December 28, 2021
There are more than 4.3 million American workers that rely on tips to make a living. Most of these employees work in the hospitality industry, but other jobs fall into the tipped employee realm, too: valet attendants and salon workers are just two examples. Atlanta Employers with tipped employees on the payroll must be mindful of minimum wage requirements which can become complicated when an employee’s job consists of multiple duties. The Department of Labor (DOL) 80/20 rule provides compliance requirements that businesses must follow in such situations. As of December 28, 2021, the rules changed which will now require organizations to pay careful attention to the type and duration of work performed by certain employees. This change will force affected businesses to review and adjust policies to ensure compliance with the new rules. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.
Tipped employees, mostly found in the hospitality industry, rely on more than just the minimum wage for their paychecks. Great service is often rewarded with tips. In fact, the word tip is an acronym that means to insure promptness. For these employees, the tips can be used to offset the employers’ requirement to pay the minimum wage. As a result, the hourly pay rate for these employees is often much lower than the minimum wage.
The tip credit has been around since the late 1960s whereas the 80/20 rule was first implemented in 1988. At first, the tip credit was based on an employee’s occupation; this was an employer-friendly approach that permitted the inclusion of indirect supporting work. Once the 80/20 rule was added in, employers had to start tracking employee time for non-tipped work.
Historically, the Department of Labor (DOL) 80/20 rule broke up a tipped employee’s job into two buckets: direct and indirect tip-producing work. For example, waiting tables would be direct tip-producing work while cleaning the kitchen would not. The employer would have been required to pay the minimum wage for any indirect work more than 20 percent over the course of the entire workweek.
In December 2020, the DOL was set to do away with the tip rule entirely. Once a new presidential administration took office in January 2021, the DOL delayed the effective date twice. Then, in October 2021, the DOL formally withdrew the bid to remove the 80/20 rule entirely. Instead, the 80/20 rule will be reinstated – and with more requirements.
The new tip credit rule applies to those who either receive tips directly or through a tip pool. In addition, it only impacts those who earn at least $30 per month in tips and to hours worked that are spent earning tips, either directly – such as waiting tables – or indirectly – such as cleaning. It is important to note that indirect work cannot comprise more than 20 percent of the workweek or a continuous period longer than 30 minutes, or else the tip credit cannot be used.
What this means is that employers will need to track tipped employees’ time in three ways:
The tip credit can only be applied to direct work. Time spent on indirect supporting work that exceeds 20 percent of the employee’s workweek must be paid at the full minimum wage. Non-tipped work has no threshold and must be compensated at the full minimum wage regardless of how much time is spent doing it.
Employers should note the new 30-minute rule mentioned above. If an employee spends more than 30 minutes doing supporting work, the employer cannot claim the tip credit for that time block at all, and the time then counts toward the weekly 20 percent threshold.
Because tipped employees generally complete several different tasks during one shift, it may be difficult for employers to accurately track time. And while industry groups have challenged the new 80/20 rule, it’s important to prepare for implementation regardless.
Restaurants and other employers will need a way to monitor and track employee time, job duties, and the length of time spent on each. Different responsibilities will need to be categorized according to which type of tip or non-tip-producing work they apply to. In addition, employers will need to factor in state minimum wage requirements, as the 80/20 rule is at the federal level.
Start by conducting an audit of how employees are spending their time. It may be necessary to revise job descriptions, scope of duties, and roles. Make sure whatever timekeeping practices are in place are sustainable and that employees understand what they need to do. Failure to follow the new rules may result in DOL fines and penalties and potential exposure to employee lawsuits for unpaid and underpaid wages.
The new rule will require Atlanta businesses to revisit how employee time is tracked and categorized to ensure compliance with the new 80/20 rule. While there are legal challenges currently working through the court system, it does not mean compliance is not required. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.