Biden Administration Tightens Rules Around The Tipped Minimum Wage

The Labor Department is reversing a Trump-era policy that made it easier to pay tipped workers less for their time.

The Biden administration wants restaurant servers to know they can’t be told to clean bathrooms for $2.13 an hour.

That’s one of the examples provided in the Labor Department’s new rule regarding the tipped minimum wage. In many states, servers and other tipped workers can be paid as little as $2.13 per hour so long as their gratuities get them to the federal minimum wage of $7.25. But it’s not always clear-cut when an employer can legally pay the reduced rate in “dual jobs.”

After all, servers aren’t always serving people and working directly for tips. Sometimes they’re told to roll silverware, fill salt and pepper shakers, and clean up around the restaurant. The new rule clarifies that only some of this ancillary work can be done at the tipped minimum wage, while for other work, employers will have to pay at least $7.25 for that time, regardless of how much a worker earns in gratuities.

“We are trying to create reasonable limits around when the workers can get paid $2.13 an hour.”

- Jessica Looman, acting administrator, Wage and Hour Division

The new rule, which was finalized Thursday, reverses a last-minute change made by the Trump administration, which had given employers more leeway to pay $2.13 for non-tipped work. It applies not just to restaurants but nail salons, parking garages and any other workplaces where employers might claim the “tip credit” to pay lower wages.

While there is a movement to eliminate the tipped minimum wage altogether, this rule would put stronger boundaries around employers’ ability to use it. Jessica Looman, acting administrator of the Labor Department’s Wage and Hour Division, said in an interview that the agency tried to “strike a balance” and craft a fair rule that would protect a vulnerable workforce.

“We are trying to create reasonable limits around when the workers can get paid $2.13 an hour versus the minimum wage,” Looman said. “It’s just really important ... that every single worker goes to work every day and gets paid the wage they should get paid for the work they’re performing.”

Looman said many workers complained of having to come in an hour before their shift started, or stay an hour after it ended, to clean up around the restaurant for $2.13 an hour.

To clarify when workers can be paid that little, the rule puts work into three different categories:

Tip-producing work: For a server, this would be taking orders, checking on customers, bringing customers food, etc.

Directly supporting work: This isn’t tip-producing work per se, but work that is tied to it —think cleaning tables and rolling silverware.

Work outside the tipped occupation: This would be a server mopping bathroom floors, or a bartender cleaning tables in the dining room.

The new rule limits the circumstances under which restaurants can pay servers just $2.13 per hour.
The new rule limits the circumstances under which restaurants can pay servers just $2.13 per hour.
Photo by Annette Riedl/picture alliance via Getty Images

Under the rule, employers can pay the lower tipped minimum wage for tip-producing work as well as directly supporting work, but the latter comes with limits. It’s capped at 20% of the worker’s hours for the week, and no more than 30 consecutive minutes at a time.

That 20% cap was longstanding guidance until the Trump administration did away with it. The Biden rule reinstates it and adds the limit of 30 consecutive minutes. Looman explained the thinking this way: If someone spends Monday to Thursday waiting tables, they can’t be forced to spend all of Friday rolling silverware and wiping down tables for $2.13 per hour.

The rule will likely result in employers either paying tipped workers higher wages for some of their time (if they follow the law), or shifting that ancillary work to other non-tipped workers who are paid straight wages. The U.S. Chamber of Commerce had opposed the rule on the grounds that the hospitality industry is dealing with a worker shortage, “which means that businesses have extremely limited ability to shift this work to other non-tipped hourly employees.”

A revision to wage-and-hour rules results in what the Labor Department euphemistically calls “transfers”: money going from employers into workers’ pockets, or vice versa. The Trump administration’s tip rule resulted in a transfer from workers to employers, because it allowed the latter to pay lower wages for more of workers’ time. Under that rule, the Labor Department estimated a transfer of up to $733 million each year ― i.e., workers could lose that much in wages because of the changes.

According to the Labor Department, the new rule will result in a similar transfer going the other way, from employers to workers. The rule cites the same $733 million figure but said it is likely an overestimate, given the assumptions in the analysis.

Looman noted that while there are high-earning restaurant servers out there, many workers can’t make ends meet on their tips, and the industry relies disproportionately on women of color.

“We’re pulling for the success of the entire restaurant industry,” Looman said, “and we want to make sure we’re bringing workers along with us.”