While the federal minimum wage is set at $7.25 an hour, employers can pay $2.13 an hour for employees who earn more than $30 a month in tips. However, the tip credit only applies to employees who spend the majority of their time performing tipped work, and there’s been a lot of back and forth in the past on how to break that down.
The new proposal attempts to set firm boundaries around the situations in which an employer may take the tip credit—limiting its use to work that’s tied to the employee’s “tipped occupation.” More specifically, this means the work that produces tips, like serving tables or bartending, or work that directly supports tip-producing work, like prepping flatware or cutting garnishes.
If this tip-producing work exceeds 20 percent of all the hours worked during the workweek or pushes past 30 continuous minutes, however, then it’s no longer considered work directly tied to the tipped occupation. And if it’s not tied to the tipped occupation, it doesn’t qualify for the tip credit, meaning the employer must pay at least federal minimum wage for that time.
Why businesses need to prepare for possible changes
Should the proposed rule changes go into effect, the logistics of tracking employee time will prove challenging for many employers. If an expected cleanup job for a server stretches past 30 minutes, for example, it might create some accounting headaches. Eventually, compliance issues and legal liability could become problems for unprepared businesses.
The public comment period for the proposed changes closes August 23, but employers should begin giving thought to compliance now. It will be helpful to think ahead and plan on strategies for accurate time tracking and smoother accounting.
At InPrime Legal, we understand the challenges facing small business owners. We’re here to help create legal solutions for businesses with tipped workers. Schedule your free evaluation with InPrime Legal today, either through our contact form or by calling 678-578-4321.