DOL Rescinds "80/20" Rule for Tipped Employees in November 2018 Opinion Letter

DOL Rescinds "80/20" Rule for Tipped Employees in November 2018 Opinion Letter

DOL, FLSA
November 19, 2018

On November 8, 2018, the Department of Labor (DOL) issued an Opinion Letter eliminating the “80/20” rule for tipped employees.  Under the Fair Labor Standards Act (FLSA), employers may pay tipped employees reduced wages and claim a tip credit to make up the difference between the reduced cash wage and the federal minimum wage. See 29 U.S.C. § 203.  An employee is “tipped” when he or she is “engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.” Id. 

The 80/20 rule essentially barred employers from paying employees that traditionally engaged in tipped work, such as servers and bartenders, below the minimum wage and taking a tip credit when the employees spent more than 20% of their workday on non-tipped work, such as on tasks like cutting fruit, wrapping silverware, and wiping down tables.  Once this rule was issued in 2011, however, employers and employees quickly began to quibble about the difficulties of tracking non-tipped and tipped work in a given workday, as well as what actually constituted tipped work versus non-tipped work. 

In rescinding the 80/20 rule, the DOL acknowledges that the rule created confusion and was enforced inconsistently. The Opinion Letter also gives employers clearer guidance on what constitutes related side work to tipped work and whether employers need to track such side work. The DOL now specifically states 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.” The DOL also placed the onus on employers to determine on the front end which duties are related and unrelated to tipped occupations so that they can comply with the FLSA. 

While the DOL’s about-face on the 80/20 rule brings welcomed clarity and some relief to employers with tipped employees, employers should remember to be diligent in evaluating their employees’ job duties. Employers who plan to claim tip credits should ensure that tipped employees are performing tasks relating to tip-generating work, as employees that are engaged in “dual jobs” are still entitled to receive the full minimum wage.  Dual jobs are things like cleaning the bathroom, washing dishes and cooking.  For those duties, minimum wage, without the tip credit, will likely be required in most circumstances.

Should you have any questions regarding wage issues for tipped employees, please contact Kellie Y. Chen, Dena B. Calo, or your designated Saul Ewing Arnstein & Lehr LLP attorney.