Articles
May 13, 2021

Tips on Tipping

As a new administration hits its first 100 days, what changes can we expect to federal tipping regulations?

New federal tipping regulations took effect April 30, including rules about tip sharing. Meanwhile, the Department of Labor is considering additional changes to tipping regulations and Congress is debating the Raise the Wage Act, which would eliminate the tip credit.

Angelo Amador, head of the Restaurant Law Center, hosted Paul DeCamp to outline “The Future of Tipping Under the Biden Administration” in the Restaurant Law Center’s recent monthly webinar. A former administrator of DOL’s Wage and Hour Division, DeCamp is national co-chair of law firm Epstein Becker Green’s wage and hour practice. Here are some of the pressing questions DeCamp and Amador addressed during the recent webinar, which is available to watch on demand.

What is the “tip credit”?

The Fair Labor Standards Act requires that restaurant employees earn minimum wage or higher. The tip credit allows restaurants to satisfy a portion of the minimum wage obligation through tips. No tipped employee ever makes less than the required minimum wage. [Tipped restaurant employees on average make between $19-$25/hour, according to National Restaurant Association research.] Seven states disallow the tip credit under state law: Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington.

Can tips received by front-of-the-house (FOH) employees be shared with back-of-the house (BOH) employees?

A 1974 FLSA amendment clearly states that FOH/BOH tip sharing is impermissible if the restaurant takes a tip credit for any of the employees involved. 

But what if a tip credit isn’t applied? 

As of April 30, DOL regulations now permit tip-sharing with BOH employees, such as dishwashers or line cooks, as long as the restaurant is not taking a tip credit for any of the employees. 

What is the 80/20 rule?

This DOL rule prohibits restaurants from taking a tip credit for time an employee spends on side work tasks—such as rolling silverware or setting up for a shift—if that time exceeds 20% of the employee’s working time. 

Didn’t the Trump Administration eliminate the 80/20 rule?

In December 2020, DOL issued a Final Rule removing any limits on the amount of time a tipped employee may spend on non-tipped duties as long as they are performed “contemporaneously with tipped duties, or for a reasonable time immediately before or after” tipped duties. The change was slated to go into effect March 1. “It looked at that point like the 80/20 rule was gone,” explains DeCamp. 

But the Biden Administration slammed the brakes on this change and opened the issue up for more comments. The DOL is now reviewing comments and has delayed any changes to the 80/20 rule until December 31, 2021. The Restaurant Law Center submitted comments underscoring that the restaurant industry has faced unique harm during the pandemic, making it important for DOL to finalize the rule and avoid causing further costs and losses for the industry.

Any advice on how to comply with the 80/20 rule?

DeCamp offers three strategies:

1) Eliminate or reduce the time tipped employees engage in opening or closing tasks that count toward the 20% of non-tipped time.

2) Require employees to clock in at the full minimum wage rate for shift prep until the restaurant opens. “Then clock out, and clock back in at a tipped wage,” DeCamp suggests. 

3) Consider assigning side work to designated employees earning minimum wage. “If you can offload the side work from the tipped employees, then in a lot of ways you do away with this 80/20 issue, or at least significantly reduce the risk.”

Can supervisors/managers participate in tip pools? 

Effective April 30, managers and supervisors are prohibited from receiving employees’ tips as part of any tip pooling arrangement. 

The question is: How do you define “supervisor”? For example, is a “head server” a supervisor? DOL tried to clarify this with its December 2020 Final Rule, which recognized that an hourly employee with a title of “head,” “chief,” or “lead” might not legally be a supervisor. The Biden Administration halted this part of the rule, leaving the definition nebulous. The matter is now open for comments until May 24.

How would the Raise the Wage Act impact restaurants?

The Raise the Wage Act would raise the federal minimum wage from $7.25 to $15 per hour over five years. It would also eliminate the tip credit. Currently, federal law requires restaurants to pay tipped employees a minimum of $2.13 per hour, with tips bringing the wage up to—and often beyond—minimum wage. [If the combined wage is not equal to the required hourly minimum wage, the restaurant operator is required by law to make up the difference.]

The Raise the Wage Act would phase out the tip credit by increasing the minimum pre-tip hourly wage to $4.95, with annual increases of $2 per hour each year until reaching the federal minimum wage. Sen. Bernie Sanders (I-VT) introduced the bill in January with 37 co-sponsors. DeCamp does not expect it to garner enough support to pass.

What’s the future of the tip credit?

Be prepared for ongoing attempts to eliminate the tip credit. DeCamp points to efforts in Washington, D.C., Michigan, and Maine. So far, these initiatives have been squashed by local legislatures. “Grassroots groups are going state to state,” says DeCamp. “If they can’t get it done at the federal level, they’re going to try hard on a state-by-state basis to get rid of the tip credit. This is an ongoing issue to be mindful of.”

 

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