On October 8, 2019, the Department of Labor ("DOL") issued long awaited rules that could have a significant impact in the restaurant industry. The proposed rules would broaden employers' abilities pay tip credit wages for non-tipped work and to include both front and back of the house employees in certain tip pooling programs.
The Fair Labor Standards Act ("FLSA") requires employers to pay at least the federal minimum wage, which is currently $7.25 per hour. However, employers are allowed to pay a lower "tip credit" minimum wage to employees that regularly receive tips, by crediting some of the employees' tips to their minimum wage. Under the Obama-era 80/20 rule, employers could only take the tip credit for non-tipped activities that were no more than 20 percent of the employee's work. Thus, if a restaurant server was required to do side work for more than 20 percent of their shift, the employer could not take a tip credit if the non-tipped work exceeded the 20 percent threshold.
In November 2018, the DOL issued an opinion letter eliminating the 80/20 rule. Then, in February 2019, the DOL updated its Field Operations Handbook, to reflect the change in approach. Nonetheless, while the opinion letter provided non-authoritative guidance, it was often disregarded by courts addressing this issue in subsequent cases.
The proposed rule would codify the November 2018 opinion letter into a DOL rule, giving courts greater reason to enforce it. Under the proposed rule, an employer may take a tip credit for any amount of time that a tipped employee performs related non-tipped duties contemporaneously with his or her tipped work, or for a reasonable time immediately before or after performing the tipped duties. For example, if a server fills condiment bottles in between taking customers’ orders, the task would likely be considered "contemporaneous" with tipped duties. Likewise, wiping down tables at the end of a shift would likely be deemed a "reasonable time" immediately after the tipped work.
"The Department believes this policy is consistent with the plain statutory text, which permits employers to take a tip credit based on whether an employee is engaged in a tipped 'occupation,' not on whether the employee is performing certain kinds of duties within the tipped occupation,” the DOL's proposal states.
The proposed rule also addresses restrictions on tip pools and would allow employers who do not take a tip credit to utilize tip pools that include both tipped and non-tipped employees, such as back of the house staff. However, if the employer applies the tip credit, tip pools are limited to those employees who regularly receive tips. Moreover, the proposed rule reiterates current guidelines that prohibit managers and employers from participating in tip pools or retaining any of an employee's tips.
Although the proposed rule is still subject to change prior to its final implementation, employers in the restaurant and bar industry should monitor its passage and review their wage policies to confirm that they are in compliance.
Should you have any questions or if you would like to discuss how this rule would impact your company, please contact your regular Saul Ewing LLP labor and employment attorney.