Managers and supervisors can now contribute to valid tip pooling arrangements, without receiving tips from those pools.
Taking tips earned by employees will now come at a cost for restaurants, the Department of Labor announced Thursday. The DOL shared a final rule that restores its ability to assess civil penalties against employers who do so, regardless of whether those violations are repeated or willful. It's scheduled to take effect in 60 days.
In addition, the rule modified the DOL’s broader civil money penalties regulations addressing when a violation is indeed willful, “further aligning these regulations with applicable precedent and how the department litages willfulness,” it said.
How is that defined? For many years, these regulations identified two specific circumstances in which a violation “shall be deemed” willful. Specifically, the DOL’s regulations provided that “an employer’s conduct shall be deemed knowing,” among other situations, if the employer received prior advice from the Wage and Hour Division (WHD) that its conduct was unlawful. Additionally, “an employer’s conduct shall be deemed to be in reckless disregard of the requirements of the [FLSA],” among other situations, if the employer failed to inquire further into the lawfulness of its conduct when it should have. The Department’s regulations further provided that WHD shall take into account “[a]ll of the facts and circumstances surrounding the violation” when determining whether a violation is willful.
Notably, Thursday’s rule also allows managers and supervisors to contribute to valid tip pooling arrangements, without receiving tips from those pools.
“Workers who depend on tipped wages are every bit as entitled to expect to keep what they’ve earned as other workers,” U.S. Secretary of Labor Marty Walsh said in a statement. “An employer who withholds workers’ tips in violation of the law deprives them of that security and, in some cases, leads to workers earning less than the federal minimum wage. This final rule helps us protect their earnings by strengthening tools to hold employers legally responsible for those violations.”
The DOL withdrew the civil money penalties provisions in the 2020 Tip final rule as well, which would have allowed it to assess penalties for violations only when employers kept employees’ tips and the DOL found their violations to be repeated or willful. The Consolidated Appropriations Act of 2018 enabled the DOL to impose $1,100 penalties when employers keep employees’ tips—in violation of the law—regardless of whether violations are repeated or willful.
Thursday’s final rule clarified that while managers and supervisors may not receive tips from mandatory tip pools or tip-sharing arrangements, they can contribute. Also, managers and supervisors can keep tips only when they receive them from customers directly “for service a manager or supervisor directly and ‘solely’ provides.”
“The final rule announced today strengthens protections for tipped workers—who are largely women, immigrants and people of color—and advances equity in the workplace,” Wage and Hour Division Acting Administrator Jessica Looman added in a statement. “Civil money penalties are an incentive for employers to comply with their legal responsibilities. When they do comply, essential workers benefit. When employers don’t comply, these penalties are a useful enforcement tool we can use to help achieve compliance.”
The ruling is a major update for restaurants. The Fair Labor Standards Act allows employers with tipped workers to pay as little as $2.13 per hour in direct wages, while taking a credit against the tips earned by the employee to make up the balance of the federal minimum wage of $7.25 per hour. In other terms, if a tipped employee does not earn minimum wage, they have to be paid to get to the level.
This has been something debated in recent months, especially under new presidential leadership.
It’s gotten messy in recent months concerning the oft-maligned “80/20 rule” and how the DOL prohibits restaurants from taking a tip credit if time an employee spends on “side-work” tasks, of which there are plenty in a restaurant—everything from rolling silverware to setting up a shift—exceeds 20 percent of the employee’s working time.
In December 2020, when the Trump administration still held the labor keys, a final rule from the DOL removed any limits on the amount of time a tipped employee could spend on non-tipped duties as long as they were performed “contemporaneously with tipped duties," or for a “reasonable time immediately before or after” tipped duties. This was intended to go into effect March 1 and sparked a firestorm of dissenting views (on February 26, 2021, the Department delayed the effective date of the 2020 Tip final rule until April 30, 2021).
The Trump decision would have enabled restaurants to pay employees the lower minimum wage of $2.13 per hour, no matter how much time they spent on non-tipped duties. It would have also withdrawn the DOL’s previous interpretation that workers (this includes servers and bartenders) must be paid the full federal hourly minimum of $7.25 when spending at least 20 percent of their workweek on tasks that don’t yield gratuities from customers, rather than the base pay of $2.13 for tipped occupations.
Workers earning the reduced tipped hourly minimum of $2.13 could complete some non-tipped work so long as it was completed during or “for a reasonable time immediately before or after.”
The Biden Administration halted the change and opened it up for additional commentary, leaving the DOL to gather more feedback and delay any changes until this coming December.
It offered a new proposal in June, which the DOL said “clarifies when an employee is working in a tipped occupation and when a worker has performed such a substantial amount of non-tipped labor that an employer can no longer take a tip credit and must pay the full federal minimum wage to the worker.”
The proposed rule also clarified that an employer may only take a tip credit when tipped employees perform labor that is part of their tipped occupation.
Work considered part of the tipped occupation included, “labor that produces tips and labor that directly supports tip-producing work, so long as the employee does not perform it for a substantial amount of time.”
If an employee performed work that directly supported tip-producing work for a substantial amount of time that worker was no longer performing labor that is part of the tipped occupation, the DOL added.
What “substantial” meant here has long been an area of question. The DOL outlined it in June as “exceeds 20 percent of all of the hours worked during the employee’s workweek or exceeds 30 continuous minutes.”
To put it simply, the DOL wanted to create a new standard that said anybody who spends more than 30 minutes of uninterrupted time on side work that “directly supports” tip-producing activity must be paid standard minimum wage, rather than the lower tipped minimum wage that’s allowed for tipped workers.
And it codified the 80/20 rule (the 20 percent limit).
There’s a lot more to this (READ ONE EXPERT’S TAKE) and more to come. Thursday’s news, at least, brings some clarity on one point to the surface.