On August 23, 2024, the 5th Circuit Court of Appeals in Texas vacated the US Department of Labor (DOL) 2021 Final Rule which had set strict guidance on the payment of tipped employees. As a reminder, the 2021 Rule had established three different categories of work that may be performed by tipped employees and specified the FLSA pay requirements for each when employers are utilizing the tip credit method of payment. Lake Effect’s prior blog on this issue provides additional information and history on this topic.
The 5th Circuit Court vacated the Final Rule nationwide, holding that the DOL’s Rule was “contrary to the Fair Labor Standards Act’s clear statutory text” and “arbitrary and capricious.” The FLSA defines a “tipped employee” as “any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.” Based upon this definition, the 5th Circuit found that a pay analysis should focus on the field of work and the job as a whole, rather than on attempts to apportion time to specific types of tasks. Individuals who meet the definition of a “tipped employee” based upon their overall job may be paid using the tip credit method of payment. The only exception is when a tipped employee is also truly performing another discrete job, in which case they cannot be paid by the tip credit method and instead must be paid at the relevant pay rate for the other job (i.e., working as a server and also as a maintenance person).
This simplified approach to assessing the status of tipped employees for purposes of the tip credit method of payment now stands as the law of the land. Employers utilizing this method of payment should review their current pay policies and practices in light of this development. Keep in mind that state wage and hour laws may impose different and/or more stringent requirements for the payment of tipped employees, and those laws must be taken into consideration, as well. Your partners at Lake Effect can help ensure that payment of your tipped employees complies with all applicable federal and state laws.
Lake Effect is here to answer all your questions about employment laws, regulations, and new agency guidelines. We continue to monitor important legal and HR developments, as well as other information that could impact the workplace. Please watch our blogs and emails for these important updates, as well as discussions of how compliance meets culture. To dive into these issues, contact us at info@le-hrlaw.com or 1-844-333-5253.
