Earlier this month, the Department of Labor issued an opinion letter ending the “80/20 rule” for whether employers could take a tip credit on employees who performed both tipped and non-tipped work. (FLSA2018-27.) The rule prohibited employers from taking a tip credit on the minimum wage if the employee’s non-tipped work consumed more than 20 percent of the employee’s work. In the opinion letter, the DOL stated that it would not “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.”
The opinion letter goes on to list several principles it will apply to determine whether a particular duty is part of a tipped occupation. First, The DOL stated that it would consider duties listed as “core or supplemental for the appropriate tip-producing occupation” in O*NET’s Tasks section as “directly related to the tip-producing duties of that occupation.” For example, under the report for food servers, O*NET lists side work tasks such as:
- cleaning and setting up tables,
- rolling silverware,
- sweeping and mopping floors, and
- filling salt, pepper, sugar, and condiment containers.
Thus, per the opinion letter, employers can take a tip credit for servers who perform such tasks, even if they spend more than 20% of their time doing so. As the opinion letter explains: “no limit shall be placed on the amount of these duties that may be performed … as long as they are performed contemporaneously with the duties involved direct service to customers or for a reasonable time immediately before or after performing such direct-service duties.”
Second, the DOL stated that “employers may not take a tip credit for time spent performing any tasks not contained in the O*NET task list.” However, the DOL noted that some tasks “not listed in O*NET may be subject to the de minimis rule.”
In withdrawing the 80/20 rule, the DOL cited “confusion and inconsistent application.” Indeed, the 80/20 rule triggered a surge of class action lawsuits from employees claiming they performed too many non-tipped duties for their employer to properly take a tip credit.
Key Takeaway: Although employers no longer need to track the amount of time their tipped employees spend on non-tipped tasks (according to the DOL), employers should still carefully evaluate and periodically audit tipped positions to determine whether they qualify for the tip credit under all of the requirements in 29 USC § 203(t) and the related regulations. Employers must remember that the DOL’s opinion letters do not carry the force of law and thus must continue to monitor state and federal court decisions analyzing the application of the tip credit to ensure compliance. Employers must also continue to consider specific state-law differences that may affect the analysis, particularly in California.