It's proposing a 30-Minute Cap for tipped wage "side work."
The state of restaurant tipping has seesawed in recent months, as you might expect with a change in presidential and party leadership.
One of the cloudiest and most contested regulations involves the amount of non-tip producing work a tipped employee can perform when a restaurant is taking a so-called “tip credit.” Currently, the FLSA requires restaurant employees earn minimum wage or higher. But yet the subminimum rate for tipped workers remains $2.13 an hour at the federal level and $5 or less in nearly 40 states.
How employers make it up, however, is through the tip credit, which allows restaurants to satisfy a portion of that obligation through tips. Essentially, they can make $2.13 per hour so long as their tips raise the hourly rate to minimum wage. If not, it's up to the employer to cover the gap.
Where this has gotten messy in recent months (and before that) concerns the “80/20 rule” and how the DOL prohibits restaurants from taking a tip credit if time an employee spends on “side-work” tasks, of which there are plenty in a restaurant—everything from rolling silverware to setting up a shift—exceeds 20 percent of the employee’s working time.
In December 2020, when the Trump administration still held the labor keys, a final rule from the DOL removed any limits on the amount of time a tipped employee could spend on non-tipped duties as long as they were performed “contemporaneously with tipped duties," or for a “reasonable time immediately before or after” tipped duties. This was intended to go into effect March 1 and sparked a firestorm of dissenting views (on February 26, 2021, the Department delayed the effective date of the 2020 Tip final rule until April 30, 2021).
Originally, though, Bloomberg noted the December rule, “would represent a victory for the hospitality industry and management attorneys by shielding them from an increasingly common form of litigation in which workers allege they’re owed back pay for hours working on non-tipped duties when they didn’t earn at least $7.25.”
The litigation Bloomberg referenced surfaced throughout 2019 as restaurant chains lost at least seven decisions in which federal district court judges refused to give deference to a 2018 Labor Department opinion letter advising restaurants to pay a lower minimum wage to tipped workers for tasks that don’t yield gratuities. In those decisions, judges said the DOL couldn’t turn its back on a standard that ruled for three-plus decades, since 1988.
Applebee’s, Buffalo Wild Wings Inc., Denny’s Corp, and P.F. Chang’s faced lawsuits from tipped employees under the 80/20 rule. Buffalo Wild Wings paid at least $855,000 to settle one in 2019.
Essentially, the Trump decision would have enabled restaurants to pay employees the lower minimum wage of $2.13 per hour, no matter how much time they spent on non-tipped duties. It would have also withdrawn the DOL’s previous interpretation that workers (this includes servers and bartenders) must be paid the full federal hourly minimum of $7.25 when spending at least 20 percent of their workweek on tasks that don’t yield gratuities from customers, rather than the base pay of $2.13 for tipped occupations.
Workers earning the reduced tipped hourly minimum of $2.13 could complete some non-tipped work so long as it was completed during or “for a reasonable time immediately before or after.”
Additionally, restaurants would be allowed use “tip pools” to share tips with back-of-house employees, given all workers participating in the pool were receiving the full minimum wage.
On the opposite spectrum of Bloomberg’s observation, Saru Jayaraman, executive director of One Fair Wage, a national nonprofit organization representing subminimum wage workers, said, “The Trump Administration’s plan to let multimillion-dollar restaurant corporations pay workers just $2.13 per hour, even when they’re doing work that does not allow them access to tips, will hurt the millions of restaurant and service workers in the United States who are already struggling amid his mismanaged pandemic.”
It appeared the 80/20 rule’s days were numbered. The Biden Administration, though, and not unsurprisingly, halted the change and opened it up for additional commentary, leaving the DOL to gather more feedback and delay any changes until this coming December.
On Monday, it offered a new proposal, which the DOL said “clarifies when an employee is working in a tipped occupation and when a worker has performed such a substantial amount of non-tipped labor that an employer can no longer take a tip credit and must pay the full federal minimum wage to the worker.”
The proposed rule also clarifies that an employer may only take a tip credit when tipped employees perform labor that is part of their tipped occupation.
Work considered part of the tipped occupation includes, “labor that produces tips and labor that directly supports tip-producing work, so long as the employee does not perform it for a substantial amount of time.”
A case the DOL gave: “waiting on tables is an example of labor that produces tips for the worker,” it said. “Labor that supports a server’s tip-producing work includes a server folding napkins or refilling salt and pepper shakers.”
Notably, the rule clarifies that if an employee performs work that directly supports tip-producing work for a substantial amount of time that worker is no longer performing labor that is part of the tipped occupation.
What “substantial” means here has been an area of question. The DOL outlined it Monday as “exceeds 20 percent of all of the hours worked during the employee’s workweek or exceeds 30 continuous minutes.”
So what this means, in simple terms, is the DOL wants to create a new standard that says anybody who spends more than 30 minutes of uninterrupted time on side work that “directly supports” tip-producing activity must be paid standard minimum wage, rather than the lower tipped minimum wage that’s allowed for tipped workers.
And it codifies the 80/20 rule (the 20 percent limit).
In the words of the DOL: “…the Department explains that an employee has performed work that directly supports tip-producing work for a substantial amount of time if the tipped employee’s directly supporting work either one, exceeds, in the aggregate, 20 percent of the employee’s hours worked during the workweek or two, is performed for a continuous period of time exceeding 30 minutes.”
