On November 8, 2018, the Department of Labor (DOL) issued an opinion letter retracting the controversial “80/20 rule” for tipped employees. Under this rule, if a tipped employee spent more than 20% of his or her working time performing “non-tipped” duties, his or her employer could not take a tip credit for time spent performing those non-tipped duties. The rule caused years of confusion, especially among employers. After all, what duties exactly qualified as “non-tipped”? Would folding napkins in between waiting tables count? And were employers expected to track every second of an employee’s day to determine if those non-tipped duties exceeded 20% of the total workday?
Under the DOL’s latest opinion letter on this issue, it has made clear that the it “do[es] 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 [Fair Labor Standards] Act are met.” Accordingly, employers should be able to breathe at least a sigh of relief. So how did we get here, and what should employers be able to expect in the new year?
By way of background, under the Fair Labor Standards Act (FLSA), “tipped employees” are defined as those employees who customarily and regularly receive more than $30 a month in tips. Employers can pay tipped employees a reduced cash wage (currently set at $2.13 under the FLSA) and claim a “tip credit” to make up the difference between the reduced cash wage and hourly minimum wage (currently set at $7.25 under the FLSA). When the DOL first published its regulations applying the tip credit back in 1967, it created a distinction for employees who had “dual jobs.” The regulations provide that, for employees who engage in two jobs for the same employer, employers can take the tip credit only for the tipped job (i.e., the one routinely satisfying the $30-a-month provision). By way of example, if a hotel maintenance worker also works as a waiter at the hotel, only the worker’s job as a waiter could be subject to the tip credit. Then, in 1988, the DOL revised its Field Operations Handbook (FOH), vastly broadening the scope of its “dual jobs” distinction by applying it to dual tasks. It stated that when “tipped employees spend a substantial amount of time (in excess of 20 percent) performing preparation work or maintenance, no tip credit may be taken for the time spent in such duties.” This provision eventually came to be known as the “80/20 rule.”
While there has been some back-and-forth on this interpretation, since 2011, the DOL has enforced the “80/20 rule.” With its new opinion letter (which is a reissuance of a short-lived opinion letter from 2009), however, the DOL has eliminated the “80/20 rule” and provided guidance to employers so that they can determine on the front end which duties are related, and which duties are unrelated, to a tip-producing occupation. According to the DOL, the determination that a particular duty is part of a tipped occupation should be based on the following principles:
- Duties listed as core or supplemental for the appropriate tip-producing occupation in the Tasks section of the Details report in the Occupational Information Network (O*NET) must be considered directly related to the tip-producing duties of that occupation. The DOL states that no limitation can be placed on the amount of these duties that may be performed, whether or not they involve direct customer service, as long as they are performed contemporaneously with the duties involving direct service to customers or for a reasonable time immediately before or after performing such direct-service duties.
- Employers may not take a tip credit for time spent performing any tasks not contained in the O*NET task list. The DOL notes, however, that some of the time a tipped employee spends performing tasks that are not listed in O*NET may be subject to the (e.g., time spent clocking out might be considered de minimis, and therefore may be disregarded in recording working time).
Accordingly, employers can now reference, with ease, the O*NET system to determine which duties fall within the scope of a tipped occupation, and do not have to stress over tracking every second of non-tipped work performed by a tipped employee to ensure they remain below the 20% bar. Nonetheless, there are questions left to be answered. No list is ever exhaustive, and while the DOL includes a savings-type footnote recognizing so, it remains to be seen how emerging duties and/or occupations will be treated. For now, however, employers can ring in the new year with greater clarity and peace of mind so far as tipped employment is concerned.