DOL Releases New Opinion Letters: Tipped Employees and Non-Tipped Work, Hourly/Daily/Shift Compensation for Exempt Employees, and More


The Department of Labor (DOL) has released four new opinion letters on the Fair Labor Standards Act (FLSA). Opinion letters respond to a specific wage-hour inquiry to the DOL from an employer or other entity, and represent the DOL’s official position on that particular issue. Other employers may then rely on these opinion letters as guidance. This batch of opinion letters addresses tipped v. non-tipped work (the 20% or 80/20 rule), as well as various exemptions from the minimum wage and overtime requirements of the FLSA.

FLSA2018-27: Employers of tipped employees may pay a tipped wage of $2.13 and take a tip credit for the difference between the tipped wage and the minimum wage, currently $7.75. (Maryland and many other states and local jurisdictions have a higher minimum wage for both tipped and non-tipped employees). The FLSA recognizes that tipped employees may work dual jobs – one tipped and one non-tipped, and the tip credit may be applied only to the tipped job. It also recognizes that a tipped job may involve both tipped and related non-tipped tasks (such as maintenance and preparatory or closing activities), and the DOL has now reissued a 2009 opinion letter that rejects its previously imposed 20% limitation on the amount of non-tipped tasks that could be performed within a tipped job.

Under the now-rejected 20% or 80/20 rule for tipped employees, the DOL had taken the position that employers could not take the tip credit for time spent on non-tipped tasks if the tasks exceeded 20% of the employee’s work time. Now, however, the DOL states that, “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 [FLSA] are met.”

The DOL states that “Duties listed as core or supplement for the appropriate tip-producing occupation in the Tasks section of the Details report in the Occupational Information Network (O*NET) or 29 C.F.R. § 531.56(e) shall be considered directly related to the tip-producing duties of that occupation. For example, for waiters and waitresses, such tasks include preparing and clearing tables, sweeping and mopping floors, taking out trash, answering phones, rolling silverware, stocking service items, and filling condiment containers, among many others. If the task is not listed in O*NET, the employer may not take a tip credit for time spent performing that task – although such task may be deemed non-compensable under the de minimis rule (meaning that such little time is spent on the task that it need not be paid).

FLSA2018-25: Under the FLSA, employees are exempt from the minimum wage and overtime requirements if they meet the duties tests for the executive, administrative, or professional exemptions and they are paid on a salary basis. Exempt employees may also receive compensation on an hourly, daily or shift basis as long as they receive a guaranteed weekly salary of at least the minimum salary level (currently $455 per week) and “a reasonable relationship exists between the guaranteed amount and the amount actually earned.”

According to the DOL, “a reasonable relationship exists when the weekly guarantee is roughly equivalent to the employee’s usual earnings at the assigned hourly rate for the employee’s normal scheduled workweek.” (Internal quotations and other punctuation omitted). Under the FLSA regulations, such “reasonable relationship” exists when the ratio of actual earnings is in the range of 1.2 to 1.5 times the guaranteed salary. (E.g. weekly earnings of $600-$750 are reasonably related to a guaranteed weekly salary of $500). In the opinion letter, the DOL found that a 1.8 ratio of actual earnings to the guaranteed weekly salary exceeds the permissible ratio and is therefore not reasonably related.

The DOL also offered guidance on how to calculate “usual earnings” where an employee’s wages fluctuate widely and unpredictably from week to week. It found that calculating average weekly earnings during a calendar year was a “reasonable method” for determining the “usual earnings” for a “normal scheduled workweek.” (The DOL acknowledged that there are other reasonable methods as well, but did not identify them.) The DOL further warned that the “usual earnings” inquiry is employee-specific, and that calculating average earnings for an entire job classification or group of employee may not accurately reflect the earnings for a specific employee.

FLSA2018-26: The FLSA exempts employees of “seasonal amusement or recreational establishments” from its overtime requirements. In order to qualify for the exemption, there must be a separate establishment that is frequented by the public and intended for amusement or recreation.

The DOL found that the exemption applies to an operator of swimming pools that are located at hotel, motel, apartment and condominium buildings, provided that the pool facilities are physically separated from the host facility and may be frequented by non-residents, even if access is restricted to paying customers.

FLSA2018-24: The FLSA provides a partial overtime exemption for “public agencies,” which are defined as an agency of a state or political subdivision. Whether a private party should be considered a public agency depends on whether it is directly responsible to public officials or the general public, and whether the parties’ contract designates it as a State agency. In determining whether an entity is directly responsible to the public, the most important factor is whether public officials select and control the entity’s board of directors, with another important factor being whether the public officials hire and fire the entity’s employees.

Applying this test to non-profit, privately owned fire departments providing firefighting services to the public under contract with municipalities, the DOL found that the fire departments were not public agencies. The departments independently elect their board of directors, as well as purchase their own equipment, and exercise independent judgment and discretion over their operations. Moreover, their contracts designate them as independent contractors rather than state agencies.

The DOL rejected the proposition that state legislation could grant public agency status, as it would not alter the departments’ operational independence. Nor would state declarations necessarily control issues of federal law.