DOL’s Final Rule for Tipping Employees Resurrecting the “80/20 Rule” (and More) Comes into Force December 28 | Saul Ewing Arnstein & Lehr LLP
As employers in the service sector know, the Fair Labor Standards Act (FLSA) and its regulations issued by the United States Department of Labor (DOL) allow employers to take credit against their minimum wage obligations if an employee regularly receives tips. This is called a “tip credit”.
FLSA and DOL regulations have historically required employees to meet certain conditions in order for their employer to use tip credit, taking into account that employees rarely (if ever) only do work. generating tips. For many years, the DOL interpreted the FLSA as allowing employers to use tip credit as long as the employee spends at least 80 percent of their work time on tip-generating activities. This led to the concept known as the “80/20 rule”.
In October 2019 as long as the non-tip work is performed at the same time as the tip work, or within a reasonable time immediately before or after. (To learn more about the DOL prerequisite, you can read our original blog, here.
This change was short lived. On October 28, 2021, the DOL under the Biden administration announced a new final “duplication” rule [PEP2] is expected to come into effect on December 28, 2021. The new rule not only reinstates the 80/20 rule, but includes several other key elements:
Functional task test
The new rule incorporates what it describes as a “functional” test based on an employee’s tasks. This functional test divides an employee’s tasks into three different groups, and the rule provides examples of each:
- (Category 1) Advice production work: This is the work that the employee does directly by providing services to customers for which the employee receives tips. Examples are a waiter providing table service, taking orders, and serving food; a bartender serving drinks and talking to customers at the bar; and a busser filling water glasses, clearing dishes, and fetching and delivering items to the table.
- (Category # 2) Direct support work: This is work performed by a tip employee to prepare for or otherwise assist the customer service work producing tips. For example, a waiter fills salt and pepper shakers and ketchup bottles, rolls silverware, sweeps or vacuums under dining room tables, and sets tables; a bartender cutting fruit for drinks, wiping down the bar and bar tables, vacuuming the bar and cleaning glasses; and a busser folding napkins and rolling cutlery, cleaning ice makers, soda and food, and filling the busser station.
- (Category # 3) Work that is not part of the reported occupation: This is a job that is not part of the tipping employee’s job and that does not provide service to customers for which the employee receives tips. Examples are a waiter or busser preparing food, or cleaning the kitchen or bathrooms; and a bartender preparing food or cleaning the dining room, kitchen or bathrooms.
The “80/20 rule” revived (and revised)
The new rule reinstates the “80/20 rule” by providing that employers can use tip credit as long as 80 percent or more of the job generates tips, and no more than 20 percent directly supports the job. No tip credit can be used for any work that is not part of the employee’s tip occupation.
Regarding the above categories, employers who wish to use tip credit should ensure that employees spend at least 80% of their working time in category 1, not more than 20% of their working time. work in category 2, and none of their working time in category # 3. If an employee performs Category 3 work, they should be paid minimum wage for that period.
The rule confirms that the standard 20 percent calculation can be done on a weekly basis. Except that it gets a little more complicated …
“Important” work without tips is not subject to a tip credit
The rule states that employers cannot receive tip credit if the employee performs support work (category 2) for a “substantial period”. This is the same concept behind the “80/20 rule”; however, the new rule provides a new additional requirement:
The new rule establishes that an employer cannot use tip credit if an employee performs support work (category 2) for a period of more than 30 consecutive minutes. An employer can still take tip credit for the first 30 continuous minutes and incorporate that time into the 20 percent weekly analysis. However, employers must pay a minimum wage to an employee to support work performed after the first 30 continuous minutes have elapsed, which would then fall outside of the 20% weekly analysis (because the employee has already received minimum wage for this period). Supporting work done at intervals of less than 30 minutes spread throughout the work day would not invalidate tip credit, subject to the standard 20% weekly analysis.
For example, if an employee performs Category 2 work continuously for 45 minutes, the employer can take tip credit for the first 30 minutes, but must pay minimum wage for the last 15 minutes. The first 30 minutes would then be incorporated into the 20% weekly analysis, but not the last 15 minutes.
To complicate matters, the DOL also considers a tip employee’s downtime, such as during a customer slowdown, to be support work (category # 2).
Employers in the service sector must act quickly to deal with these new changes and modify any policies and training materials as necessary. While traditional 80/20 guarantees of compliance, such as employees acknowledging that they have not performed more than 20% of the work without tip, can be helpful, it will not be enough for employers to “go back” to their practices. prior to 2019. Particular emphasis should be placed on training managers to identify the three different categories of work to ensure that all employees are following their time appropriately and that work is not allocated from time to time. in a way that invalidates any tip credit. In addition, opening and closing procedures should be reviewed to ensure that tip employees do not spend long periods of time working without any customers present on site. In such cases, the work performed is likely to be considered in categories 2 and 3 and could adversely affect the employer’s tip credit.