New Tip Regulations by the Department of Labor

Understanding New Tip Regulations Under the Fair Labor Standards Act

A new tip regulation finalized by the Department of Labor on December 22nd could cost workers more than $700 million, according to a 2019 report by the Economic Policy Institute (EPI). This final rule under the Trump administration would permit restaurants to use tips earned by waitstaff to pay cooks and other employees, which essentially means that back-of-the-house employees could get a pay increase at the expense of front-of-the-house workers, or any employee who provides customer service.

Although the Trump Administration supported its new regulation by saying it would improve equality, many argue otherwise. This is because it would remove the 80-20 rule and could encourage employers to require tipped employees (i.e. waitstaff) to perform nontipped labor like cleaning or rolling silverware.

For background, the 80-20 rule allows tipped employees to earn as little as $2.13 an hour if their tips amount to the $7.25 federal minimum wage. Further, the 80-20 rule prohibits tipped employees from spending more than 20% of their shift performing nontipped work. Under the new tip regulation, however, the new standard would require tipped employees to spend “reasonable time” doing nontipped work. Unfortunately, “reasonable time” is ambiguous and may pave the way for federal labor law violations.

Other significant elements of the final rule include:

  • Employers will be prohibited from allowing managers, supervisors, and themselves to keep any portion of employees’ tips
  • Employers who do not take a tip credit but collect tips to operate a mandatory tip pool must adhere to a new recordkeeping requirement
  • The rule codifies the DOL’s guidance on an employer’s ability to claim tip credit from workers who perform tipped and non-tipped duties
  • Employers may implement “nontraditional” tip pools to include dishwashers, cooks, and the like
  • “Newly allowed tip-sharing may incentivize the inclusion of [previously] excluded workers and reduce wage disparities among all workers who contribute to customers’ experience,” according to Wage and Hour Administrator Cheryl Stanton
  • The final rule states that a non-tipped duty is presumed to be related to a tip-producing occupation if it’s listed as a task of the tip-producing occupation in O*NET
  • Employers and employees will have greater flexibility in arranging their pay practices

Proponents of the Trump administration’s final rule include the Restaurant Law Center and the National Restaurant Association, stating that the rule is deregulation and puts an end to the government’s micromanagement of restaurants.

The final rule will take effect in 60 days.

Providing Clarity to Employees & Employers

The final rule on tip regulation under the Fair Labor Standards Act will impact both employees and employers in the food service industry. Both parties must adjust to the various new regulations under the final rule, and our Houston employment attorneys are well aware of the confusion and ambiguities that you may need clarification on. Should you come to us for help, you can rest assured that our lawyers will thoroughly explain every detail of the final rule, how you may be impacted, what you can do to prepare for its implementation, and provide personalized legal counsel tailored to your individual circumstances from start to finish.

To speak with our top-rated team, contact Shellist Lazarz Slobin LLP online or at (713) 352-3433!