DOL clarifies tip-credit rules and worker protections for restaurants

The Department of Labor’s Fact Sheet #15 lays out how the Fair Labor Standards Act treats tipped employees, setting clear obligations for restaurant operators and protections for front-of-house staff. The guidance defines who counts as a tipped employee, how employers may claim a tip credit, what notices must be provided, and limits on non–tip-producing work that can be offset by tips.

A tipped employee is anyone who customarily and regularly receives more than $30 in tips per month. Under federal law employers may pay a cash wage as low as $2.13 per hour and claim a tip credit up to $5.12 per hour toward the federal $7.25 minimum wage. Employers that claim the tip credit must ensure that an employee’s combined cash wage and tips reach at least the federal minimum for every workweek; if not, the employer must make up the difference.

The Fact Sheet emphasizes a notice requirement that is central to the tip credit. Employers must inform tipped workers, before taking a tip credit, of the cash wage they will pay, the amount of tip credit claimed, that the tip credit cannot exceed the tips actually received, that employees keep all tips except under a valid tip pool and that the employer will not apply the tip credit unless employees have been informed. Operators who fail to provide clear notice risk losing the ability to claim the credit and facing wage shortfalls for staff.

Tip pooling rules were clarified after the 2018 CAA and subsequent DOL guidance. Employers and managers may not keep employee tips. Tip pools are permitted only among employees who customarily and regularly receive tips, though different rules can apply if an employer chooses not to take a tip credit. The Fact Sheet also addresses limits on non–tip-producing work: the DOL rule describes “substantial” non-tipped work as more than 20 percent of a tipped employee’s hours in a workweek or any continuous period over 30 minutes. Court decisions and regional rulings have produced jurisdictional differences in how that limit is enforced.

For restaurant workers and managers the guidance has practical consequences. Front-of-house staff should confirm their pay stubs and tip records cover minimums each week. Managers need to post or provide required notices, track tipped versus non-tipped tasks to stay within the 20 percent threshold, and rework scheduling or staff roles when back-of-house duties encroach on tipped shifts. Employers operating across states must also account for state and local laws, many of which set higher minimum wages or bar tip credits entirely.

Restaurants that rely on tip credit calculations should review payroll practices and written notices now. Workers should keep close records of tips and hours and raise discrepancies with HR or their state wage agency; whether through compliance or reform, the guidance signals that pay practices around tips and non-tipped work will remain a key labor issue for the sector.