Department of Labor Removes 80-20 Tipped Work Rule

The federal Department of Labor’s Wage and Hour Division (WHD) provided updated guidance on its application of the “tip credit” rule for tipped employees who perform non-tip-generating tasks.

Tip Credit and the 80-20 Rule

As a brief reminder, the “tip credit” under the Fair Labor Standards Act (FLSA) allows an employer to pay a lower hourly rate to employees who are engaged in an occupation in which the employee customarily and regularly receives a certain amount of tips per month. The employer then uses a portion of the tips as a “credit” towards the required minimum wage amount.

An employee with two positions may only receive the tip credit for the position that generates tips (e.g., an individual who is sometimes a waiter and sometimes a janitor).

By contrast, some single positions involve both tip-generating and non-tip-generating duties (e.g., a waiter who also spends some time cleaning and setting a table). Through its enforcement guidance known as the Field Operations Handbook (FOH) at §30d00(e), the WHD had interpreted the FLSA and these “related duties” to mean that employers may not utilize the tip credit for non-tip-generating duties if those duties exceeded twenty percent (20%) of the employee’s working time. This was known as the 80-20 rule.

Rescinding the 80-20 Rule

In guidance released on November 8, 2018 as part of the WHD’s return to issuing opinion letters, the WHD rescinded the 80-20 rule. The WHD clarified that it does “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 Act are met.”

Moving Forward

The new guidance supersedes the formed guidance in the FOH, which the WHD is revising accordingly. The opinion letter also provided guidance to determine which duties are related and unrelated to a tip-producing occupation. The WHD will evaluate the following principles regarding an employee’s duties and whether they are directly related to tip-producing occupations.

• The duties listed as core or supplemental to tip-producing occupations in either the FLSA regulations at 29 CFR §531.56(e) or on the DOL-sponsored “O*NET OnLine”. There is “no limitation” to the amount of these duties that may be performed, “as long as they are performed contemporaneously with the duties involving direct service to customers or for a reasonable time immediately before or after performing” direct service to customers.
• The tip credit may not be used for any task not contained in the O*NET list, unless the task is subject to the de minimus rule in the FLSA regulations at 29 CFR §785.47.

The WHD’s former 80-20 guidance created a hard and fast enforcement rule involving when duties are “related duties” under the FLSA and its implementing regulations. The new standard should make it easier for employers to ensure compliance with the FLSA without onerous record-keeping requirements for the duties performed by tipped employees. Employers should, however, remain vigilant that the duties performed can be found above-referenced O*NET list.