Department of Labor Eliminates 80/20 Rule for Tipped Employees

Things just got a little easier for employers with tipped employees.

Under previous U.S. Department of Labor rules dating back to the late 1980s, employers who used a tip credit to pay less than the federal minimum wage of $7.25 had to carefully track time employees spent performing side duties.

If that time exceeded 20 percent of the employee’s hours, those duties might be considered a dual job requiring full minimum wage rather than the $2.13 an hour for tipped employees. (Employers always have to ensure that tipped employees earn enough tips to make at least minimum wage, or make up the difference.)

That 80/20 rule sparked a considerable amount of confusion — and litigation. If untipped duties exceeded 20 percent of an employee’s time, the employer could be liable for a considerable amount of unpaid wages.

But an update to the Labor Department’s Wage and Hour Division Field Operations Handbook eliminates that rule and eases the burden on employers. Under the old rules, the focus was on whether particular duties were tipped, even if they were related to the tipped occupation. For instance, if a server spent enough time folding napkins, setting tables or other duties that aren’t directly tipped, the 80/20 rule could be triggered.

Under the new guidance, the focus is on whether the occupation itself is tipped, not the individual duties. As long as those duties are related to the tipped occupation and performed in the course of that occupation, or for a reasonable time immediately before or after, then the tip credit can be used.

As the opinion letter explaining the new rule states, “We do 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 and all other requirements of the Act are met.”

The new rule is sensible and clarifies an employer’s responsibilities. The section of the Fair Labor Standards Act the old rule was based on was designed to prevent employers from using the tip credit for employees with two separate jobs — like a server who also does maintenance work.

To be as safe as possible, employers should use the list of core and supplemental duties for tip-producing occupations in the Occupational Information Network (O*NET). Using the tip credit for time spent on other tasks could result in liability, unless the amount of time spent is so insignificant that it could not be precisely recorded for payroll purposes — what courts have considered de minimis.

If you have questions or concerns about the FLSA, the DOL, or these kinds of changes, contact the members of Gentry Locke’s Employment Law team.