Confusion and inconsistent application regarding when employers can take a tip credit against their requirement to pay minimum wage resulted in the Department of Labor (DOL) Wage and Hour Division (WHD) reissuing an opinion letter from 2009 (Opinion Letter FLSA 2009-23), seeking to provide clarity on the issue.
By way of a quick refresher, federal law under the Fair Labor Standards Act (FLSA) permits an employer to pay its tipped employees not less than $2.13 per hour in cash wages and take a “tip credit” equal to the difference between the cash wages paid and the federal minimum wage, which is currently $7.25 per hour. The tip credit may not exceed the amount of tips actually received and, under the current minimum wage, may not exceed $5.12 per hour ($7.25-$2.13).
As defined by the FLSA, a “tipped employee” is any employee engaged in an occupation in which he or she customarily and regularly receives at least $30 a month in tips.
To make matters more confusing, many states and local governments have minimum wages at or above the federal rate. Some of those states and local jurisdictions, like the federal government, allow employers to take a tip credit and some don’t. Employees are entitled to the most beneficial calculation between state and federal laws and local ordinances. This means those areas where local governments don’t recognize the tip credit employees must be paid at least the minimum wage directly from the company.
The purpose of the WHD’s reissuance of this opinion letter was to clarify those situations where employees may be working in “dual jobs,” meaning employees engage in more than one occupation with a portion of their time spent in jobs meeting the tip requirement, and a portion spent in jobs that do not.
For example, an employee who works part-time as a waiter (tipped position) and part-time in maintenance (non-tipped position) at a hotel is employed in a dual job. In that scenario, if the employee customarily and regularly receives at least $30 a month in tips as a waiter, then that employee is a tipped employee only with respect to his work as a waiter. No tip credit can be taken for his hours worked performing maintenance duties.
Dual Jobs vs. Related Duties
The confusion for many arises in determining the difference between dual jobs, where tip credit can only be applied to the tip-generating hours worked by the employee, and “related duties,” wherein the entire time the employee works is subject to a tip credit based on their main occupation being tip-generating with some contemporaneous duties that are non-tip-generating.
An example of related duties is a waitress who spends time cleaning and setting tables, making coffee and occasionally washing dishes. This waitress may continue to be engaged in a tipped occupation even though these duties are not tip-producing, if such duties are incidental to the regular duties of the waitress.
Generally, if a tipped employee spends more than 20 percent of his or her time performing non-tip-generating work, no tip credit may be taken for the time spent in such duties.
How To Determine If Your Employees Duties are Tip-Producing
By requiring employees to distinguish between tipped work and non-tipped work, the FLSA ensures employers do not evade the minimum wage requirements by simply having tipped employees perform myriad non-tipped tasks that would otherwise be done by non-tipped employees. For this reason, the WHD recommends employers determine on the front end which duties are related and unrelated to a tip-producing occupation, so it can take necessary steps to comply with the FLSA.
To assist in determining whether a particular duty is part of a tipped occupation, the WHD suggests the following principles be considered:
- Duties listed as core or supplemental for the appropriate tip-producing occupation in the Tasks section of the Details report in the Occupational Information Network (O*NET) or 29 C.F.R. § 531.56(e) shall be considered directly related to the tip-producing duties of that occupation. No limitations shall be placed on the amount of these duties that may be performed, whether or not they involve direct customer service, as long as they are performed contemporaneously with the duties involving direct service to customers or for a reasonable time immediately before or after performing such direct-service duties.
- Employers may not take a tip credit for time spent performing any tasks not contained in the O*NET task list. Some of the time spent by a tipped employee performing tasks that are not listed in O*NET may be subject to the de minimis rule contained in FLSA regulations at 29 C.F.R. § 785.47.