In preparation for the statewide minimum wage increase to $12.00/hour on October 1, 2022, employers should also check tipped employees' pay to ensure they are appropriately applying the tip credit and/or otherwise complying with wage and hour law. Along with the increase to Hawaii's minimum wage, the tip credit is also set to increase to $1.00/hour on October 1, 2022.

Considering recent news reports of Hawaii employers who were found to have violated federal regulations related to tipped employees, employers also need to be aware of and ensure their compliance with the applicable U.S. Department of Labor (DOL) regulations. Between 2020 and 2021, the DOL issued three final rules to update its regulations to address the 2018 legislative amendments to section 3(m) and other sections of the Fair Labor Standards Act (FLSA).

The first of these final rules makes clear that employers, managers, and supervisors may not keep employees’ tips under any circumstances, including through tip pools. Employers may allow nontipped employees (e.g., cooks and dishwashers) to participate in a tip pool if the employer pays the full minimum wage and does not take a tip credit.  

The second final rule clarified that while managers and supervisors may not receive tips from a tip pool, they may contribute to the pool. Managers and supervisor are allowed to keep tips they receive directly from customers for services the manager or supervisor directly and solely provides. 

In the third final rule, the DOL clarified that an employer may only take a tip credit when its tipped employees perform work that is part of the employee's tipped occupation. Work that is part of the tipped occupation includes work that produces tips as well as work that directly supports tip-producing work, provided the directly supporting work is not performed for a “substantial amount of time” (i.e., not more than 20% of the hours worked during the employee’s workweek, or a continuous period that exceeds 30 minutes).

In addition to the DOL’s final rules, Hawaii employers must also comply with Hawaii’s wage and hour laws related to tipped employees. See HRS 387 and HAR §12-20. Of note, pursuant to Act 114, Hawaii’s minimum wage and tip credit, which are currently $10.10/hour and $0.75/hour, respectively, will increase over the next several years according to the following schedule:

To use the tip credit, Hawaii employers must also ensure that the tipped employees’ combined wages plus tips equals at least $7.00 more than the minimum wage.

HEC members may access a detailed discussion of the DOL and Hawaii’s tip regulations in this whitepaper.

To ensure compliance with the applicable wage and hour laws, employers should consider the following: 

1. Review company policies to ensure they reflect current  DOL and Hawaii’s regulations regarding tipped employees.  
2. Include a provision in the company's policies/procedures that limits the amount of “directly supporting work” to not more than 20% of the hours worked during an employee’s workweek, or a continuous period exceeding 30 minutes.  
3. Review opening and closing procedures to avoid tipped employees spending lengthy periods of time without customers. 
4. Ensure you have a timekeeping system that can track the time tipped employees are engaged in tipped work and side-work. 
5. Implement a procedure that requires employees to report excess “directly supporting  work.” 
6. Pay at least the full minimum wage for all “directly supporting work” to simplify compliance. 
7. Identify all employees who may arguably be considered a “manager” under the DOL regulations and ensure they are not participating in any tip pool.

Employers should also consider adapting and revising existing pay rates and schedules to adjust for wage compression that may be caused by the $1.90/hour pay increase to the minimum wage this year and the $2.00/hour increases to the minimum wage over the next six years. Employers of unionized employees should also plan for wage increase demands which will include the scheduled minimum wage increases. 

HEC members may also contact their HR Consultant or call our hotline at 808-836-1511 with questions. Our Surveys & Compensation team may be able to assist members with their pay structures, and our Labor Relations team can assist our Collective Bargaining members with upcoming negotiations.