The U.S. Department of Labor issued its final rule on tipped wages that is set to strengthen protections for gratuity-earning workers by limiting the circumstances in which employers can pay subminimum wages.
This new rule will go into effect Dec. 28, 2020. In an interview with Law360 administrator, Jessica Looman, the final rule will create reasonable limitations on when employers can pay their workers the tipped minimum wage and strikes a “good balance” between protecting workers and allowing employers to effectively run their businesses.
“We wanted to take into account the realities of them running businesses with tight margins,” Looman said, “and then also balancing that out with the reality of when a worker should be paid minimum wage versus the tipped wage.”
The Fair Labor Standards Act allows employers to pay a tipped worker as little as $2.13 an hour as long as tips carry the worker to the standard federal minimum wage, which is $7.25.
As expected after months of review, the new rule codifies the long-standing 80-20 principle, which requires employers to pay full minimum wage to a tipped worker who spends more than 20% of the workweek on tasks not directly engaged in tip-producing work.
This new rule intends to protect tipped workers by ensuring that when they perform “a substantial amount of directly supporting work that does not itself produce tips they cease to be engaged in a tipped occupation” and are entitled to full minimum wage, the final rule said.
The rule also creates a new standard which requires employers to pay full minimum wage to tipped workers once they spend more than 30 minutes of uninterrupted time on side work that directly supports tip-producing activity.
For example, a bartender who wipes down the bar where customers are seated or cleans glasses and tools, she will use to make drinks is performing tip-producing work.
“If the bartender performs these same tasks before or after the restaurant is open, these same tasks would be directly supporting work because they are not performed as part of service to customers for which the tipped employee receives tips,” the final rule said.
Similarly, a nail technician’s tip-producing work includes helping a customer pick a nail polish color, but cleaning pedicure baths and sterilizing tools in between customers is work that supports tips.
Worker advocates have long argued that these protections are necessary to ensure workers earn living wages.
However, even with these clarifications, worker advocates and industry groups nonetheless said they feel the rule creates confusion.
Some critics have argued, “The two-tiered system creates a complicated scenario where there is confusion amongst both workers and employers that results in pervasive wage theft, tip theft and related violations. The best way to protect these workers is to ensure that they do not receive a subminimum wage at all.”
“The timing of this decision couldn’t be worse for restaurants,” said Shannon Meade, the vice president of public policy and legal advocacy for the National Restaurant Association in a statement to Law360. “This rule does not provide the clarity that small business owners and their employees need and is likely to increase litigation around the issue.”