Employers in industries where tips are the norm are likely to welcome the U.S. Department of Labor’s (DOL) new proposed rule relating to tipped workers. Although the proposal, announced on October 7, 2019, just codifies current guidance from the DOL’s Wage and Hour Division, it formally does away with Obama-era guidance that sometimes limited employers’ ability to take a tip credit.
The Fair Labor Standards Act (FLSA) allows employers to take a “tip credit” for workers who customarily earn tips. That means employers can pay as little as $2.13 an hour to tipped workers if the workers’ pay with tips equals at least the federal minimum wage of $7.25 an hour. If a worker’s tips don’t bring the hourly wage up to the full minimum wage, the employer must pay enough to bring it up to $7.25.