The Department of Labor (DOL) under the Trump administration has been particularly busy these past two years proposing and implementing changes, especially when it comes to tipped employees. From proposing rules about tip-sharing to opining on wage rates for non-tipped work, it can be difficult for employers with tipped workers to keep up. Thankfully, the DOL’s most recent move last month will hopefully make compensating tipped employees a bit easier in 2019.
On November 8, the DOL issued an Opinion Letter rescinding what’s termed the “80/20 rule” for tipped workers. By way of brief background, under the Fair Labor Standards Act (FLSA), a tipped employee is one who is “engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.” Pursuant to the FLSA, an employer may pay tipped employees a reduced wage of $2.13 per hour and claim a “tip credit” equal to the difference between the wage paid and the federal hourly minimum of $7.25, for a tip credit of $5.12. See 29 U.S.C. § 203(m). The 80/20 rule prohibited employers and businesses from paying tipped workers below the $7.25 minimum wage by way of using the tip credit when a tipped worker spent more than 20 percent of his or her time on non-tipped work. Stated differently, employers could only apply a tip credit to time spent on non-tipped work if such duties did not exceed 20 percent of the employee’s time.
The controversial 80/20 rule was eliminated in 2009 but revived again under the Obama administration. This sparked a flurry of lawsuits thereafter by tipped workers alleging they spent more than 20 percent of their time performing non-tipped work for which they did not receive the minimum wage. After finding the rule was confusing and nearly unworkable, the DOL has done away with it once again.
The confusion came in deciding how much to pay tipped workers for performing duties related to the tipped occupation, even if these employees did not make tips while carrying out those duties. Pursuant to the DOL Field Operations Handbook (FOH) section 30d00(e), employers are permitted to take a tip credit for time spent on duties related to the tipped occupation, regardless of whether such duties were actually directed toward producing tips. However, where an employee is routinely assigned to non-tipped work or spends a substantial amount of time performing non-tipped duties, no tip credit may be taken. As the DOL noted in its Nov. 8 Opinion Letter, this rule was difficult to enforce consistently. For example, in Fast v. Applebee’s Int’l, Inc., 502 F. Supp. 2d 996 (W.D. Mo. 2007), the court held the rule prohibited employers from taking a tip credit for duties unrelated to the tip-producing work and for duties related to the tip-producing work if the duties exceeded 20 percent of the employee’s working time. By contrast, the court in Pellon v. Business Representation Int’l, Inc., rejected the Fast court’s holding that the 20 percent limitation applied to related duties. 528 F.Supp.2d 1306 (S.D. Fla. 2007), aff’d, 291 Fed. Appx. 310 (11th. Cir. 2008). The Pellon court said, “nearly every person employed in a tipped occupation could claim a cause of action against his employer if the employer did not keep perpetual surveillance or require them to maintain precise time logs accounting for every minute of their shifts.” Pellon, at 1314.
In withdrawing the 80/20 rule, the DOL said it “do[es] not intend to place a limitation on the amount of duties related to a tip-producing occupation that may be performed, as long as they are performed contemporaneously with direct customer-service duties and all other requirements of the Act are met.” The DOL further said employers should determine upfront which duties are related and unrelated to a tip-producing occupation so that they can comply with the FLSA. For reference, the DOL pointed to the Occupational Information Network website and says duties listed as core or supplemental for the appropriate tip-producing occupation in the Tasks section shall be considered directly related. For example, for waiters and waitresses, direct tasks can include duties such as sweeping, vacuuming, and cleaning bathrooms. If a task is not contained on the Tasks list, employers may not take a tip credit for time employees spent performing those tasks.
Hopefully employers can find some clarity and relief now that the 80/20 rule has been abandoned. However, it is important to remember that employers should still review and evaluate their tipped workers’ job duties and make sure they are performing tasks related to the tip-generating work. Additionally, if employers have questions about specific tasks, or about tipped positions that do not appear on the Occupational Information Network website, they should contact an employment attorney to help.