Payroll Briefs

District Court Upholds DOL’s Dual Jobs Final Rule on Tip Credit

August 17, 2023

In July 2023, a U.S. district court ruled the U.S. Department of Labor’s (DOL) dual jobs final rule under the Fair Labor Standards Act (FLSA) as valid. Several restaurant industry groups filed a lawsuit to halt the rule, but a Texas federal court issued an order rejecting the challenge. Although the industry groups plan to appeal the decision, the DOL’s rule will remain in effect.  

The Dual Job Final Rule 

The dual jobs final rule went into effect on Dec. 28, 2021, creating a functional test to measure whether a tipped employee is engaged in their tipped occupation under the FLSA. The final rule permits an employer to take a tip credit for an employee’s tip-producing work and also for other work that “directly supports tip-producing work, provided that the employee does not perform that work for a substantial amount of time.” 

Under the final rule, an employee has performed directly supporting work for a substantial amount of time if the tipped employee’s directly supporting work meets either of these conditions:  

  • Exceeds 20% of the hours worked during the employee’s workweek.  
  • Work is performed for a continuous period exceeding 30 minutes.  

The 20% of the hours worked during the employee’s workweek rule essentially codified the informal 80/20 guidance that had appeared in DOL documents for nearly 35 years. The 30 minutes of continuous time is an entirely new condition. 

Steps Hospitality Employers Should Take  

As this rule stands for now, below are five steps you can take to ensure you stay in compliance:  

  1. Some states do not allow employers to take tip credits, so employers should check laws in their individual states to see how the dual jobs final rule affects their businesses.  
  2. If taking a tip credit, make sure a proper tip credit notice has been provided to the employees. 
  3. Review your policies and consider including a provision that limits the amount of “directly supporting work” that can be performed to 30 consecutive minutes. Moreover, avoid scheduling “directly supporting work” for periods longer than 30 minutes. 
  4. Review opening and closing procedures to avoid tipped employees spending lengthy periods without any customers. 
  5. Ensure you have a timekeeping system that tracks the time tipped employees are engaged in tipped work and side work. 

How We Can Help 

Sign up for our newsletter to make sure you do not miss any future developments related to tips to keep your company’s payroll operations in compliance. 

If you’re looking for software to track your tipped employees, look no further. DM Payroll Solutions can quickly generate a report to show the annual Federal Insurance Contributions Act tip credit amount. Contact us to learn how to take advantage of this feature.