DOL Restores the 80/20 Rule for Tipped Employees and Creates a New Employee Wage Protection
On Friday, October 29, 2021, the Department of Labor (DOL) issued a final rule relating to wages of tipped employees. The rule aims to settle flip-flopping by different presidential administrations over the types of work tipped employees must be paid the full minimum wage. The new rule, which will become effective on December 28, 2021, restores the 80/20 rule and expands employee protections by also limiting sidework to 30 consecutive minutes.
Generally, employers must pay employees at least the federal minimum wage of $7.25 per hour, or a higher state minimum wage if applicable. However, employers of tipped employees can take a “tip credit” against the minimum wage. The tip credit allows employers to pay their employees as little as $2.13 per hour (this amount is higher in some states) so long as those employees receive enough tips to make up the difference.
This approach presumes that tipped employees receive a stable flow of tips and regularly spend their working hours engaged in tip-generating labor. This is not always the case, and there have long been disputes over whether employees are performing: 1) tip-producing work, 2) work that is directly related to tip-producing work but does not itself generate tips; in the restaurant industry, this type of work is referred to as “sidework,” or 3) duties that are not related to tip-generating activities at all.
Controversy Surrounding the 80/20 Rule
Prior to 2018, DOL took the position that an employee may be paid on a tip credit if the amount of sidework performed did not exceed 20% of their total working time. In other words, if a tipped server spent 20% or less of their time on sidework tasks, such as cleaning or preparing tables, rolling silverware, and folding napkins, employers could still take a tip credit against this time. This policy was known as the 80/20 rule. However, in November of 2018, the Trump-era DOL rescinded the 80/20 policy and subsequently issued an employer-friendly interpretation that utilized a reasonable time standard. The Trump-era interpretation was challenged by workers’ advocate groups who claimed that it would have reduced the overall pay of tipped employees. Now the Biden Administration has proposed its own rule, which was finalized on October 29, 2021, and takes effect on December 28, 2021.
The new rule provides examples and explains the circumstances under which an employer may credit tips against the full minimum wage.
- Tip-producing work includes all aspects of work performed by a tipped employee that provides service to customers for which the tipped employee receives tips. Examples of tip-producing work include a server providing table service, a bartender making and serving drinks, a nail technician performing manicures, and a hotel housekeeper cleaning hotel rooms. An employer may take a tip credit for employees who regularly perform this work.
- Sidework includes work that directly supports tip-producing activities but does not itself generate tips. Examples of sidework include a server refilling salt and pepper shakers, a bartender slicing fruit for drinks, a nail technician cleaning pedicure baths between customers, and a hotel housekeeper restocking the housekeeping cart. Employers may credit tips against all of this work, so long as the directly supporting work does not (1) exceed 20% of the employee’s total time; or (2) exceed 30 continuous minutes. The 80/20 portion of this rule was effective prior to 2018, but the “30 continuous minutes” portion is new.
Employees in dual jobs are those who perform work both in tipped occupations and nontipped occupations. Examples of work that is not tip producing includes a server preparing food for a salad bar or cleaning the kitchen or bathroom, a bartender cleaning the dining room, a nail technician ordering supplies for the salon, and a hotel housekeeper cleaning non-residential parts of a hotel like an exercise room. Employers may not credit tips against time that is spent in nontipped occupations, but may credit tips against time spent in tipped occupations.
Practical Considerations for Employers
- Employers who take a tip credit will need to ensure they are properly tracking the duties performed by their tipped employees. Ideally, this includes recordkeeping that shows the amount of time performing tipped work, and the amount of time performing sidework. The 80/20 rule has been the source of a tremendous amount of wage-hour class action litigation against restaurant employers. It will be interesting to see whether any legal challenges are successfully made to the new “80/20 or 30 minutes” rule. Notably, the FLSA itself does not identify a percent or minute threshold whereby an employee’s non-tipped work becomes so time consuming that the employer loses the tip credit. While the 80/20 rule has been the DOL’s interpretation of the FLSA, by and large courts have accepted it.
- Employers are well-advised to audit the duties performed by their tipped employees and to implement safeguards to prevent tipped employees from performing excessive sidework in violation of the 80/20 or 30 minutes rule, and to create recordkeeping systems that track the time so they can comply with the law and successfully establish defenses to wage-hour litigation.
For additional information and questions about how this new regulation may affect your business, please contact your Quarles & Brady attorney or: