DOL Abolishes the 80/20 Rule For Tipped Employees
ISSUE:
The Fair Labor Standards Act (“FLSA”) allows employers to pay tipped employees an hourly rate that is well below the minimum wage. Specifically, the FLSA allows employers to pay tipped employees $2.13 per hour in cash wages and to take a “tip credit” equal to the difference between the cash wages and the federal minimum wage, which is currently $7.25 per hour.
Tipped employees often work in the hospitality and service industries, where they regularly interact with clients and customers. But not all of their work involves customer interaction that is directly tip-generating. For example, a server often spends time cleaning and setting tables, toasting bread, making coffee, or preparing salads and appetizers. A bartender often spends time slicing and pitting fruit, cleaning and stocking the bar, or balancing cash receipts. In the restaurant industry, this work is referred to as “side work,” and it is a normal and customary part of the job.
It would be unlawful for an employer to label someone a “server” or “bartender,” but to primarily assign them side work. The FLSA does not expressly identify how much side work is too much. The Department of Labor (“DOL”) had attempted to provide clarity on this issue by stating that a tipped employee may not spend more than 20 percent of his or her time performing duties that are related to the job, but do not generate tips. This became known as the “80/20 rule.”
Courts and employers have struggled with applying this rule as there can be disputes over whether a particular duty is “tip-generating” or exactly how much time an employee has spent performing side work versus tip-generating work.
On November 8th, 2018, the DOL changed its interpretation and abolished the 80/20 rule. Under the DOL’s new interpretation, an employer may apply the FLSA’s tip credit to all hours worked by an employee in a tipped occupation. There will be no 20% limitation on the amount of “related but non tip-generating duties” so long as those duties are performed either contemporaneously with, or for a reasonable time immediately before or after the duties involving direct service to customers.
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IMPACT:
The new interpretation also makes it easier for employers to classify someone as a tipped employee. So long as an employee is genuinely performing the duties attendant to a tipped occupation, an employer may claim the tip credit.
Employers must be mindful, however, that employees who perform completely different or “dual jobs,” must be paid the full minimum wage for hours worked performing work in the non-tipped occupation. Employers must also ensure they are in compliance with state laws that have developed similar or more onerous requirements akin to the now abolished DOL 80/20 rule. Finally, the fate of DOL’s new rule is somewhat uncertain as it is not clear how courts will react, particularly those courts that previously found the 80/20 rule to be reasonable.
For more information on tipped employee wages, please contact your local Quarles & Brady attorney or:
- Christopher L. Nickels: (414) 277-5519 / christopher.nickels@quarles.com