DOL Releases New Rule on Tip Credit for Dual Jobs

New DOL Rule on Tip Credit for Dual Jobs

The Department of Labor (DOL) issued a final rule on May 5, 2026, addressing the application of the tip credit under the Fair Labor Standards Act (FLSA) for employees who perform dual jobs. The rule, effective July 1, 2026, clarifies when employers can take a tip credit for employees who perform both tipped and non-tipped duties.

Under the FLSA (29 U.S.C. § 203(m)), employers can pay tipped employees a lower direct wage if tips make up the difference to reach the federal minimum wage. However, complications arise when employees perform both tipped and non-tipped duties. The new rule aims to provide clarity on how employers can apply the tip credit in such situations.

Key Provisions

The rule introduces a "20% rule," allowing employers to take a tip credit for time spent on non-tipped duties that directly support tipped work, provided these duties do not exceed 20% of the employee's total hours in a workweek. Non-tipped duties that do not directly support tipped work, such as general cleaning or maintenance, are not eligible for the tip credit.

The DOL specifies that directly supporting duties must be related to the tipped occupation and performed contemporaneously with, or within a reasonable time before or after, the tipped duties. Examples include setting tables, rolling silverware, and preparing food items for immediate service.

Employer Action Items

Employers should review and adjust their payroll practices to comply with the new rule. Key steps include:

1. Audit Current Practices: Evaluate current tip credit practices and ensure compliance with the 20% rule. Identify any non-tipped duties performed by tipped employees and assess their eligibility for the tip credit.

2. Train Managers and Staff: Educate managers and employees about the new rule to ensure accurate tracking of tipped and non-tipped duties. Implement training sessions to clarify which tasks qualify for tip credit.

3. Update Timekeeping Systems: Modify timekeeping systems to track the time spent on non-tipped duties separately. Ensure accurate record-keeping to demonstrate compliance with the 20% threshold.

4. Review Job Descriptions: Update job descriptions for roles involving dual duties to clearly delineate tipped and non-tipped responsibilities.

Implications for Employers

Employers in the hospitality and service industries, where dual roles are common, must pay close attention to this rule. Non-compliance could result in back pay liabilities and penalties. By adhering to the new guidelines, employers can mitigate legal risks and ensure fair compensation practices for tipped employees.

The DOL's rule is part of a broader effort to clarify and enforce wage and hour regulations. Employers should stay informed on these developments to maintain compliance and avoid costly litigation.