“The Department believes it is important to provide a clear limitation on the amount of non-tipped work that tipped employees perform in support of their tip-producing work, because if a tipped employee engages in a substantial amount of such non-tipped work, that work is no longer incidental to the tipped work, and thus, the employee is no longer employed in a tipped occupation,” it added in a notice.
Employers will not be allowed to take a tip credit for work that is not part of the tipped occupation.
“Tipped workers are among those who continue to be hardest hit as we emerge from the pandemic, and the Wage and Hour Division continues to prioritize protecting these essential front-line workers,” Wage and Hour Division Principal Deputy Administrator Jessica Looman said in a statement. “This proposed rule provides more clarity and certainty for employers while better protecting workers. It helps ensure that tipped workers are treated with dignity and respect, and that they receive wages appropriate for the work they perform.”
The DOL is still in the commentary phase, which can be submitted here. That period closes August 23.
Anyone who submits a comment, including personal information, it should be noted, will become a matter of public record. The division will post comments without change at www.regulations.gov and include any personal information provided.
Dual tasks for tipped employees is a topic that dates back decades. The Labor Department added it to its enforcement handbook in 1988.
In recent years, per Bloomberg, sector lawyers have called the 20 percent threshold “an impossible burden.” Servers and bartenders frequently switch from tip-based duties to tasks that don’t produce gratuities (doubly true now with some digital changes). Keeping track of that breakdown, especially during peak hours, presented a monumental ask of managers. And it could, in practice, bloat the overall take of the front of the house compared to the back—an age-old issue on its own.
Douglas Werman, a chief 80/20 litigator involved in the Applebee’s and Buffalo Wild Wings cases, previously said the 80/20 rule led to “a lot of exploitation of tipped workers having performed excessive amounts of non-tipped work, but then it became a lucrative area of practice, too.”
Over 2019, seven cases (O’Neal v. Denn-Ohio, LLC; Berger v. Perry’s Steakhouse of Ill.,; Flores v. HMS Host Corp.; Belt v. P.F. Chang’s China Bistro, Inc.; Spencer v. Macado’s, Inc.; Esry v. PF Chang’s China Bistro Inc.; and Cope v. Let’s Eat Out, Inc.) saw judges reject the informal guidance in ruling for restaurant workers.
There were two, however, in favor of restaurants (Shaffer v. Perrys Rests. and Matusky v. Avalon Holdings Corp.).
In a 2019 comment, law firm Littler Mendelson argued that the 80/20 guidance was challenging to administer because it did not include a “comprehensive list of related duties or even a way to determine which duties were related.”
Worker advocates believe killing the 80/20 rule would force tipped workers to lose income by spending most of their time performing duties where they are not earning tips. In other terms, a restaurant would institute the $2.13 figure and then ask the worker to complete tasks for back-of-the-house employees earning minimum wage.
The Raise the Wage Act, which failed to pass in the recent relief fund, called for the elimination of a separate minimum wage for tipped workers (it also asked for the federal minimum rate to hike from $7.25 to $15 an hour over the next five years, starting at $9.50, and for the tipped wage to rise from $2.13 to $4.95).
The National Restaurant Association warned this would, in reality, not be a welcomed change for tipped servers, who it said make between $19–$25 per hour.
Seven states disallow the tip credit under state law today: Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington.
Some recent proposed changes have gone through, however. As of April 30, DOL regulations now permit tip-sharing with BOH employees, such as dishwashers or line cooks, as long as the restaurant is not taking a tip credit for any of the employees.
It slapped a prohibition on employers as well, including supervisors and managers, from keeping tips received by workers, regardless of whether the employer took a credit for workers’ tips toward their obligation to pay those workers minimum wage.
But there’s some static here, too. What’s the definition of “supervisor” exactly? It might not be as clear in a restaurant, with all its moving parts, as some other fields. In the December 2020 Final Rule, the DOL recognized that an hourly employee with a title of “head,” “chief,” or “lead” might not legally be a supervisor.
The Biden Administration halted this part of the rule, leaving the definition nebulous, the Association said on a recent webinar.
The rule set recordkeeping requirements for an employer that does not take a tip credit to include non-tipped workers, such as cooks and dishwashers, in nontraditional tip-sharing arrangements.
An employer that collects tips for tip pools must now distribute tips fully no later than the regular payday for the workweek or pay period in which the establishment collected the tips.
On the 80/20 construct, the Association’s take is, “So long as an employer assigns a tipped employee to perform the core functions of an occupation during a shift [e.g., assigning a server to wait tables, or a bartender to prepare drinks for customers], that employee does not cease to be engaged in the tipped occupation by virtue of performing side work during a shift along with the core functions of the occupation. Nor does a tipped employee cease to be engaged in the tipped occupation merely because the employer assigns side work during times when the restaurant is slow.”
Or, they want the DOL to allow the dual jobs portion of the 2020 Tip final rule to go into effect.
The Association also expects attempts to eliminate the tip credit to continue.
In the meantime, as all this sorts out, Paul DeCamp, national co-chair of law firm Epstein Becker Green’s wage and hour practice, offered some 80/20 compliance tips on the webinar.
He suggested some operators could eliminate or reduce the time tipped employees engage in opening or close tasks that count toward the 20 percent of non-tipped time. Also, to require workers to clock in at the full minimum wage rate for shift prep until the restaurant opens. They can then clock out and clock back in at a tipped wage.
Lastly, restaurants should consider assigning “side-work” to designated employees earning minimum wage. Not always doable with short staffs, but if non-tipped employees take on those murky tasks, it naturally reduces the risk of trying to prove the 80/20 breakdown when complaints arise.
