DOL Ends 80/20 Employee Tip Credit Rule
On November 08, 2018, the Department of Labor (“DOL”) issued a new opinion letter eliminating the “80÷20 rule” for tipped employees.
While the Fair Labor Standards Act (FLSA) usually requires employers to pay employees the minimum hourly wage (currently $7.25), the FLSA allows employers to pay a reduced hourly wage (currently $2.13) to employees who earn more than $30 a month in tips. Employers may claim a “tip credit” to make up the difference between the reduced cash wage and minimum wage. The DOL’s 80⁄20 rule, however, established that the tip credit did not apply to tipped employees who spent more than 20% of their time on non-tip producing tasks (such as servers who spend more than 20% of their time washing dishes). Employees’ time spent on non-tip producing tasks was required to be paid at minimum wage rather than the reduced “tip-credit” rate.
To ensure employees received the correct wage rate for tipped and non-tipped tasks under the 80⁄20 rule, employers had to closely monitor and account for how tipped employees spent their work time. The rule also created litigation over whether tipped employees’ non-tip generating duties accounted for more than 20% of the employees’ total time.
Recognizing the difficulties posed by the regulation, the DOL reissued a previous 2009 Opinion Letter stating the DOL does not “… intend to place a 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 .…” Instead, employers may take a tip credit for all of employees’ regularly assigned, non-tipped duties that are “core or supplemental” to employees’ jobs. Guidance on what tasks are “core or supplemental” to tipped employees’ job duties can be found in the Tasks section of the Details report in the Occupational Information Network (“O*NET”).
For example, a restaurant may now require tipped servers to perform non-tipped services such as rolling silverware and cleaning tables because it is related to serving and performed contemporaneously with serving job duties. Employers may take a tip credit for servers who perform these tasks, even if they spend more than 20% of their time doing so.
However, employers may not take a tip credit for tasks not contained in the O*NET task list. The elimination of the 80⁄20 rule also does not mean tipped employees are allowed to spend an unlimited amount of time on non-tipped duties. If servers spend too much time on non-tipped duties such as dishwashing, it could be argued the servers are performing two separate jobs, one as servers and one as dishwashers. If employees are found to be performing “dual jobs,” the employer can only claim a tip credit for the employees’ time spent on the tipped profession (serving) and must pay the regular minimum wage for the non-tipped profession (dishwashing).
The DOL’s new opinion letter certainly brings welcomed clarity to the hospitality and restaurant industries. Employers no longer need to keep detailed track of how much time tipped workers spend on core or supplemental non-tipped tasks. However, employers must still be diligent in evaluating their employees’ job duties. Employers planning on claiming a tip credit should determine which non-tipped tasks are “core or supplemental” to tipped workers’ occupations as listed in O*NET. Employers must also ensure tipped employees do not spend too much time on non-tipped duties that would trigger the DOL’s “dual job” regulation.
Employers seeking to review their wage and hour policies in light of this new development should consult with legal counsel to ensure compliance with all federal and state laws regulating tipped and non-tipped workers.
DISCLAIMER: The information provided is for general informational purposes only. This post is not updated to account for changes in the law and should not be considered tax or legal advice. This article is not intended to create an attorney-client relationship. You should consult with legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.