DOL guidance and legal history outline FLSA rules for tipped employees

The U.S. Department of Labor has restored the long-standing regulatory treatment of tipped employees after a federal appeals court vacated the DOL’s 2021 revision of the so-called dual jobs rule. The move resolves a four-year regulatory tug-of-war over when employers may apply a tip credit to workers who perform both tip-earning duties and non-tipped side work.

The statutory baseline remains Section 3(t) of the Fair Labor Standards Act, which defines a “tipped employee” as “any employee engaged in an occupation in which [the employee] customarily and regularly receives more than $30 a month in tips.” Fact Sheet #15 reiterates the pay math employers must follow: “An employer must pay a tipped worker at least $2.13 per hour under the FLSA. An employer can take an FLSA tip credit equal to the difference between the direct wage, or the cash wage it pays directly to the tipped employee, and the federal minimum wage, which is currently $7.25 per hour. The maximum tip credit that an employer can currently claim is $5.12 per hour: ($7.25 - $2.13 direct (or cash) wage = $5.12). Only tips _actually received_ by the employee count when determining whether the employee is a tipped employee and in applying the tip credit.”

That guidance sits alongside a regulatory history that stretches back to the original 1967 regulations at 29 CFR 531.56(e). DOL issued subregulatory guidance in 2018 and 2019, published the 2020 Tip Rule, and in October 2021 issued a final dual jobs rule that took effect December 28, 2021. The Fifth Circuit in Restaurant Law Center v. U.S. Department of Labor vacated key regulatory text on October 29, 2024, finding the agency’s distinction between tip-producing and tip-supporting tasks conflicted with the FLSA. As Jackson Lewis summarized, the court said the statutory scheme “does not ask whether duties composing that given occupation are themselves each individually tip producing.” In response, DOL issued a final rule reverting the Code of Federal Regulations to the pre-2021 language, a move described as a technical correction to conform to the appellate mandate.

Practitioners flagged the practical questions the rules raise for restaurants. Jeffrey H. Ruzal noted that DOL had proposed to codify guidance allowing an employer to take a tip credit “for any amount of time an employee in a tip-earning occupation performs related non-tipped duties that are performed contemporaneously with, or within a reasonable time immediately before or after ...” Paul DeCamp and Kathleen A. Barrett warned that whether an employee is classified as a tipped employee determines whether the employer may pay a reduced cash wage “of as low as $2.13, so long as the tips suffice to make up the difference to minimum wage.”

For employers, the reinstatement of pre-2021 regulatory text means reviewing tip-pooling arrangements, scheduling of side work, and payroll calculations to ensure cash wage plus tips meet federal minimum and overtime obligations. For workers, the outcome affects when tips must be applied to raise pay to the statutory minimum and how employers document tip distributions and time spent on non-tipped tasks. Ogletree noted DOL also clarified how tipped workers might qualify for the FLSA 7(i) commission exemption, a separate three-part test that can alter overtime and pay status for commission-heavy employees.

The DOL fact sheet, the Fifth Circuit mandate in Restaurant Law Center, and the restored CFR language should be the next stops for employers and advocates seeking definitive compliance steps. Expect continued employer guidance and potential state-level variability, since many states impose higher tipped-wage standards than the federal baseline.