On November 8, 2018, the U.S. Department of Labor (DOL) re-issued an opinion letter rescinding the “80/20 Rule,” which prohibited employers from taking a tip credit if a tipped employee spent more than 20% of his or her working time on non-tipped work. The DOL’s new guidance provides restaurant and hospitality employers with clarity and a more practical approach regarding when a tip credit can be taken.
Under the Fair Labor Standards Act (FLSA), the tip credit allows employers to pay tipped employees not less than $2.13 per hour and to take a tip credit equal to the difference between that amount and the federal minimum wage. So, before an employer can take the tip credit, it must determine whether the employee is working in a tipped job.
If an employee works in separate jobs, one of which is tipped and the other of which is not, the employee has “dual jobs,” and the employer can only take the tip credit when the employee is working in the tipped job. For example, if an employee works at times as a waiter and at other times as a maintenance worker, the employer can take the tip credit only for the time the employee spends working as a waiter and must pay the full minimum wage for the time the employee spends working as a maintenance worker.
The DOL has also recognized that there are times when an employee in a tipped job performs related non-tipped duties that do not constitute a separate “dual job.” For example, a server who waits tables for tips may also spend time performing related non-tipped duties such as setting tables, rolling silverware, cleaning tables after customers have finished eating, and filling condiment containers.
A number of recent lawsuits have challenged restaurant and hospitality employers’ use of a tip credit for tipped employees who also perform related non-tipped duties, citing the DOL’s 80/20 Rule, which was published in the DOL’s Field Operations Handbook. In those cases, the plaintiffs have argued that they are entitled to the full federal minimum wage because they spent more than 20% of their time performing non-tipped duties (such as servers performing side work).
In its November 8 opinion letter, the DOL recognized the administrative burden the 80/20 Rule places on employers to separately track the time spent by tipped employees performing related non-tipped duties. In adopting a more practical approach, the DOL made clear that there is no “limitation on the amount of duties related to a tip-producing occupation that may be performed, so long as they are performed contemporaneously with direct customer-service duties and all other requirements of the Act are met.” In short, the 80/20 Rule does not restrict an employer’s ability to take the tip credit regardless of the amount of related non-tip-producing duties tipped employees perform contemporaneously with their tip-producing customer service duties or for a reasonable time immediately before or after performing such duties.
The DOL then clarified the types of duties that are “related and unrelated to a tip-producing occupation.” Specifically, the tasks listed by the Occupational Information Network (O*Net) (at https://www.onetonline.org/link/summary/35-3031.00) and Title 29 of the Code of Federal Regulations, Section 531.56(e) are considered directly related to the tip-producing duties of the relevant occupation. Employers, however, may not take a tip credit for time spent by tipped employees performing other tasks, unless such time is de minimis as defined in the DOL’s regulations.
Importantly, the DOL’s November 8 opinion letter only addressed the application of the 80/20 Rule under the FLSA. It is important to consult with employment counsel to determine the effect of this opinion letter on your business, particularly in states with rules and regulations related to tip credits.