DOL proposes limits to tip credit for tasks 'directly supporting' tipped work

On June 21, the U.S. Department of Labor (DOL) issued a notice of proposed rulemaking (NPRM) proffering limits on the tip credit employers can take during workweeks when tipped employees perform tasks that "directly support" tipped work but don't themselves produce tips. If adopted, the proposal would cap the use of the tip credit for those tasks at 20% of an employee's total hours worked during a particular workweek. In addition, if the tasks exceed 30 minutes for any continuous period of time, the proposed regulation would prohibit employers from applying the tip credit to any portion of the continuous period. The latter prohibition would apply regardless of the total amount of supporting work performed during any workweek.

Background

Section 3(m) of the Fair Labor Standards Act (FLSA) allows employers that meet certain requirements to credit a limited portion of the tips its tipped employees receive toward payment of their required minimum wage. The FLSA currently allows qualifying employers to claim a $5.12 "tip credit" toward the current $7.25 federal minimum wage for tipped employees. If an employee's tips are sufficient to cover the tip credit, employers need to pay cash wages of only $2.13 per hour to satisfy the minimum wage.