Tip Credit Rules are Changing

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The Biden Administration has proposed a change to the tip credit rule, which predominantly impacts restaurants. To start, a little history before detailing the new rule.

80/20 Rule

The so-called 80/20 rule has been a longstanding policy since 1988, and several courts have given it deference in their rulings. When tipped employees, such as servers and bartenders, spend at least 20% of a workweek on duties that support the restaurant’s operations but do not produce tips, they were entitled to the full minimum wage of $7.25 per hour (federally).  The states with a minimum wage above $7.25 per hour will be entitled to the state’s minimum wage. Normally the tipped wage is $2.13 per hour federally (again, states differ) for workers who regularly earn tips.

Trump Administration’s Proposed Rule

The Trump Administration sought to change this rule and permitting businesses to pay $2.13 an hour on secondary duties for an unlimited amount of time, allowing employers with tipped employees to end what they saw as onerous record-keeping practices. There were limits to when the time would be seen as tipped work. The tasks had to be related to the worker’s tipped occupation. The work performed needed to be either at the same time employees were serving customers for tips, or the work had to be done immediately before or after tipped activities.

When the Biden Administration came into office, they delayed the implementation of this rule. Now they are rescinding and changing the 80/20 Rule.

Biden Administration’s Proposed Rule

The change to the 80/20 rule makes it more specific. Not only must an employer pay employees if 20% of their time is spent in non-tipped activities, but under the proposed rule, tipped workers are also owed the higher hourly rate when working on these other tasks for 30 continuous minutes or more regardless of the percentage of weekly hours.

Employers have until August 23, 2021, to comment on this proposed rule. The U. S. Department of Labor invites comments from the public on the proposed rule at www.regulations.gov. In order to submit comments, the best way to search for this regulation on the website is to enter the full title of the proposed rule, Tip Regulations under the Fair Labor Standards Act: Partial Withdrawal, into the search bar at the top.

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