It can be a struggle to determine the appropriate calculation of wages for tipped employees. Under the Fair Labor Standards Act (FLSA), employers may take a “tip credit” for qualified tipped employees (defined as any worker engaged in an occupation in which he or she customarily and regularly receives not less than $30 a month in tips). This can raise many questions, including when the credit is appropriate and how it is applied.
What Is the Tip Credit?
The tip credit allows employers to count tips received by employees towards the minimum wage requirement under the FLSA (currently $7.25 per hour). The federal law requires that employers pay tipped workers as little as $2.13 in wages so long as the employee makes at least the difference in tips (currently $5.12 per hour) (note that Michigan law currently allows for a slightly higher wage). If a worker does not earn the difference in tips, the employer must pay the base wage amount necessary to meet the hourly minimum.
What Is a “Dual Job”?
Only workers engaged in a tipped occupation are covered by the tip credit provisions. Sometimes, however, the same individual performs different jobs for a single employer—referred to as an employee with a “dual job” by the DOL. For example, a single hotel worker may log hours as a front desk clerk (a non-tipped occupation) and also work shifts as a bartender in the hotel’s restaurant (a tipped occupation).
In such a situation, the employer may only take the tip credit for the employee’s hours at the tipped occupation, that is, paying the worker at least $7.25 for the hours spent working the front desk and at least $2.13 for the hours spent bartending. This is to ensure that an employer does not evade minimum wage requirements by assigning duties not directly related to a tipped occupation to employees who are covered by the tip credit.
“Dual Jobs” Distinguished from “Job-Related Duties”
Many tipped occupations require workers to perform a variety of incidental tasks which cannot be compensated directly through tips. A restaurant server, for instance, may be required to arrange and set tables before customers arrive and vacuum the floors after service is complete for the night. Previous opinions from the DOL led to some confusion about whether these workers should be considered employed in a “dual job” and paid a higher wage for the time spent doing those duties.
DOL regulation FOH § 30d00(e) specifically allowed employers to take the tip credit for “time workers spent in duties related to the tipped occupation, even though such duties are not by themselves directed toward producing tips (i.e., maintenance and preparatory or closing activities).” However, it went on to caution that:
“[W]here the facts indicate that specific employees are routinely assigned to maintenance, or that tipped employees spend a substantial amount of time (in excess of 20 percent) performing general preparation work or maintenance, no tip credit may be taken for the time spent in such duties.”
Confusion and Clarification by the DOL
Federal courts are spliton the interpretation of the DOL’s guidance and its limitations. One has read the restriction to prohibit the taking of a tip credit for duties related to the tip producing occupation if they exceeded 20 percent of the employee’s working time and allowed the jury to determine what duties were related or non-related to the employee’s tipped occupation. Another court rejected that interpretation and held that job-related duties did not count towards the 20 percent calculation.
In an attempt to clarify the issue, the DOL issued Opinion Letter FLSA2018-27 on November 8, 2018, announcing that, going forward, the agency does not intend to place a limitation on the amount of time an employee can spend on duties related to a tip-producing occupation so long as these duties are performed contemporaneously with the worker’s direct customer-service duties (and all other requirements of the FLSA are met).
This latest letter from the DOL is part of a series in which the DOL answers specific wage and hour questions via official opinion letters. These questions are posed by employers, who represent that they do not involve facts from any ongoing litigation or actual cases. The DOL’s response letters are intended to offer specific direction to clarify the law that can be used as persuasive authority in litigation where appropriate.