DOL finalizes new tipping-pooling and tip-credit rules

The new regulations follow 14 months of deliberations.
Photograph: Shutterstock

It’s official: The U.S. Department of Labor (DOL) is changing the standard for determining when restaurants are required to pay servers and bartenders a full wage instead of counting tips toward the minimum compensation they’re due by law.

DOL is also modifying the rules that govern what employees are entitled to participate in a tip pool, though only for restaurants and other businesses in the seven states where taking a tip credit is not allowed. Under a final rule issued Tuesday by the department, back-of-house workers can be allocated a portion of the pooled gratuities, even though guests don’t tip those staff members directly. Previously, the pool was only open to employees who received tips and contributed to the kitty.

The provision is likely to be welcomed by the restaurant industry because it narrows a significant difference in the compensation of front-of-house and back-of-house workers. Because of tips, a server can take home several times the money that a prep cook or dishwasher earns. The gap makes the recruitment of back-of-house employees particularly difficult because candidates would prefer to work in positions where they’d be tipped.  

The changes in tip-pooling rules have no effect on employers in the 43 states that allow restaurants to take a tip credit, or to regard gratuities as a portion of the minimum wage that’s mandated by state, local or federal law.

Restaurants in those areas are affected by the other major provision of the regulatory revisions that were announced yesterday by DOL. That component essentially scuttles the so-called 80/20 rule. Under that standard, restaurants are obliged to directly pay servers the full minimum wage for work that won’t earn them gratuities when those duties amount to more than 20% of their time on the clock. Instead of paying those employees a wage of $2.13, or the minimum required if a tip credit is taken, restaurateurs are required to pay at least the full federal wage of $7.25.

Under the regulations issued yesterday by DOL, restaurateurs can still take the tip credit and pay the lower wage if the side work is done during, just before or a reasonable period after they’re on the floor to wait tables. DOL has argued that such tasks as setting a table or clearing away dirty dishes help a server earn tipped income and hence should entitle the employer to a tip credit.

The tip credit is vehemently opposed by labor groups such as One Fair Wage, a union-backed coalition that views a tip as a gift that’s left for servers and not something that should be treated as a portion of their pay.

President-elect Joe Biden indicated during his campaign that he would favor discontinuation of the federal tip credit and the adoption of a higher minimum wage for all employees.

The regulatory changes were first proposed by DOL in October 2019 and then aired for public comment. The rules they replace have been the basis for a number of lawsuits filed by restaurant employees who contended they were cheated out of wages by tight-fisted restaurateurs.

The rules will take effect 60 days after being published in the Federal Register, the official medium for announcing regulatory changes.


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