How Does the 20 Percent Tip Credit Rule Impact Your Business?

The Department of Labor has numerous polices-many of which employers are unaware of or simply do not understand. One of the biggest and most controversial issues affecting the hospitality industry’s workforce today is the 20 percent tip credit rule. The Department of Labor has yet to create fine-tuned guidelines that help hospitality and restaurant management individuals understand what constitutes tip-generating work and what does not. Already numerous lawsuits have been filed by employees against major hotel chains and restaurants for unfair use of the 20 percent tip credit rule, but the Department of Labor has yet to create specific guidelines to prevent further courtroom battles.

What is the 20 Percent Tip Credit Rule?

In the hospitality and food service industry, there are tipped employees and hourly wage workers. Non-tip generating employees must be paid the federal minimum wage during their work hours. Employers can, however, deduct a tip credit from employees who regularly earn $30 or more in tips-as long as they pay out a minimum of $2.13 to the employee per hour in wages.

The Tipped and Non-Tipped Dilemma

Some employees are hired for tipped and non-tipped work. Bellhops, for example, may also serve as desk clerks in a hotel. Waitresses, on the other hand, may second as hostesses for a restaurant. According to the Fair Labor Standards Act, employers can only use the tip credit on hours the employee works in her tipped job. That means if she spends six out of eight hours working in her non-tipped position-such as a hostess rather than a waitress-the employer cannot deduct payment based on the 20 percent tip credit rule. For the two hours she works as a waitress, however, he can.

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