Tipping and other regulatory changes under a Biden administration will have long-lasting ramifications on restaurants.
Restaurant tipping regulations has always been a convoluted topic. And it’s currently even more so due to an uncertain future. This present state of flux isn’t unexpected, however. Former President Donald Trump’s administration tried to usher in last-minute changes toward the end of 2020, namely around the fate of the “80/20 rule” and tip credit. As labor experts predicted, these changes, perceived as pro-business by many, hit a wall when President Joe Biden took control.
So we’ve arrived at a cloudy juncture that could present ramifications for years to come. But what are they exactly? On June 21, the DOL offered a new proposal it 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.”
Namely, it outlined a plan 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.
While this would undoubtedly shake up the tipping industry, plenty of questions remain and the time for commentary and feedback doesn’t end until August 23.
FSR caught up with office managing shareholder Daniel Boatright at Littler, the world’s largest employment law firm representing management, to discuss potential changes, possible pitfalls, benefits, and everything in between.
Walk us through the DOL’s latest proposal. What do restaurateurs need to be aware of?
In the June 2021 notice of proposed rulemaking (NPRM), the DOL proposes to divide a tipped employee’s work duties into three categories: (one) tip-producing work; (two) work that directly supports tip-producing work; and (three) unrelated work (i.e., work that is neither tip-producing nor directly supportive of tip producing work). In the text of the proposed rule and in the preamble to the NPRM, the DOL provides examples of each category for a few tipped occupations, including restaurant servers, bussers, and bartenders.
Tip-producing
Server
- Waiting tables
Busser
- Filling water glasses
- Clearing dishes from tables
- Replacing table linens
Bartender
- Making drinks
- Serving drinks
- Talking to customers
Directly supporting
Server
- Preparing items for tables to facilitate service
- Cleaning tables
- Folding napkins
- Preparing silverware
- Garnishing plates
- Sweeping under tables
Busser
- None identified
Bartender
- Preparing fruit garnishes
- Wiping down bar
- Wiping down tables in bar area
- Cleaning bar glasses and implements used behind bar
- Arranging bottles behind bar
- “Briefly” retrieving from storage items such as alcohol, ice, and napkins
Unrelated
Server
- Preparing food
- Cleaning bathroom
Busser
- None identified
Bartender
- Preparing food
- Cleaning dining room
Under the proposed rule, any time spent in the category of unrelated tasks must be compensated at full minimum wage (i.e., no tip credit may be taken). Time spent on “directly supporting” duties may be paid at a tip credit rate, but only if the work is not performed for a “substantial amount of time.” A “substantial amount of time” is defined as either: (one) more than 30 continuous minutes; or (two) more than 20 percent of the “hours worked during the employee’s workweek.” Although the proposed rule is not clear, presumably the “hours worked during the workweek” refers only to the hours worked as a tipped employee, and would not include, for example, any hours worked as a cook or in another non-tipped position.
The proposed rule provides that the first 20 percent of “directly supporting” work may be paid at a tip credit rate, but any time in excess of 20 percent must be paid at full minimum wage. In contrast, if an employee spends more than 30 continuous minutes on “directly supporting” work, all of that continuous time must be paid at full minimum wage.
The DOL has requested comments on the proposal, and specifically invites comments on the definition of tip-producing work and any occupations and examples the DOL should consider. Restaurants and industry groups should voice their opinions about the proposed rule.
How does it clarify some previous gray areas, namely around the amount of non-tip producing work a tipped employee can perform when a restaurant is taking a “tip credit?”
The 80/20 Rule is flawed, and Littler will be submitting comments to remind the DOL of the overarching concerns with the 80/20 methodology. Beyond that, the June 2021 reboot of the 80/20 Rule has problems that cry out for comment and revision.
If there is to be an 80/20 Rule, then the attempt to clearly define the three categories of work is an essential starting point. But the current proposal falls far short. For example, what duties are encompassed within “waiting tables” by a server? Does that include time spent walking to the back-of-house and returning with food and drink items? Does it include filling soft drink glasses? Does it include time spent processing cash and credit card transactions? All of these functions are an integral part of waiting tables and should be encompassed within tip-producing duties. If the DOL refuses to rely on an external resource like O*Net to define the scope of tipped occupations, then the regulation itself should give employers and employees detailed instructions—but providing only a few illustrative examples simply invites litigation to fill the enormous void.
The current proposal also contains contradictions that invite varying interpretations. For example, a busser’s work in clearing a table and replacing table linens is identified by the DOL as tip-producing, but if a server or bartender wipes down a table to prepare it for the next guest that is merely “directly related.” Similarly, a bartender can make and garnish a drink, and that work is tip producing. But garnishing a plate is merely “directly related.”
