On October 28, 2021, the Department of Labor made a final ruling on Tips Dual Jobs. In case you’re not familiar, in most states, businesses that have employees that make tips are allowed to pay a wage that is below the Federal Minimum Wage of $7.25/hour. In at least 17 states, that sub-minimum wage is as low as $2.13 hour. The idea is that tips earned by the employee would be used to make up the $5.12 difference between $2.13 and $7.25 (federal minimum wage) in this example.
As long as the employee is working on tip-paying activities, they may be willing to take a sub-minimum wage job knowing they can make up the difference (plus more) with the tips they can earn.
But what happens when the employer has the tipped employee, who’s making sub-minimum wage, doing work where there is no opportunity to earn tips? What are the rules around how much non-tipped work and what type of non-tipped work an employer can have a tipped employee do?
That’s what the Department of Labor decided with the final ruling on Tips Dual Jobs.
Defining the type of work an employer can take a tip credit on
This ruling clarifies that an employer may take a tip credit only when an employee is performing work that is part of a tipped occupation – specifically, performing work that is tip producing or performing work that directly supports work that is tip producing for a limited amount of time.
Defining the limits of non-tipped work time
This ruling sets reasonable limits on the amount time an employer can take a tip credit when a tipped worker isn’t doing tip-producing work. Under the final rule, an employer can take a tip credit only when the worker is performing tip-producing work or when:
- A tipped employee performs work that directly supports tip-producing work for less than 20 percent of the hours worked during the employee’s workweek. Therefore, an employer cannot take a tip credit for any of the time that exceeds 20 percent of the workweek. Time for which an employer does not take a tip credit is excluded in calculating the 20 percent tolerance
- A tipped employee performs tip-supporting work for not more than 30 minutes. Therefore, an employer cannot take a tip credit for any of the time that exceeds 30 minutes.
The final rule becomes effective December 28, 2021.