DOL Issues Final Rule Reinstating and Modifying 80/20 Rule for Tipped Workers
The U.S. Department of Labor has issued its final rule reinstating the 80/20 rules and further limiting the amount of an employee’s non-tipped work time for which the employer may take a tip credit. This final rule takes effect on December 28, 2021.
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 DOL has recognized that many tipped workers serve in a “dual jobs” situation, in which they are employed in both a tipped and non-tipped occupation. The tip credit may be applied only against the time spent in the tipped occupation.
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. It then issued a proposed rule that sought to reinstate and modify the 80/20 rule, as discussed in our June 2021 E-Update.
The 80/20 Rule – 2021 version. In the new final rule, the Biden DOL clarifies that work that is part of the tipped occupation is the work that produces tips as well as a non-substantial amount of work that assists the tip-producing work. With regard to the assisting work, DOL reinstates the 80/20 rule with some modification. The final 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 final rule sets forth a definition for “tip-producing work” as “work that provides service to customers for which tipped employees receive tips.” The final rule also sets defines “directly supporting work” as a task that “is either performed in preparation of, or otherwise assists, the tip-producing customer service work.” And it further defines “work that is not part of the tipped occupation” as “any work that does not provide service to customers for which tipped employees receive tips, and does not directly support tip-producing work.” The final rule provides examples of each of these types of work for a non-exhaustive list of occupations: servers, bartenders and service bartenders, nail technicians, bussers, parking attendants, hotel housekeeper and bellhops, and food service/preparation counterpersons.
Conforming the Rule for Federal Contractors. Certain federal contractors and subcontractors are subject to Executive Order 13658, which establishes a higher minimum wage rate and tipped wage rate. The final rule also amends the regulations implementing the EO in order to conform the definitions of tipped-producing work, and “directly supporting work,” as well as to incorporate the modified 80/20 rule.