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New Rules for Paying Tipped Workers 

November 8, 2021

Recently, with each new Presidential administration, changes are made to how the U.S. Department of Labor (the “DOL”) views the way employers are required to pay tipped workers.  As you might suspect, this Administration is no different.  Late last month, the DOL put forth its Final Rule (click here to read) on paying tipped wages to employees. The DOL’s most recent position weighs heavily in favor of the tipped worker.

Pursuant to the Fair Labor Standards Act, employers must pay workers a minimum wage of $7.25/hour; however, the law allows employers of tipped employees to take a “tip credit.”  This allows employers of employees who customarily receive at least $30/month in tips to pay those employees a cash wage of as little as $2.13/hour.  This is permitted provided the employer ensures the total amount received by the employee (from both the employer and customer tips) is no less than $7.25/hour. This model assumes the tipped employee will be receiving a continual stream of tips and would be spending almost all of his time working on tip-generating activities, which is not always the case.

In its new Final Rule, the DOL acknowledges that many tipped workers are asked to perform many duties for which they are not tipped.  To adjust for this reality, the Final Rule creates the “80/20 principle.”  Under the “80/20 principle,” employers are required to pay the standard federal minimum wage ($7.25/hour) to all their tipped workers who spend less than 80% of their workweeks’ on tipped activities.

This new rule will be a game changer for many employers of tipped employees, especially for those who need to flex workers between tip and non-tip activities.  It will be imperative that employers keep accurate track of the work being performed by these workers to ensure they do not run afoul of this new policy.  How employers track these hours is going to be the key to defending claims that the 80/20 rule has been violated.  Like most Wage and Hour investigations, we expect the DOL will accept the employee’s claims unless the employer has clear records to the contrary. 

Brody and Associates regularly advises management on complying with the latest state and federal employment laws.  If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560.