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DOL Issues Partial Delay on Tip-Sharing Rule

The Department of Labor issued a final rule on December 30, 2020, that clarified tip credit issues under the Fair Labor Standards Act (FLSA) related to tip ownership and eliminated the 80/20 rule. The rule originally had an effective date of March 1, 2021, and on February 26th, the DOL pushed that date back to April 30, 2021. Then on April 28th announced a second, partial delay and pushed the effective date to December 31, 2021. 

The rule enforced the DOL’s 2018 decision to eliminate the 80/20 rule. An employer can take a tip credit for the reasonable amount of time an employee worked non-tipped duties. However, it did not clarify what a reasonable amount of time was. 

They explained that the goal in eliminating the 80/20 rule was to focus on an occupation-based standard. 

Additionally, the final rule stated that tipped employees are permitted to pool tips with non-tipped co-workers so long as the employer does not take a tip credit. Under the FLSA, a tip credit meant that restaurants and other hospitality employers may be eligible to pay their workers less than the standard minimum wage, AS LONG AS worker’s tips made up the difference. 

It also prohibited employers (including managers & supervisors) from keeping tips received by employees under any circumstances.   The delay affects only a portion of the original final rule, the DOL’s ability to assess civil money penalties (CMPs), and the elimination of the 80/20 rule.  

The provision that addressed the sharing of tips between tipped and non-tipped workers (if a tip credit was not taken) and prohibiting employers from keeping employee’s tips, will remain effective as of April 30th, 2021.

80/20 Rule 

The rule issued in December of 2020 stood with the DOL’s decision from 2018 to eliminate the 80/20 rule which limited the percentage of time (to 20%) that a tipped worker could spend performing non-tipped duties and still take a tip credit. Under this original rule, if a tipped employee performed duties related to their tipped occupation, before or after their tipped duties, an employer is permitted to pay them using a tip credit. 

The DOL announced that during the delay, they will continue to assess the 80/20 rule and will most likely adopt a modified version in the process. However, it is unclear as to what that modified version will look like. 

Employers must be aware that many states have their own rules and regulations in place regarding wages & tips within the service industry in addition to the DOL standard. For instance, in California, no amount of tips can go towards meeting the minimum wage. Employers should always double-check with local officials and trusted HR partners for recent and up-to-date information that pertains to their specific organization.

Is there anything Payroll Systems can help you with as you accommodate rapid legislation changes? Reach out and talk to us about the easy-to-scale solutions you need for your business.

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This article provides general information and shouldn’t be construed as legal or HR advice. Since employment laws may change over time and can vary by location and industry, please consult a lawyer or HR expert for advice specific to your business. You can also contact Payroll Systems to inquire about our HR support services.