Tip Credit Changes May Jar Employers
Author: Michael Cardman, XpertHR Legal Editor
January 27, 2020
Recent developments regarding the minimum wage tip credit could necessitate changes in policies and practices for employers of tipped employees in Connecticut, Maryland, New Jersey and New York.
Meanwhile, the US Department of Labor (DOL) is expected to finalize proposed changes to the Fair Labor Standards Act (FLSA) tip credit regulations soon.
Connecticut to Adopt 80-20 Rule
A regulation currently on the books in Connecticut makes it difficult for employers to have tipped employees pitch in on "non-service duties" such as washing dishes or cleaning a restroom. Under this regulation, time spent on those tasks must be segregated and recorded separately, and the tip credit may be claimed only for service hours; otherwise, the employer may not claim the tip credit at all.
New legislation directs the Connecticut Department of Labor (CTDOL) to repeal that regulation and replace it with a more employer-friendly standard (known as the "80/20 rule") that will prohibit an employer from claiming a tip credit only if an employee spends more than 20% of their workweek performing non-service duties.
The timeline for the new regulation is not clear. The legislation requires only that the CTDOL post a notice of intent to adopt the regulation by April 1, 2020. It must then go through a rulemaking process that could take several months.
The bill also:
- Requires CTDOL to conduct random audits of at least 75 restaurants each year;
- Limits court awards in cases alleging wages owed under the current regulation if the employer had a good-faith belief that its underpayments were legal; and
- Tightens the criteria for courts to grant class action status in cases alleging violations of the current regulation.
Maryland Proposes Wage Statement Regulations
Last year, legislators in Maryland passed a bill to increase the state minimum wage. Included in that bill was a provision directing the Maryland Department of Labor to adopt regulations requiring restaurant employers that claim a tip credit to provide tipped employees a written or electronic wage statement for each pay period. This statement must show the effective hourly tip rate as derived from employer-paid cash wages plus all reported tips for tip credit hours worked each workweek of the pay period.
The agency recently issued proposed regulations to fulfill this mandate.
These regulations would allow restaurant employers to satisfy the notice requirement by providing an online system through which employees could obtain their tip credit wage statement. They also would allow employers to exclude from the regular rate of pay any tips received by an employee in excess of the tip credit, thereby potentially lowering overtime costs.
As with Connecticut, it is not clear when the Maryland regulations will be finalized.
New Jersey Proposes Various Updates
The New Jersey Department of Labor (NJDOL) is getting in on the action as well. It recently proposed regulations that, if finalized, would among other things:
- Adopt the 80/20 rule;
- Establish that tips are the property of the employee, regardless of whether or not the employer has taken a tip credit;
- Prohibit an employer from using an employee's tips, whether or not it has taken a tip credit, for any reason other than as wages or in furtherance of a valid tip pool (unlike under federal law, an employer could not claim any portion of employees' tips, however small, for credit card-processing fees); and
- Align New Jersey's regulations with changes to the state minimum wage law passed last year.
The NJDOL is holding a public hearing on the proposed regulations in Trenton on February 26, 2020, and will accept written or e-mailed comments through April 3, 2020.
New York to Eliminate Tip Credit for Miscellaneous Industries
Last but not least, New York is eliminating the tip credit for the estimated 70,000 workers covered by the Minimum Wage Order for Miscellaneous Industries and Occupations, including car wash attendants, nail salon workers, tow-truck drivers, dog groomers, wedding planners and more.
These workers are at the highest risk of wage theft, according to Gov. Andrew M. Cuomo. The state labor department issued an order requiring that, for these workers:
- Effective June 30, 2020, the maximum tip credit is reduced by 50%; and
- Effective December 31, 2020, the tip credit is completely eliminated.
The minimum wage tip credit for the hospitality industry remains unchanged.