You can only take a tip credit if the employee’s work produces tips (i.e., food or bartending services) or the employee’s work directly supports tip-producing work. Refilling salt and pepper shakers, for example, directly supports tip-producing work.

Pay attention to the following exception.

If non-tip-producing work involves a “substantial amount of time,” then you cannot take a tip credit for the non-tip-producing work. According to the DOL, the time spent performing non-tip-producing work is considered “substantial” if it exceeds 30 consecutive minutes. The time spent performing non-tip-producing work is also considered “substantial” if it accounts for more than 20% of the employee’s time working in the workweek. You can, however, take the Tip Credit for the first 30 consecutive minutes and for the time accounting for initial 20% of the workweek.

Example One

A server works thirty (30) hours in the workweek. The server performs side work (i.e., refilling salt and pepper shakers) for six (6) of the thirty (30) hours (this is exactly 20% of the employee’s time in the workweek performing non-tip-producing work). Additionally, the employee never spends more than 30 consecutive minutes on any non-tip-producing work. In this situation, no special accommodation is required for the employee’s salary. You can pay the employee an hourly wage of $2.13 if the employee earns at least $5.12 per hour in tips (ensuring the employee at least receives the $7.25 federal minimum hourly wage).

Example Two

A server works thirty (30) hours in the workweek. The server performs side work (i.e., refilling salt and pepper shakers) for six (6) of the thirty (30) hours. In one incident, the employee spends 45 consecutive minutes on the non-tip-performing work. In this situation, you must compensate the employee at an hourly rate of $7.25 for 15 minutes (45 consecutive minutes, less the initial 30 minutes). This is an additional $1.82. You can pay the Tip Credit for the remaining hours, assuming the employee earns at least $5.12 per hour in tips.

Example Three

A server works thirty (30) hours in the workweek. The server performs side work (i.e., refilling salt and pepper shakers) for eight (8) of the thirty (30) hours. The employee never spends more than 30 consecutive minutes on any non-tip-producing work. In this situation, you must compensate the employee at an hourly rate of $7.25 for two hours (8 hours performing non-tip-producing work, less the initial 6 hours). This is an additional $14.50. You can pay the Tip Credit for the remaining hours, assuming the employee earns at least $5.12 per hour in tips.

Reach out to our legal team if you have additional questions or need help complying with the expanded 80/20 Rule.