DoL’s Restriction on the “Tip Credit Rule” Vacated

Under the Fair Labor Standards Act (FLSA), an employer may use a “tip credit” in setting hourly wages for tipped employees. Instead of the full federal minimum wage of $7.25/hour, an employer can pay $2.13/hour as long as tips will make up or exceed the difference. In 1988, the DoL issued an 80/20 split rule, which said that no more than 20% of an employee’s time could be spent on non-tipped activities related to the tipped occupation in order to apply the tip credit. In 2021, the DoL issued a final rule that effectively restricted the use of the tip credit. A federal appellate court threw out the DoL’s 2021 Final Rule because it “is contrary to the Fair Labor Standard Act’s clear statutory text.” This decision affects employers in Louisiana, Mississippi, and Texas, and may be a basis for a challenge by employers in other states. Note: State and localities may have their own paying tipped employees and this case does not displace those rules. #IdeaoftheDay

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