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On October 28, 2021, the U.S. Department of Labor (DOL) issued a Final Rule establishing limits on the amount of time tipped employees can spend performing work that is not “tip-producing work” and still be paid at the reduced cash wage applicable to tipped employees (using the so-called “tip credit”) under the Fair Labor Standards Act (FLSA).

Previously, employers were required to follow the long-standing “80/20” tip credit rule, which stated that an employer was only required to pay an employee full minimum wage for non-tip producing work if the employee spent more than 20% of their working time doing such work.  In 2018, the DOL dispensed with this rule, allowing employers to take tip credit for the time employees are performing nontipped duties, so long as those duties were performed at the same time, or reasonably before or after, tipped duties.

The Final Rule revives the 20% Rule.  Once an employee spends more than 20% of his or her workweek on work that is not tip-producing work, the employer cannot take a tip credit for any additional time during that workweek for time the employee spends on work that is not tip-producing work.

In addition, the Final Rule also adds a “30-Minute” Rule, which similarly prohibits the employer from taking a tip credit when an employee spends more than 30 continuous minutes performing work that is not considered tip-producing work.

This means that under the Final Rule, employers using the “tip credit” must pay a cash wage equal to the full-minimum wage whenever (i) an employee works more than 30 minutes of uninterrupted non-tipped work, or (ii) whenever non-tipped work, in the aggregate, exceeds 20% of the workweek.

The Final Rule takes effect December 28, 2001.  The Final Rule is – even for the most sophisticated employers – complex.

Clients should be on the lookout for opportunities to attend information sessions in the first part of the new year to learn more about, and discuss the intricacies of, this Final Rule and the potential impact on your business.   In the meantime, please contact Will Cherry, Jennifer Weaver or your Manning Fulton relationship attorney to discuss your unique operation and ways to ensure system-wide compliance with these new regulations.

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