A tip can go a long way. In the United States, the voluntary act of leaving a gratuity is not only an accepted social custom but a federally recognized means of providing service sector employees, including restaurant wait staff and bartenders, their primary source of income. In fact, the Fair Labor Standards Act (FLSA) permits an employer to pay a worker as little as $2.13 an hour if tips the employee receives meet or exceed federal minimum wage.
This statute is commonly known as the FLSA tip credit, and its outcomes have stirred significant debate. For instance: Do tips motivate and fairly reward good service, or do they encourage discriminatory behavior by customers? To what extent do tips contribute to a living wage for employees? Are employers allowed to use the FLSA tip credit when a server or other tipped employee engages in non-tipped work, such as emptying trash or scrubbing toilets clean?
The U.S. Court of Appeals for the Ninth Circuit answered one of these questions last month in a decision likely to reverberate across the country. In a 9–2 ruling, the San Francisco-based Court concluded that employers cannot apply the FLSA credit to any minutes a tipped worker spends on a task not directly related to serving customers. This includes both:
- non-tipped activities unrelated to serving and bartending, such as cleaning restrooms or washing windows; and
- non-incidental tasks related to serving or bartending, such as cleaning and maintaining soft drink dispensers, if those hours exceed 20% of the employee’s overall workweek.
In either scenario, the employer must pay the employee at least a full minimum wage for all non-tipped hours worked.
Although this decision only impacts businesses in the Ninth Circuit (which covers California, Alaska, Montana, Nevada, Oregon, and Washington), employers throughout the U.S. should pay attention to the ruling. Lawmakers in numerous jurisdictions are currently looking at similar issues. In the District of Columbia, for instance, voters recently approved a ballot measure that would require employers to pay workers the city’s minimum wage (currently $13.25 an hour) regardless of tips received. Although the D.C. City Council has moved to overturn the initiative, it could signal a coming tide of wage and hour reform.
In any event, employers should be aware of this decision and keep an eye on how they compensate employees for tasks that do not relate to tipped work (such as cleaning bathrooms). If you do not pay close attention to the allocation of job duties, you could risk overextending your employees and losing their status as tipped workers. A tip may go a long way, but in the context of saving money on payroll, it can only go so far.
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