DOL Restores 80/20 Rule for Tipped Employees

On Friday, October, 29, 2021, the Department of Labor (DOL) issued a final rule regarding how to determine which tipped employees may receive a “tip credit” in lieu of receiving the full minimum wage directly from the employer. The new rule restores the “80/20” rule rescinded under President Trump, requiring employers to pay employees at least the minimum wage if they spend more than 20% of their time working on tasks that do not specifically generate tips such as wiping down tables, filling salt and pepper shakers, and rolling silverware into napkins, or duties referred to in the industry as “side work.” The rule goes into effect on December 31, 2021 and the change represents continuation of a pattern that has continued across administrations with Presidents adopting and rescinding the rule over the past three administrations.

Under the Fair Labor Standards Act (“FLSA”) employees can satisfy the minimum wage requirements for tipped employees by paying them at least $2.13 per hour if the employees earn enough in tips to make up the difference between that wage and the full minimum wage. The difference is referred to a tip credit. Prior to the new rule change, employers relied on a “reasonableness” analysis to determine the appropriateness of using the tip credit.

The new 80/20 rule divides employee duties into three categories to determine whether an employee qualifies for the tip credit: 1) job duties that directly produces tips, 2) job duties that directly support tip-producing work, and 3) any other job duties. Under the new rule, any time spent performing the third category of work must be compensated at least at the full minimum wage without any tip credit being applied. Employers may only apply the tip credit to employees in the second category if it “is not performed for a substantial amount of time.” The DOL defines this standard as exceeding 20% of the employee’s workweek or performed for a continuous amount of time exceeding 30 minutes.

Watch for further developments regarding this new rule, as litigation challenging the regulation seems likely.