On October 29, 2021, the U.S. Department of Labor (DOL) published its final rule reinstating a modified version of the “80-20” approach previously used to determine when an employer may take a tip credit for time a tipped employee spends performing nontipped duties related to the tipped occupation (i.e., only if that time did not exceed 20 percent of the employee’s workweek).
In 2018, the DOL had rescinded its longstanding 80-20 guidance and later issued new guidance that would permit an employer to take a tip credit for the time a tipped employee performs related, nontipped duties, as long as they are performed contemporaneously with, or for a reasonable time immediately before or after, the tipped duties.
The final rule officially abandons that approach, representing the second pivot on the issue that employers of tipped employees have had to make in just a few years.
The Final Rule
As in the proposed rule, which we outlined in a prior Alert, the final rule provides that “an employee is engaged in a tipped occupation”―and thus the employer may take the tip credit―when the employee performs either work “that produces tips” or work “that directly supports the tip-producing work, if the directly supporting work is not performed for a substantial amount of time.”
However, in its final rule, the DOL amended the proposed rule’s definitions to clarify that “tip-producing work” is “any work performed by a tipped employee that provides service to customers for which the tipped employee receives tips” and includes “all aspects of the service to customers for which the tipped employee receives tips.” “Directly supporting work” is “work performed by a tipped employee in preparation of or to otherwise assist tip-producing customer service work.”
The final rule also clarifies that an employer may not take a tip credit for time spent performing directly supporting work to the extent that time exceeds (1) 20 percent of the employee’s workweek or (2) 30 continuous minutes.
This differs from the proposed rule, which provided that an employer could not take a tip credit for any time an employee spent performing directly supporting work if the employee spent 30 continuous minutes or more performing that work (not even the first 30 minutes).
Under the final rule, the employer would not be able to claim the tip credit for only the continuous time spent performing directly supporting work in excess of 30 minutes and any time spent performing directly supporting work in excess of 20 percent of the workweek (excluding any time for which the employer does not take a tip credit). The employer would be able to claim the tip credit for the first 30 continuous minutes, so long as the time does not exceed the 20 percent tolerance. The employer would exclude from the calculation of the 20 percent tolerance any continuous time over 30 minutes spent in directly supporting work.
According to the DOL, now that it has clarified the definitions of tip-producing work and directly supporting work in its final rule, “it is easier to distinguish” between those types of work and “easier for employers to keep track of [the directly supporting work] included in the 20 percent and 30-minute limits.”
The final rule is scheduled to take effect on December 28, 2021.
Tip-Producing Work vs. Directly Supporting Work
Under the final rule, whether a task is tip-producing work or directly supporting depends on whether the employee performs it as part of a service to a customer for which the employee receives tips.
Thus, according to the DOL, some tasks that employers “may have understood as ‘directly supporting’ tasks—which count toward the time limits—are tip-producing tasks when a tipped employee performs the task to serve their own customer—and do not count toward the time limits.”
The DOL provides the following example:
Tip-producing work that does not count toward the time limits includes the work of a bartender who in the course of providing tip-producing service to customers, wipes down the surface of the bar and tables in the bar area where customers are sitting, and cleans bar glasses and implements used to make drinks for those customers.
However, if the bartender performs those same tasks before or after the restaurant is open, these same tasks would be directly supporting work and count toward the time limits because they are not performed as part of service to customers for which the tipped employee receives tips.
The proposed rule had defined “tip-producing work” as “any work for which tipped employees receive tips.” The final rule modifies the proposed rule “to clarify that customer service is a necessary predicate to a tipped employee’s receipt of tips.”
Thus, under the final rule, “tip-producing work” means “any work performed by a tipped employee that provides service to customers for which the tipped employee receives tips” and includes “all aspects of the service to customers for which the tipped employee receives tips.”
The final rule and its preamble provide several, nonexhaustive examples of tip-producing activities in various occupations:
- Server: Providing table service, such as taking orders, making recommendations, and serving food and drink, walking to the kitchen or bar to retrieve prepared food and drink and delivering those items to the customers, filling and refilling drink glasses, attending to customer spills or items dropped on the floor adjacent to customer tables, processing credit card and cash payments, removing plates, glasses, silverware or other items on the table during the meal service and bringing a highchair and coloring book for an infant seated at the table.
- Bartender: Making and serving drinks, talking to a customer seated at the bar, ensuring that a patron’s favorite game is shown on the bar television and serving food to customers if the bar includes food service.
- Nail technicians: Performing manicures and pedicures, assisting the patron to select the type of service, helping their customers pick out shades of polish or taking their own customers’ payment.
- Parking attendant: Parking and retrieving cars and moving cars in order to retrieve a car at the request of a customer.
- Hotel housekeeper: Cleaning hotel rooms.
- Busser: Filling water glasses, clearing dishes from tables, fetching and delivering items to and from tables and bussing tables, including changing linens and setting tables.
- Bellhop: Assisting customers with their luggage.
Directly Supporting Work
The proposed rule had defined “directly supporting work” as work that is part of the tipped occupation (i.e., “work that assists a tipped employee to perform the work for which an employee receives tips”) provided it is not performed for a “substantial amount of time.”
The final rule modifies the proposed rule to explain that directly supporting work includes “work performed by a tipped employee in preparation of or to otherwise assist tip-producing customer service work.”
Thus, under the final rule, directly supporting work includes “work performed by a tipped employee such as a server or busser in a restaurant before or after table service, such as rolling silverware, setting tables, and stocking the busser station, which is done in preparation of the tip-producing customer service work.”
The final rule contains the following additional, nonexhaustive examples of directly supporting work in various occupations:
- Server: Dining room prep work, such as refilling salt and pepper shakers and ketchup bottles, rolling silverware, folding napkins, sweeping or vacuuming under tables in the dining area, and setting and bussing tables.
- Bartender: Slicing and pitting fruit for drinks, wiping down the bar or tables in the bar area, cleaning bar glasses, arranging bottles in the bar, fetching liquor and supplies, vacuuming under tables in the bar area, cleaning ice coolers and bar mats, making drink mixes and filling up dispensers with drink mixes.
- Nail technician: Cleaning pedicure baths between customers, cleaning and sterilizing private salon rooms between customers and cleaning tools and the floor of the salon.
- Parking attendant: Cleaning the valet stand and parking area and moving cars around the parking lot or garage to facilitate the parking of patrons’ cars.
- Hotel housekeeper: Stocking the housekeeping cart.
- Busser: Pre- and post-table service prep work, such as folding napkins and rolling silverware, stocking the busser station, and vacuuming the dining room, as well as wiping down soda machines, ice dispensers, food warmers and other equipment in the service alley.
- Bellhop: Rearranging the luggage storage area and maintaining clean lobbies and entrance areas of the hotel.
What This Means for Employers
The end of this year―specifically, December 28, 2021, just days prior to one of the biggest nights of the year for restaurants and bars: New Year’s Eve―will mark the DOL’s official return to a (modified version) of the 80-20 rule for determining when employers may take a tip credit for the minimum wage for tipped employees. Despite the DOL’s modifications to its proposed rule, the final rule will be administratively burdensome for employers as it requires close monitoring of employee time spent on “directly supporting” activities.
Employers claiming the tip credit for tipped employees should work closely with counsel to assess their current wage payment and recordkeeping practices, and to restructure job duties and responsibilities for tipped employees as necessary to comply with the final rule.