Skip to Content

U.S. Department of Labor Announced a Notice of Proposed Rulemaking to Protect Tipped Workers


Contact Us

New Announcement Addresses Service Industry Shortage by Securing Wages for Tipped Employees

It is no secret that in 2021, there has been a major shortage of workers in the service industry. In April 2021, the Department of Labor released some staggering numbers for the restaurant industry. Workers quitting their jobs increased to new highs of 4 million and 2.7%, with a record 5.6% of restaurant workers quitting their jobs in April. As a result, job openings increased to 9.3 million and 6%, both records. Restaurants job openings increased the most by any industry, adding nearly 350,000 new job openings since March, adding up to 1.34 million job openings in April.

Some of the factors to blame for the shortage include the long hours, low pay, reliance on tips, along with furloughs, layoffs, and inconsistent COVID-19 protocols after the COVID-19 pandemic. Furthermore, some employees have found that the unemployment insurance benefits they have made during the pandemic have been more worthwhile than what they were making working in the service industry.

About the Impactful Announcement From the U.S. Department of Labor

The U.S. Department of Labor announced a notice of proposed rulemaking to limit the amount of non-tip producing work that a tipped employee can perform when the employer is taking a tip credit. A Notice of Proposed Rulemaking (NPRM) is the official document that announces and explains the agency’s plan to address a problem or accomplish a goal. In this case, the problem being addressed is the lack of wages that a tipped worker is able to earn when they are not being tipped or not being tipped sufficiently.

To fully understand the discussion that the U.S. Department of Labor is having on this matter, it is important to understand tip credit. When the employer counts the employee’s tips towards its obligations to pay minimum wage, what happens is known as a tip credit. Tip credits affect minimum wage calculations and allow an employer to credit some o the employees’ tips toward the employer’s obligation to pay minimum wage.

The new rule that the U.S. Department of Labor states that when an employee is working in a tipped occupation and has performed a substantial amount of non-tipped labor, the employer can no longer take a tip credit. Instead, they must pay full minimum wage to the worker. When this rule talks about a “substantial amount of time,” it is referring to a period of time greater than 20% of the hours worked during the workweek or 30 consecutive minutes.

This is great news for those in the service industry and professions that make most of their income through tips. It can be frustrating for an employee to work diligently throughout their shift and serve customers with a smile, only to find that they have received very little in tips. It can be even more frustrating when an employee finds that the money they earned did not add up to the federal minimum wage.

The Fair Labor Standards Act allows employees 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. However, the federal minimum wage currently sits at $7.25 an hour. With the new rule, the employer will need to pay the full federal minimum wage to the employee when they perform a substantial amount of non-tipped labor.

The rule goes even further to protect tipped workers when they are not directly interacting with those who tip. It clarifies that if an employee performs work that directly supports tip-producing work for a substantial amount of time, the worker is no longer performing “tipped work.” In other words, the employer would not be able to take a tip credit from the time a server spends rolling silverware and not having interactions that allow for tips.

How Do I Sue my Employer for not Paying Me?

When the federal agency releases a rulemaking, they generally allow between 30 and 60 days to leave the comments open in the “Dates” section of the Federal Register document. Sometimes, for complex rulemakings, the agency may allow up to 180 days or more for comments. This is known as the “proposed rule” stage. For this rulemaking, the comment period closes on August 23, 2021.

If you have vested interest in this issue or you are looking to be compensated for your untipped labor, you have the opportunity to comment. The team at Shellist Lazarz Slobin LLP is certainly interested in matters of protecting employees. In fact, it is our mission. As employment law attorneys, we are committed to representing clients in employment law disputes and producing the best outcome for their situations. When conflicts arise with your employer or complaints need to be filed, we can handle the case and are equipped to do so before government agencies if necessary. We have a history of client success stories. This includes finding companies that violate the Fair Labor Standards Act and holding them accountable.

If you believe you are being paid unfairly or need guidance in other areas of employment law, call Shellist Lazarz Slobin LLP at (713) 352-3433 or contact us online.