Changes to Tip Rules

Who gets paid tips and who doesn’t? Can you force an employee to share tips? Can a supervisor take a share of tips? Well, the rules for tips are being revised (and hopefully simplified).

PLEASE NOTE: These changes in Federal regulations are not yet finalized, so there may be some changes to them. However, any restaurant or hospitality manager should be aware of what’s coming because it affects how tips are distributed and how tipped staff are paid.

According to law firm Littler, Mendelson P.C.,

Over a year after Congress amended the Fair Labor Standards Act (FLSA) to clarify tip ownership questions, the U.S. Department of Labor (DOL) finally published a Notice of Proposed Rulemaking on October 8, 2019…  The proposed regulatory changes address two key areas.  First,… clarified who can, and who cannot, receive tips when a tipped worker does not receive a tip credit.  Second, the proposed regulations adopt the DOL’s 2018 opinion letter that outlined the proper scope of the dual jobs regulation and the so-called 80/20 Rule involving work done by employees receiving a tip credit.

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The regulations will reinforce that tip pooling requirements are okay, but cannot include supervisors or business owners. The law firm FordHarrison states, “If the proposed rule is finalized, employers who do not take a tip credit will be permitted to include “back-of-the-house” employees who usually do not receive tips (such as cooks and dishwashers) as part of a tip pool. Lastly, the existing rule prohibiting employers from keeping employees’ tips or participating in tip-pooling arrangements will remain.” Who qualifies as an owner or supervisor is also clarified, defining a supervisor as one who meets federal guidelines for salaried “exempt” classification.

The part of this tip rule change that is getting the most attention is the 80/20 rule, which could become very complicated for employers to track. Basically, you had to prove that your tipped staff spent less that 20% of their day working on duties that weren’t tip generating (like cleaning, prepping settings, etc.). As explained by the law firm Jackson Lewis P.C.,

The 20% Rule… requires employers to pay tipped employees the full minimum wage, rather than the lower cash wage applicable to tipped employees, if an employee spends more than 20% of his or her time performing allegedly non-tipped duties (which were undefined).

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The proposed changes will allow for side work done while also doing tip-based work, such as prepping sides or cleaning or polishing utensils. According to Ogletree Deakins,

The proposed rules also modify the frequently litigated 80/20 rule related to side work performed by service employees. The proposed rule explains that an employer may take a tip credit for any amount of time that a tipped employee performs work related to non-tipped duties contemporaneously with his or her tipped work, or for a reasonable time immediately before or after performing the tipped duties.

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All of this raises the question of whether you have your employee policies set in writing to prevent any confusion about your restaurant’s rules and procedures. Are you a California hospitality business looking for an employee handbook? If so, learn more about Custom Employee Handbooks.


(This article provides an overview of certain federal, state, or local laws. It is not intended to be, and should not be construed as, legal advice by New Wind. We do not provide any legal advice, financial advice, or tax advice. Please see an appropriate professional for such services.)

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