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Restaurant Hospitality Guest Article: What the 20 Percent Tip Credit Rule Means
10/25/2012
Laura E. O'Donnell

With no clear definition of what constitutes tip-generating work from the Department of Labor (DOL), you could be required to pay tipped employees the federal minimum wage for duties that are not directly aimed at generating tips. Implementing proactive policies will put you in a better position to avoid or reduce this result.

The Fair Labor Standards Act (FLSA) requires employers to pay nonexempt employees at least the federal minimum wage, which is currently $7.25 per hour. Employers may, however, take a tip credit for employees who customarily and regularly receive more than $30 a month in tips as long as they pay at least $2.13 per hour in direct wages.

If a worker was hired by one employer for both a tipped and nontipped position (as a server and a hostess, for example), then the tip credit is available only for the hours the employee spends in the tipped job. In contrast, if the tipped employee performs some duties incidental to his or her tip-producing work, such as cleaning and setting tables, making coffee and washing dishes, the employer may still take the tip credit. The issue arises when these incidental duties are more than occasional. According to the DOL’s handbook, if tipped employees spend in excess of 20 percent of their time performing general preparation work or maintenance, “no tip credit may be taken for the time spent in such duties.”

Excerpted from Restaurant Hospitality, October 25, 2012. To view full article, click here.