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Court Upholds DOL’s 20% Limit on Tipped Employees’ Cleaning and Prep Work

A recent Federal Circuit Court of Appeals case highlights the need for employers to watch the amount of work tipped employees spend doing non-tipped tasks. While the case is limited to the 8th Circuit (Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota), tipped employees in other states may bring claims under the same argument.

Generally, the federal Fair Labor Standards Act (“FLSA”) permits an employer to pay a tipped employee a direct wage of $2.13 per hour, as long as the employee’s tips are sufficient to raise his or her hourly wage to the federal minimum of $7.25. The FLSA defines tipped employees” as those engaged in occupations in which they customarily and regularly” receive more than $30 a month in tips. These include waitstaff, bussers, and bartenders.

As anyone in the restaurant business knows, it is common for tipped employees to do occasional tasks that are not considered tipped employment. For example, waitstaff commonly lend a hand washing dishes, clearing tables, or cleaning. However, an employee who spends too much time on these tasks may cease to be eligible for the tip credit for that work.

The Department of Labor (“DOL”) provides regulations under FLSA that recognize some employees engage in both tipped and non-tipped work and describe two types:

  • An example of a dual job” employee is one who works as both a waiter and a maintenance worker in a hotel. The regulations provide that the employee is a tipped employee only with respect to his employment as a waiter and no tip credit can be taken for hours spent as a maintenance worker. Therefore, the employer would need to separately track the time the employee spends in each position and pay the full minimum wage for the time spent as a maintenance worker (though could use the tip credit for the time spent as a waiter).
  • In contrast, some employees in a single” position that is tipped may do non-tipped work. The regulations give an example of a waitress who spends part of her time cleaning and setting tables, toasting bread, making coffee and occasionally washing dishes or glasses. The regulations make clear that such related duties in a tipped occupation need not be directed toward producing tips. Therefore, the regulations permit tipped employees to perform occasional non-tipped tasks incidental to their tipped position. However, if an employee spends too much” time on non-tipped work, the employer may not be able to take the tip credit for that portion of the work.

In its Field Operations Handbook (“DOL Handbook”), the DOL states that if a tipped employee spends more than 20% of his or her time performing non-tipped work, the employer may not take the tip credit for that time. Therefore, according to the DOL, if a waiter spent 25% of his time one day cleaning, the employer would be required to pay the full minimum wage for the time spent cleaning and could only apply the tip credit to the rest of his time.

In Fast v. Applebee’s International, Inc., the 8th Circuit Court of Appeals upheld the DOL’s 20% threshold as a reasonable interpretation of the terms part of [the] time” and occasionally” used in the regulation. But, the court left an open issue in its decision: What duties count toward the 20% limit?

  • Both the regulation and DOL Handbook provide examples, such as cleaning and setting tables, toasting bread, making coffee, and occasionally washing dishes and glasses.
  • The employees in the Fast case listed the following as examples of non-tipped work that they performed: wiping down bottles, cleaning blenders, cutting fruit for garnishes, taking inventory, preparing drink mixes, cleaning up after closing hours, cleaning bathrooms, sweeping, cleaning and stocking serving areas, rolling silverware, preparing the restaurant to open, and general cleaning before and after the restaurant was open.
  • Unfortunately, the Fast court provided no guidance on which of these duties count toward the 20% threshold. Consequently, a conservative employer would assume they all count.

Furthermore, other courts have held that assigning a tipped employee nontipped duties to be performed for a substantial, distinct period of time, such as before opening or after closing, may remove those duties from being incidental to the employee’s tipped duties, in which case the employee would be entitled to the full minimum wage during that time.

The result of the Fast decision and other cases is to emphasize that employers must be careful in what tasks are assigned to tipped employees and for how long and when. Employers should avoid assigning tipped employees to non-tipped tasks for extended periods of time, and should try to have those tasks performed throughout the shift, rather than concentrated at the start or end. While a waitress washing a few dishes for five minutes while things are slow may be fine, having her wash dishes for 45 minutes straight may not be, especially if done regularly at the end of the shift.

Consequently, employers using the tip credit should consider the following:

  • The amount of non-tipped tasks assigned, to make sure tipped employees are performing tipped work at least 80% of the time.
  • When during the shift non-tipped tasks are performed.
  • Tracking the amount of non-tipped tasks, especially in cases where the employer believes the full minimum wage must be paid for such work.

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.

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