The start of the new year brings both new state laws and federal regulations for employers to follow. Some federal laws are currently under review, like vaccine mandates from the Occupational Safety and Health Administration (OSHA). As final decisions around those pending laws change, we will update this article to keep you informed.
However, the United States Department of Labor issued a final rule that modifies wage and hour rules for tipped employees. Take a look at the changes below. If you have questions, Homebase HR Pro provides live access to certified HR experts.
Note: While the federal minimum wage has not been increased for 2023, many states are increasing their rates. Check out our article on 2023 state minimum wage increases.
Additionally, many states are also changing their family and medical leave laws for the new year. You can learn more about what’s required in your state in our article on upcoming paid and unpaid leave changes.
Tip credit regulations
The DOL announced a final rule under the US Fair Labor Standards Act (FLSA) that regulates how employers can take tip credits if they have tipped employees. The rule sets limits on how much time tipped employees can participate in “non-tipped” activities at work while the employer takes a tip credit.
Under the new rule, employers can only take a tip credit from an employee’s wages for the hours spent on tip producing work or work that directly supports tip producing activities. Employers can take a tip credit for for time spent on tip-producing work when:
- The employee spends less than 20% of workweek hours on activities that support tip-producing work. This means employers can’t take a tip credit for any time spent on these activity that exceeds 20% of the workweek.
- The employee spends less than 30 minutes performing activities that supports tip-producing work. This means employers can’t take a tip credit for time spent on these activities that exceeds 30 minutes.
Activities that support tip-producing work can include things like refilling ketchup bottles, setting tables, preparing food, or cleaning.
The final rule goes into effect December 28, 2021.
Tip pooling and managers
The DOL’s final rule also addresses tip pooling limits and how managers can keep employee tips. A 2018 law prohibited managers from keeping tips “for any purposes, including allowing managers and supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit.”
However, the new rule lays out a couple of circumstances where it’s OK for managers to take tips. The rule says that managers can keep tips from customers for services that they directly and “solely” provide. This means that if a manager is the only one who helped the customer, they can keep the tip.
The rule also allows managers to contribute those tips to a mandatory employee tip pooling or tip-sharing arrangement.
The same DOL rule increases the penalties for tipping violations. Under the new legislation, the agency may fine employers up to $1,100 each time the employer is found to be retaining employee tips, regardless of whether the violation is willful or repeated.
The definition of “willful” under the rule include violations that are committed with “reckless disregard” for the laws laid out in the FLSA. An employer is in reckless disregard when they should have checked the FLSA to see if their conduct was legal, but did not do so.