Under the Biden administration, the U.S. Department of Labor has taken a closer look at tipping laws in a bid to create additional earning opportunities for many restaurant employees, such as back-of-house staff, who can now participate in tip pools. Three new tip rules have been established this year, which could be positive for employees, but may put additional burdens on operators that are already struggling with labor and supply chain shortages.
"As we go into the end of year holiday season, operators are now faced with new labor requirements. Restoring the Obama-era 80/20 rule is an arbitrary change that creates mass confusion and enormous compliance challenges for restaurants," Shannon Meade, VP of public policy and legal advocacy for the National Restaurant Association, said of the dual job rule that goes into effect on Dec. 28.
Tipping has been a sticking point for employees since the pandemic, with 76% of restaurant workers expressing a desire to leave their jobs because of low wages and tips. Eighty-seven percent of workers have said their tips have decreased during the pandemic, according to a One Fair Wage report. If these tip rules result in higher wages, they could bolster restaurant employee retention. But if front-of-house workers end up losing money in tips as a result, these rules could spark higher quit rates, especially among those who have long-relied on tips, rather than minimum wage, to earn a living.
Check out how tipping laws have changed this year, and how they could impact operators.
Tip pools
The DOL allowed a Trump-era plan that would reverse a prohibition on tip pools to go into effect during the spring. Employers are allowed to operate these pools, which include both tipped and non-tipped employees, as long as all these workers are paid at least a federal minimum wage of $7.25 per hour.
Tip pools have been controversial in the restaurant industry even though they can help increase back-of-house wages. Front-of-house workers would no longer own the tips, since they would go to the restaurant, which would then distribute the tips as it sees fit as long as servers still earn minimum wage.
Because employers are in charge of these pools, it's possible reports of wage theft could rise. Wage theft typically occurs when employers fail to make up the difference between minimum wages and tips received on top of the subminimum wage, or pay for overtime. Wage theft is already climbing, with 34% of tipped employees reporting an increase in wage theft since 2020, according to One Fair Wage.
Employer prohibitions
While employers can oversee tip pools, they have been barred from taking any tip credits meant for workers. Managers and supervisors will be allowed to keep tips if given directly from customers, however. The DOL also expanded its ability to fine employers during accidental or first-time offenses, withdrawing a Trump-era rule that included penalties only for willful or repeated violations. The DOL can assess up to $1,100 for each violation — a change that goes into effect at the end of November.
Dual Jobs Rule
The so-called "80/20" rule will take effect Dec. 28 and provides guidance for employees that perform work that produces tips and work that supports their tip-producing work. The latter relates to work that does not take up more than 20% of the employee's weekly job hours or a continuous period of time exceeding 30 minutes. Tasks such as brewing a cup of coffee for the servers' tables, setting tables and bringing beverages to diners would be considered tip-producing work, while folding napkins or rolling silverware during slow periods would not.
If an employee exceeds this time, an employer cannot take a tip credit for the additional time spent on this work during the same workweek and needs to provide a cash wage equal to full minimum wage.
