DOL proposal clarifies tip credit rules

The U.S. Department of Labor (DOL) has unveiled a proposal to clarify when employers can claim a tip credit to compensate their tipped employees.

The Fair Labor Standards Act (FLSA) allows employers to claim tip credits when they compensate tipped employees for tipped work. The credit allows employers to pay their tipped employees a cash wage equal to the difference between the minimum wage rate and the tip credit. When an employee’s tips don’t offset the tip credit, employers are required to pay at least the minimum wage rate.

The FLSA defines “tipped employee” as any worker receiving more than $30 per month in tips. The current federal minimum wage rate is $7.25 per hour. The current federal tip credit is $5.12 per hour. The current federal cash wage is $2.13 per hour.

The proposal clarifies that employers can claim the tip credit only for employees who perform tip-producing work that’s part of the worker’s tipped occupation and for any activities that “directly support” that tip-producing work. 

The proposed rule clarifies that employers cannot use the tip credit for activities that directly support tip-producing work when those activities exceed 20% of the employee’s hours worked during the workweek or the activities are performed for a continuous period of time exceeding 30 minutes.