontraditional pools. Manager and supervisor participation in tip pools is prohibited.
  • Employers that collect tips for tip pools must redistribute the tips by the regular payday for the workweek or pay period in which they collected the tips.

“Essentially, the provisions of the final rule that are employee-friendly go into effect April 30,” Kahn says.

What Is Being Delayed

The DOL will have until the end of 2021 to study and complete separate rule making on the other parts of the rule. “This buys the department time to consider, revise, and repropose portions of the 2020 tip final rule,” Kahn says.

One part of the regulation being delayed affects workers who perform both tipped and nontipped work, says Kyle D. Johnson, an attorney at Frost Brown Todd LLC in Louisville, Kentucky.

“The dual jobs regulation provides that tipped employees may only be paid a tip wage when they are performing work in the tipped occupation,” Johnson says. “For example, if the tipped employee sometimes works as a janitor, the employee needs to be paid at least the full minimum wage while performing work as a janitor.”

The change that is being delayed would have clarified that duties that are sufficiently related to the employee’s tip-producing activities are not part of a separate occupation but are part of the employee’s tipped occupation, Johnson says. “The revision would have made clear that there are no fixed limits on the amount of these related duties that a tipped employee could perform while being paid a tipped wage.”

Another delayed part of the regulation covers civil money penalties, Johnson says. For minimum wage and overtime violations, the DOL can seek civil money penalties only if a violation is repeated or willful. A delayed part of the rule would incorporate the repeated-or-willful limitation for violations of the tipped employee regulations.

“The fact that the DOL has proposed this delay signals that the Biden administration may aggressively seek civil money penalties of up to $1,100 per violation of the tipped employee regulations even where the violation is neither repeated nor willful,” Johnson says.

Boyd Byers, an attorney with Foulston Siefkin LLP in Wichita, Kansas, says the parts of the rule that are not being delayed represent minor changes, but “the key thing that everyone will be keeping their eyes on going forward is what the DOL ultimately decides to do with employees that perform both tipped and nontipped duties.”

Morgan says the latest action from the DOL is in line with the Biden administration’s efforts to change actions from the previous administration. So, although more change related to tipped workers is expected later, his advice to employers is to “just run your business, treat your employees fairly, pay them what you’re supposed to pay, and just keep your eye out.”

Fate of the 80-20 Rule

One area the DOL will be studying before December 31 concerns when employers can pay the tip wage to employees who perform both tipped and nontipped work. Previous DOL guidance set out what is known as the 80-20 rule.

“The 80-20 ‘rule’ was not a binding legal standard but was born out of a wage and hour operations handbook,” Kahn says. “The rule was established to help investigators and employers determine the percentage of time tipped workers could spend performing nontipped duties ‘related’ to their tipped occupation (duties that did not themselves produce tips) before the employee was considered having a dual job, one tipped and the other untipped.”

Investigators were instructed to prohibit employers from claiming the tip credit when the time spent on “related duties” exceeded 20% of the employees’ workweek, Kahn says.

“The 80-20 rule has long been criticized for being confusing and unworkable,” Kahn says. “While it has fallen in and out of favor over the years, the rule is now dead.”

Employers can take a tip credit for tipped employees who perform duties related to their tipped work regardless of whether the nontipped duties are more than 20% of their workweek so long as the employees perform the related duties contemporaneously with the tip-producing activities or within a reasonable time immediately before or after the tipped activities, Kahn says. “The hard percentage cap of 20% is gone.”

Tammy Binford writes and edits news alerts and newsletter articles on labor and employment law topics for BLR web and print publications.

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