Trump Administration Rule Alters Pay Structure for Tipped Workers

In-Depth Analysis

## Understanding the Tipped Wage System The Fair Labor Standards Act (FLSA) allows employers to pay a subminimum wage of $2.13 per hour to workers who regularly receive tips, as long as tips make up the difference to reach the standard federal minimum wage of $7.25 per hour. This is known as the "tip credit."

## The Old vs. New "80/20 Rule" For decades, DOL guidance included the "80/20 rule" to prevent abuse of the tip credit. It stipulated that if a tipped employee spent more than 20% of their time on duties that do not directly generate tips (e.g., rolling silverware, cleaning bathrooms, setting up tables), the employer could not take the tip credit for that time; they had to pay the full minimum wage for the time spent on those non-tipped tasks.

The final rule issued under the Trump administration eliminates the fixed 20% threshold. Instead, it focuses on whether non-tipped duties are performed close in time to tipped duties. Employers can now take the tip credit for non-tipped work performed "contemporaneously with" or "for a reasonable time immediately before or after" tipped work. What constitutes a "reasonable time" is not explicitly defined by a percentage, potentially allowing workers to spend significant portions of their shifts on non-tipped tasks while still being paid the lower $2.13 base wage.

## Who This Affects Most This rule change primarily impacts workers in the service industry, such as restaurant servers, bartenders, nail salon workers, and hotel staff. These occupations often have a higher concentration of women and people of color, meaning these demographic groups may be disproportionately affected by the potential reduction in earnings.

## How to Prepare Tipped workers should be aware of this rule change and understand how their time is categorized by their employer. Keeping track of time spent on tipped versus non-tipped duties may be important. Workers concerned about their pay structure under this new rule may wish to consult resources like the Department of Labor website or labor advocacy groups for clarification on their rights.

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FAQ

Takeaways

• The elimination of the 80/20 rule's 20% cap means tipped workers might spend more time on non-tipped tasks while still being paid the $2.13/hour base wage.
• This could lead to lower overall earnings for affected workers, estimated by the EPI to potentially total $700 million annually across the workforce.
• Workers in tipped occupations, especially women and people of color who are overrepresented in these roles, are most likely to be impacted.
• Understanding how work time is classified under the new rule is crucial for tipped employees.

Discussion

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