| The U.S. Department of Labor issued a long-awaited final rule right before Christmas addressing the issue of tipped employees. The final rule, released on December 22 but not effective until February 20, 2021, provides guidance for both employers who utilize a tip credit and also for how employers who pay at or above minimum wage may handle tip pools without running afoul of federal wage and hour law. A big question remains, though: how will the incoming Biden administration handle this issue? Employers in the hospitality sector will want to pay attention to this latest development – and stand by for potential further developments – as we head into 2021.
The "Tip Credit" Background
Many employers have employees who receive tips. Under the Fair Labor Standards Act (FLSA), a tipped employee is someone who customarily and regularly receives more than $30 per month in tips. The FLSA permits an employer to take a "tip credit" for the amount between the direct cash wage it pays to an employee (at least $2.13 per hour) and the federal minimum wage (currently $7.25). (Note: this describes current federal law. Some states prohibit a tip credit while other states require a higher direct cash wage.) Some employers do not utilize the tip credit but have employees who receive tips and participate in a tip pool.
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