Beyond that, the June 2021 proposal does nothing to address the concern that the 80/20 Rule requires employers to attempt to track tipped employees’ activities on a second-by-second basis throughout the course of a shift. Even if/when DOL decides how each task is to be placed in one of the three categories, as a practical matter there continues to be no reasonable means to accurately track the few seconds devoted to each task before a tipped employee moves on to the next.
Proponents of the 80/20 Rule suggest that the time-tracking dilemma is solved by assigning only tip-producing tasks. Perhaps that is a possibility if/when DOL clearly defines those tasks. But what is an employer to do if the limitation to tip-producing tasks results in significant idle time? Which category does idle time go into?
The proposal also does not account for multi-tasking. How does one characterize the time a bartender spends wiping down the bar while simultaneously chatting with customers?
Do you see it changing before the commentary period ends? Is there a chance it doesn't make it through?
We do not anticipate any revisions to the proposal during the comment period. Despite the flaws identified in the 80/20 Rule, we expect some form of the 80/20 Rule in the final rule when it is published. Thus, it is very important for employers and industry groups to let the DOL know where the problem areas are in this proposal.
What have been some issues with the 80/20 rule in the past?
In 1988, the DOL attempted to clarify an existing “dual jobs” regulation by inserting a provision in its Field Operations Handbook that instructed DOL field investigators that the tip credit is not available when tipped employees devote more than 20 percent of their time to non-tip-producing activities. This concept, known as the 80/20 Rule, was not often relied upon until the early 2000s, when it became the focus of tip-credit litigation.
During the Obama administration, the DOL publicly took the position that employers could only apply a tip credit for employees spending less than 20 percent of their shift performing non-tipped work. This position led to more litigation and proved completely unworkable for the hospitality industry, in part due to lack of guidance on which duties qualified as tipped or non-tipped. The position also left employers with the onerous task of identifying, down to the minute or second, the work done by tipped employees on any given shift.
What are some practices a restaurant can instill to make sure they’re 80/20 compliant?
The primary action is to focus tipped employees’ work on customer facing duties and customer interaction, and minimize time devoted to other duties. To the extent possible, limit supporting functions to designated periods of time so that it can be tracked and recorded. Consider paying full minimum wage for time worked when no customers are present (e.g., pre-open and post-close).
It appears a common consensus today that the tip credit will continue to face challenges. In your view, is this a needed change? How could you see it evolving, and who would that benefit?
In our view, the resurrection of the 80/20 Rule is an unnecessary step backward. In November 2018, the DOL reissued and adopted a nearly decade-old opinion letter (and later made corresponding changes to the Field Operations Handbook) clarifying how employers could pay tipped employees who perform related non-tipped duties. That opinion letter stated there was no limit on the amount of duties related to a tip-producing occupation that may be performed, so long as the tasks were performed contemporaneously with direct customer service duties, or for a reasonable period of time immediately before or after performance of direct customer service duties. In other words, as long as side work was “running” side work—i.e., related duties performed during the course of a shift—there was no 20 percent or other limit to the amount of side work that could be performed. If servers were brewing coffee and rolling and polishing silverware during operational hours while simultaneously serving guests, this type of work could be performed while the employer was still applying a tip credit toward the employees’ wages. The only quantitative limitation was that the server’s wages and tips combined must equal or exceed the minimum wage. The DOL further stated that duties set out in the federal occupational database, O*NET, www.onetonline.org, were presumed to be related to the tipped occupation.
In December 2020, the DOL issued a final rule that essentially adopted the language in the opinion letter. By eliminating the focus on the percentage of time spent on “non-tipped” duties (i.e., the 80/20 Rule), the December 2020 rule jettisoned an unworkable task-by-task timekeeping requirement, and replaced it with a reasonable, occupation-focused standard that ensured tipped employees would receive the full protection of the FLSA’s minimum wage and overtime provisions.
What are some other potential labor topics restaurants should keep an eye on?
Employers must continue to be mindful that the FLSA does not preempt more protective state or local laws. Many states have tipped employee pay provisions that do not allow for a tip credit at all, or otherwise differ from the FLSA in important respects.
States and municipalities continue to increase minimum wage and other aspects of wage payment laws.
Federal and state laws regulate permissible participants in tip pools, and restaurants need to make sure tip pools are limited to permissible participants. Managers generally cannot participate in tip pools.
Restaurants need to educate employees on anti-discrimination and ant-harassment policies and reporting avenues, and comply with any state or local training requirements.
