Significant changes to requirements for payment of FLSA minimum wage to tipped employees

By Jeff Jones
Special to the UCBJ

On Oct. 28, 2021, the U. S. Department of Labor announced a final rule that sets limits on the amount of time an employer can claim tip credit towards the minimum wage for tipped employees.  This regulation replaces a regulation issued in December 2020.

Section 3(m) of the FLSA permits an employer to take a tip credit towards its minimum wage obligations for tipped employees equal to the difference between the required cash wage of at least $2.13 per hour and the federal minimum wage of $7.25.  This recently-issued final rule defines when an employer can pay $2.13 per hour and when they are required to pay the tipped employee the full minimum wage of $7.25.

In making a determination as to when an employer can and cannot pay a tipped employee $2.13 per hour, an employer must divide a tipped employee’s work duties into three categories:

  1. Tip-producing work for which an employee can always be paid $2.13 per hour;
  2. Directly supporting work for which an employee can be paid $2.13 per hour provided the amount of time spent in such work is not a substantial amount of time; and
  3. Work that is not part of a tipped occupation and which must be compensated at the full minimum wage, currently, $7.25 per hour.

Tip-producing work is defined as “all aspects of the work performed by a tipped employee when they are providing service to customers.”  This would include taking orders, refilling drink glasses, processing payments, and removing dishes or other items from the table during the meal.  The Department’s longstanding position has been and continues to be that general food preparation, including salad assembly, is not part of the tipped occupation of a server, and time spent in such activities must be compensated at the full minimum wage, currently $7.25 per hour.  However, a server’s tip-producing table service may include some work performed in the kitchen for their customer akin to garnishing plates before they are taken out of the kitchen and served, such as adding dressing to pre-made salads, scooping ice cream to add to a pre-made dessert and placing coffee into the coffee pot for brewing.  

Directly supporting work is work that does not itself generate tips but that supports the tip-producing work of the tipped occupation because it assists a tipped employee to perform the work for which the employee receives tips.  Directly supporting work would include, for example, work performed by a tipped employee such as a server or busser in a restaurant before or after table service, such as rolling silverware, setting tables, and stocking the busser station, which is done in preparation of the tip-producing customer service work.  Idle time spent waiting for the arrival of customers is also considered directly supporting work.

The time spent in directly supporting work can only be paid at the $2.13 per hour rate if the amount of time spent in such work is not substantial.  As defined in these new regulations, an employee has performed directly supporting work for a substantial amount of time if: (a) the employee performs directly supporting work for more than 20% of their time or (b) the directly supporting work exceeds 30 continuous minutes.  Any time in excess of 20% per week or for a continuous period of time that exceeds 30 minutes must be paid for at the full minimum wage rate, currently $7.25 per hour.

Work that is not part of the tipped occupation must always be paid for at the full minimum wage.  Examples contained in the regulation of such work include preparing food, including salads, cleaning the kitchen or bathrooms, and cleaning the dining room (other than immediately around the individual employee’s workstation).

In practical terms there are several specific issues that an employer is probably going to need to address.

The issue that is probably of most importance is with regard to the requirement that any amount of time in excess of 30 continuous minutes spent in tip supporting duties must be compensated at the full minimum wage.  Employers routinely have tipped employees report to work before the establishment opens for customers in order to do preparatory work such as rolling silverware, setting tables, etc.  If an employee clocks in for work more than 30 minutes before the establishments opens, then all time in excess of 30 minutes will have to be compensated at the full minimum wage, not $2.13 per hour.  Additionally, if the tipped employee does not start waiting on customers for a period of time after opening, this time gets added to the time spent in directly supporting work.  

Specific examples of scenarios where this comes into play may be helpful.  If a server began work at 10:00 am, the restaurant opened for business at 11:00 am, and the server only began waiting on his or her first customer at 11:30 am, the server would have to be paid for 1 hour at $7.25 per hour  — 1.5 hours from clock-in to first customer less the 30 minutes of allowable time.  

Similarly, if a server’s last customer left at 8:30 pm and the server remained until the restaurant’s closing time of 10:00 pm, the server would have to be paid for 1 hour at $7.25 per hour because the server spent more than 30 minutes in directly supporting duties, as there was no customer to be served.  The same scenario  might occur in the afternoon if a server spent more than 30 minutes waiting for customers to come in.  Again, any idle time waiting for customers that is in excess of 30 continuous minutes will require payment of the minimum wage, not $2.13 per hour.

Employers must also be wary of tipped employees spending any amount of time in work that is not part of the tipped occupation.  If, for instance, a server spends 15 minutes making salads or cleaning bathrooms, then all such time must be paid at the full minimum wage, not $2.13 per hour.

And, of course, employers must also monitor total weekly hours spent in directly supporting hours versus total hours to ensure that tipped employees do not exceed the 20% tolerance for such duties, as hours exceeding the 20% tolerance must also be compensated at the minimum wage even if the 30 continuous minute requirement is not exceeded.

As is evident, these new regulations are going to require employers to be more vigilant in monitoring how tipped employees are spending their time and the amount of time spent in various activities.  In all likelihood, there are going to instances where tipped employees will have to be paid the full minimum wage for certain amounts of time, where in the past all of their time would have been paid for at $2.13 per hour.

This new and final rule will go into effect on December 28, 2021.

Jeffrey G. Jones is a regional managing member for Wimberly Lawson Wright Daves & Jones PLLC. He can be reached at jjones@wimberlylawson.com.

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