Revived DOL Guidance Makes It Easier to Claim ‘Tip Credit’

Additional agency opinion letters clarify other overtime and wage and hour issues

Allen Smith, J.D. By Allen Smith, J.D. November 12, 2018
Revived DOL Guidance Makes It Easier to Claim ‘Tip Credit’

​The U.S. Department of Labor (DOL) has clarified that it will no longer cap the number of duties an employer may assign to a tipped worker and still qualify for the "tip credit," so long as the duties are job-related.

Under federal law, employers use the tip credit by paying tipped workers, such as servers and bartenders, as little as $2.13 an hour if those workers earn at least the standard minimum wage of $7.25 an hour once their tips are added in.

The George W. Bush administration said there should be no cap on the number of duties assigned in a Jan. 16, 2009, opinion letter, but the Obama administration withdrew it. The Trump administration reinstated the opinion letter Nov. 8 as an official statement of DOL policy.

"There's been a lot of litigation over tipped-related duties," said Alfred Robinson Jr., an attorney with Ogletree Deakins in Washington, D.C. He added that if courts defer to the wage and hour opinion letter on tipping workers, "it may limit litigation in this area."

The DOL also issued new opinion letters clarifying when guaranteed weekly salaries for professional employees won't jeopardize the professional exemption from overtime requirements; explaining when a company that operates and maintains swimming pool facilities might be exempt from minimum-wage and overtime requirements; and determining that nonprofit, private volunteer fire departments that contract with state municipalities to provide fire protection aren't entitled to a special overtime exemption for fire and police departments.

No Limitation on Amount of Related Duties

Some duties are related to a tipped occupation, such as a waitress cleaning and setting tables, toasting bread, making coffee, and occasionally washing dishes or glasses. Others aren't, such as maintenance work when a maintenance employee or cook in a hotel also serves as a waiter.

When the work is unrelated, the unrelated work can't count toward the tip credit.

But what if the work is related? A 2007 federal district court decision, Fast v. Applebee's Int'l Inc., prohibited employers from taking the tip credit for duties related to the tipped job if these functions exceeded 20 percent of the employee's worktime.

The DOL rejected this decision in its revived opinion letter. "We do not intend 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 other requirements of the act are met," the DOL stated in the letter, now designated as FLSA 2009-23.

The department also noted that duties listed as core or supplemental for a tipped job in the tasks section of the details report in the Occupational Information Network (O*NET) shall be considered directly related to the tip-producing duties of that job. Employers may not take a tip credit for time spent performing any tasks not contained in the O*NET task list, the DOL cautioned.

The 20 percent limitation applied in Fast came from the DOL's own Field Operations Handbook, which DOL agents use in investigations. Ted Boehm, an attorney with Fisher Phillips in Atlanta, said this was a difficult restriction to apply.

The limitation was "impractical because it required employers to track each job duty performed by employees in a very fast-moving setting where tipped employees are moving rapidly, doing lots of things all at once, while trying to provide a good customer experience," Boehm noted.

As a result of this opinion letter, employers no longer must scrutinize each duty to calculate the time a tipped employee spends on discrete, related tasks, said Jennifer Shaw, an attorney with Shaw Law Group in Sacramento, Calif.

Boehm called the opinion letter a "victory for common-sense application of the FLSA [Fair Labor Standards Act]" and predicted that the DOL handbook will be revised.

[SHRM members-only toolkit: Complying with U.S. Wage and Hour Laws and Wage Payment Laws]

Ryan Mick, an attorney with Dorsey & Whitney in Minneapolis, however, cautioned that a tip credit may not be available under some state or local laws.

Guaranteed Weekly Salaries

The DOL clarified in a separate opinion letter (FLSA 2018-25) that guaranteed weekly salaries for professional employees won't jeopardize the professional employee exemption from overtime pay as long as there is a 1.5-to-1 ratio between the amount actually earned and guaranteed salary. The employer inquiring about whether its salary had a reasonable relationship between the guaranteed amount and the amount actually earned had exceeded this ratio, which Robinson said jeopardized its exemption.

Swimming Pool Company

A company that operates swimming pools at hotels, apartments and condominiums wrote to the DOL to find out if it qualified for the amusement or recreational establishment exemption from minimum-wage and overtime requirements. The business employed its own lifeguards and pool service staff. The DOL answered the question in another opinion letter (FLSA 2018-16) by saying it depends. To qualify for the exemption, each pool must be physically separate from the facility, such as in a distinct physical space used exclusively for pool-related operations—not, for instance, in a penthouse suite—and must be open to nonresidential occupants. A pool is considered open to the public even when it restricts access to paying customers, the DOL stated.

Nonprofit, Private Volunteer Fire Department

Nonprofit, private volunteer fire departments that contract with municipalities aren't entitled to the partial overtime exemption for public fire and police departments because the nonprofits aren't public agencies directly responsible to public officials, the DOL wrote in another opinion letter (FLSA 2018-24). The partial exemption sets a higher number of hours than 40 that must be worked for overtime to be owed, depending on the number of consecutive days in a work period as set out in the FLSA regulations (29 C.F.R. Section 553.230). The DOL noted that the nonprofits' contracts designated them as independent contractors. Plus, the nonprofits purchase most of their own equipment, exercise independent judgment over their operations and independently elect their board of directors.



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