On December 17, 2024, the U.S. Department of Labor (DOL) rescinded its regulations that attempted to limit the percentage of work time and consecutive minutes tipped employees could spend on non-tip-producing work for purposes of tip credits under the federal Fair Labor Standards Act (FLSA). The DOL’s action was in response to a decision by the Fifth Circuit Court of Appeals. The court had struck down the DOL’s 2021 regulations that said if a tipped worker spent more than 20 percent of their time (the “80/20 rule”) or more than 30 consecutive minutes on tasks that didn’t produce tips, employers couldn’t apply the FLSA tip credit toward minimum wage requirements during that additional time (Restaurant Law Center v. U.S. Department of Labor, 5th Cir, Oct. 2024).
Tips (i.e., advice!): If you employ tipped workers, we recommend you keep these provisions in mind:
Tipped employee: The FLSA defines this as “any employee engaged in an occupation in which” the employee “customarily and regularly receives more than $30 a month in tips.” Typical examples are restaurant servers and delivery drivers.
Tip credit: The tip credit is an option under the FLSA that allows employers to pay as little as $2.13 per hour to tipped employees as long as they earn enough tips to reach the federal minimum wage of $7.25 per hour. However, some states, including California, Montana, Oregon, and Washington, don’t allow employers to apply any sort of tip credit to reduce the applicable minimum wage. In addition, many state and local minimum wages are higher than the federal amount. The DOL offers a chart showing minimum wage requirements for tipped employees in all 50 states.
Dual jobs: The DOL’s regulations at 29 CFR 531.56 explain that if an employee works in two truly different jobs for the same employer, such as building maintenance and table server, a tip credit under the FLSA can only be applied to the table server job. It is common for a tipped job to include related tasks that don’t directly produce tips (such as when a server wipes down tables or briefly pitches in with food preparation). The revised rules make it clear that those related tasks don’t need to be picked apart and timed separately—the entire occupation is considered as a whole in determining whether the worker is a tipped employee.
Tip pooling: Employees may voluntarily agree to split or pool their tips, and an employer may facilitate this arrangement. However, only employers that don’t take a tip credit may require tipped employees to pool their tips with non-management workers who wouldn’t ordinarily receive tips, such as dishwashers or other “back of the house” workers. All employers, regardless of whether they take a tip credit, are forbidden from taking workers’ tips to give them to the employer or to supervisors or managers. The DOL’s regulations explain these prohibitions at 29 CFR 531.52 and 29 CFR 531.54.
