You may recall that back in December 2019 (doesn’t that seem like so long ago?), the General Assembly and Governor Lamont fashioned a compromise on so-called “dual duties” legislation.

The bill required the Department of Labor to revisit a 1950 regulation that has been interpreted by some as requiring time that a server spends on “non-service duties” be segregated.  The DOL was required to propose a “notice of intent” to modify the regulations by April 1, 2020 and, in making its proposal “shall consult with representatives of the restaurant industry, restaurant employees, service employees and other interested stakeholders prior to posting such notice.”

No doubt, this regulation was delayed due the pandemic.

But the draft regulation is now complete; it will now be submitted to the secretary of state for publication.  As first announced by Bloomberg Tax, the new rule could take effect shortly thereafter.

The regulations make several notable changes and provide restaurants with some much needed clarity on the issue.

The regulation would allow a tip credit if nonservice duties make up less than two hours or up to 20 percent of the employee’s shift — essentially bringing back a version of the 80/20 rule that had previously been at issue.

But, the nonservice duties must be separated and recorded by the employer.  Moreover, the employer must provide substantial evidence — such as an electronic or written statement — that the employee has received gratuities not less than the amount claimed as a tip credit.

Notably, the statement may include documentation “via an electronic point of service system or any other method that verifies the amount a service employee has received in gratuitities…“.  This replaces the prior regulation which said that there must be a statement “signed by the employee attesting” to such gratuities.

The regulations also clarifies that certain duties are incidental to service and still qualify for the tip credit.

At the same time, the regulations make it clear that a tip credit cannot be claimed for time a service employee workes when an establishment is not open to patrons.

The proposed regulations can be found here or on the Bloomberg Tax site.

For restaurants, caterers and those who utilize the tip credit, the new regulations are a must-read.  Failure to adopt these regulations may now result in serious penalties for employers — above the punitive class actions that had previously been filed against employers.

Employers that fail to do so are at substantial risk of such claims; you’re on notice now.  Time to get started with adoption.