On October 28, 2021, the U.S. Department of Labor announced a final rule that sets a limit on the amount of time tipped employees can spend in non-tipped activities when the employer receives a tip credit.  This new rule contradicts the November 8, 2018 opinion letter that withdrew the 20 percent limit for non-tipped work.  The new rule goes into effect on December 28, 2021.

Under the final rule, an employer can take a tip credit only when the tipped employee is performing tip-producing work or when the tipped employee is engaged in work that directly supports tip-producing work.  The rule defines work that “directly supports” as work that assists a tipped employee to perform the work for which the employee receives tips.  This would include work such as setting/bussing table, rolling silverware, and wiping down the bar area.

In order for the employer to apply the tip credit, the tipped worker cannot spend more than 20 percent of the hours worked during the employee’s workweek or a continuous period of time that exceeds 30 minutes on not-tip producing work. This calculation needs to be completed only once each work week.  Non-tipped work is essentially work that does not provide service to the customers, that directly leads to tips, such as cleaning bathrooms.

Before December 28, 2021, it is critical for employers using the tip credit to create a system for tracking tip-producing work and work that directly supports tip-producing work, in order to separate it from non-tipped work, to remain in compliance with the 20 percent and 30-minute rule.

If you have any questions regarding the Department of Labor’s rule, please contact your Labor and Employment counsel at Smith Gambrell Russell LLP.