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New tip pooling, tip credit rules proposed by DOL

Opening tip pools to kitchen staffers would be permitted if a tip credit isn’t taken, and the 80/20 rule would be dashed.
Photograph: Shutterstock

Full-service restaurants that don’t count tips as a portion of servers’ wages will be permitted to pool gratuities and share the kitty with back-of-house staffers under new rules proposed Monday by the U.S. Department of Labor (DOL).

The suggested regulatory changes would also effectively kill the 80/20 rule for determining when servers’ tips can be considered part of their wages for work where they’re not earning gratuities, such as setting tables or refilling ketchup bottles.

Under existing rules, servers are entitled to direct payment of the full minimum wage from their employers if side work exceeds 20% of their shift time. The proposed regulations would permit a tip credit to be taken regardless of the percentage of servers’ time that’s spent on other duties, provided the side work is done during, just before or a reasonable time after activities that can earn them gratuities.

In announcing the proposals, DOL noted that the suggested changes would not change the tip-pooling regulations for restaurants that take a tip credit—or count servers’ wages as a portion of the minimum wage their servers, bartenders or other customarily tipped workers are due by law. In those instances, only the tipped employees can participate in the pool.

DOL also stressed that employers would still be forbidden to keep employees’ tips. The rules propose fines of up to $1,100 for businesses that illegally share in the gratuities.

The proposed changes address several thorny issues for full-service restaurants. In states where a tip credit is not permitted by law, such as California, a significant disparity between the take-home compensation of servers and back-of-house crew members has made kitchen jobs extremely difficult to fill, even when wages far above the legally mandated minimum are offered. The combination of tips plus a full minimum wage make serving jobs much more attractive.

The 80/20 rule also fostered widespread legal actions against full-service chains and independent groups. Because exact breakdowns of tipped employees’ times are difficult to maintain, many establishments were sued for not directly paying servers the full minimum wages they claimed they were due because side work had exceeded 20% of their shifts.

“The proposed rule announced today is a victory for the National Restaurant Association, the Restaurant Law Center and industry advocates who have worked for years to force government to provide much-needed clarity for restaurants and their workers," said Angelo Amador, executive director of the Restaurant Law Center, the legal arm of the National Restaurant Association. "We commend the U.S. Department of Labor for providing much need regulatory clarity on these issues for employers and employees."

The proposed rules had been anticipated. The DOL had set out the new principles in letters of guidance issued to employers with specific questions about complying with the Fair Labor Standards Act, the landmark piece of legislation that codifies wage and hour rules. It had also instructed its Wage and Hour Division to hold off on enforcing the 80/20 rule. 

The suggested regulations will now be subject to public comment for 60 days. The DOL will then consider that input before issuing final new rules.

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