DOL Helps Restaurants and Says Goodbye to the 80/20 Rule
In December of last year, the Department of Labor (“DOL”) issued new regulations that will take effect on March 1, 2021. This is the third in a four-part series explaining the major changes. (See my previous blogs on Tip Pools and Employers’ Use of Tips.)
This blog focuses on the DOL’s new position that it will no longer enforce the seemingly age old “80/20 Rule.” Briefly, the 80/20 Rule prohibited employers from taking a Tip Credit (aka- paying less than the minimum wage- usually $2.13 per hour) for “non-tip work” (rolling silverware, setting tables, cleaning etc.) , if that non-tip work accumulated to more than 20% of the individual’s duties.
So, if the individual was setting the table, rolling silverware, working on the displays of the restaurant, and that time spent on those tasks exceeded 20% of the individual’s time, then the employer had to compensate those employes the minimum wage (or higher) during the time they were performing this “non-tip” work.
As many restaurant owners will attest, this is an onerous standard and one that has proven difficult to measure.
Finally, the DOL is giving the restaurants a much needed break. The amendments to the regulations eradicate this vague standard. The Regulations outline two scenarios that help illustrate when the employer can use the Tip Credit and when it is not appropriate. Before delving into these scenarios let’s first review what a “Tipped Employee” is under the Fair Labor Standards Act (“FLSA”).
TIPPED EMPLOYEES
As discussed in my previous blog, Section 3(t) of the FLSA defines a Tipped Employee as an individual who regularly receives more than $30 a month in tips. Section 531.56(a) explains that when making the determination as to whether the individual is a tipped employee, that individual’s tips control. In other words, if the individual is part of a group which having a record of more than $30 a month in tips, that does not count. The individual themself must receive $30 regularly in tips each month.
SCENARIO 1: DUAL JOBS
The Regulations explain that there are in fact some situations where the employer must pay an individual the minimum wage (at least) and also can take the Tip-Credit for that person’s work. Section 531.56(e) explains that where an employee works in a “Dual Job”, in other words is a non-tipped worker in one capacity, and then works as a tipped worker in another, the employer must pay the minimum wage for the non-tipped work and may take a Tip-Credit for the tipped work.
The Regulation uses the example of an employee who is employed as a maintenance person in a hotel and also works as a waiter. In that situation, the individual must be paid at least the minimum wage for their work as a maintenance person. The employer may take the Tip-Credit for the work performed as a Waiter.
BOTTOM LINE: An employer cannot take the Tip-Credit when an individual is performing work that is unrelated to the tipped-producing occupation.
SCENARIO 2: DUTIES RELATED TO TIP-PRODUCING OCCUPATION
An employer may take the Tip-Credit when the employee spends time performing duties that are related to their tip-producing occupation, but are not themselves directed toward producing tips. The Regulations use examples of such “tipped related duties”:
Server cleaning tables
Server setting tables
Server toasting bread
Server making coffee
Server occasionally washing dishes
Server occasionally washing glasses
Counter Attendant preparing their own short orders
Counter Attendant taking turns being the short order cook
An employer can take the Tip-Credit (aka- pay employees below the minimum wage) while they perform Non-Tip Tasks, like the ones listed above, where these Non-Tip Tasks are performed “contemporaneously with [their] tipped duties, or for a reasonable time immediately before or after performing the tipped duties.”
The Regulations go even further and explain that a duty is presumed to be “tip-producing” if the duty is listed as a task in the description of the tip-producing occupation on the Occupational Information Network (O*NET).
What Does This Mean For Employers?
This is huge help to restaurants as it afford them the ability to take the Tip-Credit for work that they previously had to pay a minimum wage. Restaurants, and other businesses with Tipped Employees should review their current employees’ duties and identify which Non-Tipped Tasks are performed by "contemporaneously or within a reasonable time before/after the tipped duties.” After conducting this review, employers may find that they are able to take the Tip-Credit for more hours then before.
REMINDER: These regulations do not go into effect until March 1, 2021.