On June 21, 2021, the U.S. Department of Labor (DOL) announced a proposed rule (NPRM) to clarify when employers can claim a tip credit to compensate their tipped employees.
Under current rules, the Fair Labor Standards Act (FLSA) allows employers to claim a tip credit when compensating tipped employees for tipped work. This credit allows employers to pay their tipped employees a cash wage in the amount of the difference between the minimum wage rate and the tip credit. When an employee’s tips are insufficient to offset the tip credit, employers are required to ensure the employee is paid at least the minimum wage rate.
The FLSA defines “tipped employee” as any employee engaged in an occupation in which the employee receives more than $30 per month in tips. The current federal minimum wage rate is $7.25 per hour. The current federal tip credit is $5.12 per hour. The current federal cash wage is $2.13 per hour.
The proposed rule 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 clarifies 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 includes 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.
The proposed rule is scheduled for publication in the Federal Register on June 23, 2021. Employers will have 60 days from the date of publication to submit their comments about the proposed rule to the DOL. Comments from the public on the proposed rule may be submitted at www.regulations.gov. The comment period closes Aug. 23, 2021.
HR Works will continue to monitor this topic and provide updates as new information becomes available.
