Out With The Old; In With The Original: DOL Re-issues 2009 Tip Credit Guidance

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Louis Britt

On November 8, 2018, the U.S. Department of Labor (DOL) re-issued an opinion letter abandoning the “80/20 Rule,” which prohibited employers from taking a tip credit if a tipped employee spent more than 20% of his or her working time on non-tipped work.

The opinion letter is a re-issuance of one previously published on January 16, 2009 by the Bush administration.  The letter, however, was withdrawn once President Obama took office. The DOL’s new guidance provides restaurant and hospitality employers with clarity and a more practical approach defining when a tip credit can be taken.

When the Issue Arises and Regulation under FLSA

The federal minimum wage is currently $7.25 per hour.  But, the Fair Labor Standards Act (FLSA) allows employers to pay their tipped employees not less than $2.13 per hour in cash wages as long as the employees receive sufficient tips to earn at least $7.25 per hour in both tips and hourly wages.  In short, it gives these employers a “tip credit” equal to the difference between the cash wages paid and the federal minimum wage. If a tipped employee is engaged in a different, non-tipped occupation for the same employer (such as a hotel employee who is both a waiter and a maintenance person), the employee is said to have “dual jobs” and must be paid the minimum wage for time engaged in the non-tipped occupation.

The DOL regulations recognize, however, that some tipped occupations, such as waiting tables, may involve both tip-producing and non-tip-producing duties without constituting a dual job that would require two methods of payment. For example, servers often spend time cleaning and setting tables, making coffee, rolling silverware, stocking service areas, and filling condiment containers, in addition to waiting tables. Until the re-issuance of the 2009 opinion letter, the DOL applied the 80/20 Rule in these situations. Published in its Field Operations Handbook (“FOH”), the rule declared an employer may only apply a tip credit towards workers’ wages when those workers spend less than 20% of their shift on tasks related to their job, but for which they are not tipped.

Out With 80/20; In With The Original, More Practical Approach

Litigation has been on the rise since the DOL adopted the 80/20 Rule in its FOH. Specifically, employees claimed they were not being paid for performing “related duties” over the 20% limit. Despite court confusion over what constituted “related work,” one thing was clear: compliance with the 80/20 limitation required constant monitoring by employers, effectively requiring them to track and time each job duty, from refilling salt and paper shakers to preparing checks, as well as necessitated their judgment calls as to whether each duty fell on the tipped or non-tipped side of the line.

Rejecting various court decisions that upheld the 80/20 Rule, the DOL, in its re-issued opinion letter, clarified that it will no longer cap 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. The letter further provides that “related duties” are those performed contemporaneously with direct customer-service duties, or for a reasonable time immediately before or after performing direct service duties, regardless of whether they involve direct customer service. Offering even further guidance, WHD directs employers to consult the Tasks section of Occupational Information Network (“O*NET”): duties listed as core or supplemental are “related duties” and those not listed are not related.

Bottom Line

Although the opinion letter––ousting the 80/20 Rule and embracing the more practical 2009 approach––may provide employers applying a tip credit with some relief from the monitoring and tracking requirements and ensuing litigation, employers’ problems are far from solved.  It remains to be seen how courts will interpret “contemporaneous” or “reasonable”; what courts will do when an occupation is not listed on O*NET; or whether courts will even choose to follow the DOL’s interpretive guidance.

Additionally, employers should be aware that the re-issued opinion letter only addresses the application of the 80/20 Rule under the FLSA. States such as Arkansas, Connecticut, Hawaii, Iowa, Maryland, New Hampshire, New York, Virginia and West Virginia have adopted their own 80/20 Rules and this re-issued DOL opinion letter will not affect these states’ laws or regulations.  Further certain jurisdictions, California in particular, do not permit a tip credit in any form.  Before making changes to your policies, it is important to consult with employment counsel to determine the effect of this opinion letter on your specific business needs.

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