DOL Issues New Guidance on Tip Credits

The U.S. Department of Labor issued new guidance regarding when employers may take a tip credit for jobs that involve both tip-generating and non-tip-generating duties. 

Labor regulations place these non-tipped duties into one of two categories:

1) a dual job or

2) related duties. An example of a dual job would be a maintenance man in a hotel who also serves as a waiter at times. 29 C.F.R. § 531.56. In such a case, the employer could take a tip credit for the time the employee spent working as a waiter, but could not take a tip credit for the time he spent working as a maintenance man. More commonly, however, tipped employees—such as waiters— may perform tipped duties such as serving tables, and also perform non-tipped duties, such as cleaning and setting tables, making coffee, or occasionally washing dishes. Id. These are considered related duties rather than a dual job.

To that end, DOL Regulation 531.56(e) provides that no tip credit may be taken for the time an employee spends performing non-tipped duties if those duties constitute a “substantial amount of time (in excess of 20 percent)” of the employee’s duties. The language of Reg. 531.56(e) has led to considerable confusion with some courts and legal scholars interpreting Reg. 531.56(e) to require employers to keep detailed records of time spent performing tipped versus non-tipped duties. Thus, the newly issued DOL opinion letter seeks to clarify the line between a dual job and related duties and the proper application of Reg. 531.56(e).

Importantly, the letter clarifies that Reg. 531.56(e) is not intended to “place a limitation on the amount of duties related to a tip-producing occupation that may be performed, so long as they are performed contemporaneously with direct customer-service duties and all requirements of the act are met.” Thus, Reg. 531.56(e) does not place a cap on the non-tipped duties an employee may perform as long as the non-tipped duties are performed contemporaneously — or immediately before or after — performing the employee’s tipped direct-service duties. For example, the letter cites a DOL opinion letter from 1980 concluding that a waiter’s time spent performing the related duty of vacuuming a restaurant after it closes was subject to the tip credit.

To determine which duties constitute related duties, the opinion letter refers employers to the DOL’s Occupational Information Network (O*NET)

O*NET provides a profile for each occupation listing the occupation’s core and supplemental duties. The opinion letter states that both the core and supplemental duties listed on an occupation’s profile constitute related duties for the purposes of determining whether a tip credit should apply. Our attorneys are also able to assist with determining which duties count as related duties and whether you are properly applying the tip credit to your tipped workers.

The bottom line: Employers may take a tip credit for the total time tipped employees work, including when they perform non-tipped duties, so long as non-tipped duties are related to their tip-producing job and performed contemporaneously.

The information provided was written by the attorneys in the Labor and Employment Practice Group at Friday, Eldredge & Clark, LLP. This is not a substitute for legal advice and should be considered for general guidance only. For more information or if you have further questions, please contact one of our Labor and Employment Attorneys.