The U.S. Department of Labor has issued proposed regulations that would reinstate the 80/20 rule applicable to the compensation of tipped employees. This rule has been the subject of great controversy over the years and had been eliminated by the Trump administration.
Tipped Employees and the Tip Credit. Under the FLSA, an employer of tipped employees can satisfy its obligation to pay those employees the federal minimum wage by paying those employees a lower direct cash wage (no less than $2.13 an hour) and counting a limited amount of its employees’ tips (no more than $5.12 per hour) as a partial credit to satisfy the difference between the direct cash wage and the federal minimum wage. (Notably, many states have enacted higher minimum wage rates, including for tipped employees, or have eliminated the tipped rate altogether). This partial credit is known as the “tip credit.” Tipped employees are those who customarily and regularly receive more than $30 per month in tips (including servers, bartenders, and nail technicians).
The 80/20 Rule’s Tangled History. Prior to the Trump administration, the DOL took the position that an employer may not take a tip credit for time an employee spends on non-tip producing duties if the time spent on those duties exceeded 20% of the employee’s workweek. This rule, known as the 80/20 rule, was rejected by the Trump DOL, which initially issued guidance, followed by formal regulations, providing that an employer may take a tip credit for any amount of time (without limitation) that an employee in a tipped occupation performs related non-tipped duties contemporaneously with their tipped duties, or for a reasonable time immediately before or after performing the tipped duties.
A number of courts, however, rejected the Trump DOL’s position and continued to enforce the 80/20 rule. And, immediately following the transition, the Biden DOL delayed the effective date of the Trump-era regulations. As discussed in our March 24, 2021 E-lert, it subsequently permitted parts of the new regulations to go into effect while further delaying other parts – including the provisions relevant to the 80/20 rule – for further consideration and possible revision.
Return to the 80/20 Rule, v. 2.0. In the new proposed rule, the Biden DOL seeks to reinstate the 80/20 rule with some modification. The proposed rule provides that if an employee performs work that directly supports tip-producing work either exceeding 20 percent of all of the hours worked during the employee’s workweek or (this is new) exceeding 30 continuous minutes, the employee is not performing labor that is part of the tipped occupation, and the employer may not take a tip credit for that time.
The DOL also provides examples of tipped and non-tipped work for three common categories of tipped employees:
- Servers’ tip-producing work includes waiting tables. Work directly supporting that work includes, for example, preparing items for tables or cleaning the tables to prepare for the next customers. It does not include, for example, cleaning the bathroom.
- Bartenders’ tip-producing work includes making and serving drinks. Directly-supporting work includes slicing and pitting fruit for drinks, but not, for example, cleaning the dining room or preparing food.
- Nail technicians’ work including performing manicures and pedicures. Directly-supporting work includes cleaning all the pedicure baths between customers, but not, for example, ordering supplies.
Next Steps. The DOL has set a 60-day period for public comment on its proposed Rule. Comments may be submitted here until August 23, 2021. Once the comment period has closed, the DOL will review the comments and may make revisions before issuing the Final Rule.