Labor department sets limits on use of tip credit for server side work

The U.S. Labor Department on Thursday announced the long-awaited final rule that returns to limits on when employers can take a tip credit during the hours service employees are engaged in side work that does not produce tips.

Scheduled to go into effect Dec. 28, the amended regulations attempt to clarify that an employer may only take a tip credit for the hours when workers are performing tip-producing tasks, or tasks that directly support tip-producing work — like setting tables, making coffee or rolling silverware —within a certain limit.

Sometimes called the “80/20 rule,” or the “dual jobs” portion of the Fair Labor Standards Act, the ability to pay a sub-minimum wage for tip-supporting work is only allowed if the worker spends less than 20% of hours worked during a workweek or less than 30 minutes continuously on tip-supporting work.

Under the Trump administration, the labor department had moved to roll back the Obama-era 80/20 rule. But labor officials said Thursday that the rule’s return and clarification will ensure that essential workers are protected. Many tipped workers remained on the job through the pandemic at risk to themselves and their families, officials said.

“Women, people of color and immigrants represent more than half of all tipped workers. Today’s final rule enhances protections for this vital segment of the nation’s essential workforce and combats income disparity and promotes equity,” said Jessica Looman, the Labor department’s wage and hour division acting administrator.

The National Restaurant Association, however, said the timing couldn't have been worse for the restaurant industry.

"As we go into the end of year holiday season, operators are now faced with new labor requirements," said Shannon Meade, the association's vice president of public policy and legal advocacy, in a statement. "Restoring the Obama-era 80/20 rule is an arbitrary change that creates mass confusion and enormous compliance challenges for restaurants. This rule does not provide the clarity that small business owners and their employers need and is likely to increase litigation around the issue."

Update, Oct. 28, 2021: This article has been updated to include a comment from the National Restaurant Association.

Contact Lisa Jennings at [email protected]

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