An Enhanced 80/20 Tipped Worker Rule is Back. Now is a Good Time for Employers to Dump the Tip Credit.
Earlier this year, I noted that the Biden Administration’s Department of Labor (DOL) had delayed the Trump Administration’s attempt to codify a rule on tipped workers who do “dual jobs” (both tipped and untipped work). The Trump DOL had attempted to codify a “reasonable time” standard first offered in a 2018 Opinion Letter in lieu of the longstanding rule that the tip credit was not available when workers performed more than 20% untipped duties. In September 2021, the Eleventh Circuit invalidated that Opinion Letter, finding it was not entitled to any deference and held that the traditional 80/20 Rule remained good law. The Administration had already scrapped the Trump administration’s December 2020 final rule before this ruling. Now, in a publication heading into the Halloween weekend, the DOL resurrected a version of this so-called “80/20 Rule” that should give hospitality employers pause about continuing to use the Fair Labor Standards Act (FLSA)’s tip credit.
Background on the “Dual Jobs” Regulation
Tipped employees do not always engage solely in tip-generating activities at work. The FLSA permits employers to pay $2.13/hour on secondary duties at least to some extent. Back in 1988, the DOL clarified the extent of this rule by adding to its Field Operations Handbook a policy that employers can only use the tip credit under the FLSA when the tipped employees spend less than 20% of their time on non-tip-producing activities, giving life to the the “80/20 Rule.” From 1988 until 2018, when tipped employees spent at least 20% of their workweek performing duties that support their occupation but don’t directly produce tips, their employers were required to pay them a direct cash wage of $7.25/hour for that work, instead of a direct cash wage of $2.13/hour (with the remainder made up by tips) that they could pay for tipped work.
In 2018, the DOL withdrew that interpretation in an Opinion Letter and set a “reasonable time” standard instead. Under the “reasonable time standard,” the DOL permitted employers to pay the $2.13/hour tipped wage on secondary duties for an unlimited amount of time, provided the tasks were related to the worker’s tipped occupation and performed “contemporaneously” or directly before or after any customer-facing tipped activities. The Biden Administration halted the DOL’s attempts to implement that rule, and the 11th Circuit cleared away the Opinion Letter. Now, the Biden DOL has proposed a new 80/20 rule that swings the balance more clearly toward tipped employees.
The Proposed Biden 80/20 Rule
The Biden DOL’s 80/20 Rule expands on what constitutes non-tipped work. The DOL split the “non-tipped” work category into two: work that “directly supports” tipped work and work that is not part of a tipped occupation. Per the final rule, work is “tip-producing” (the first of the three categories) if it “provides service to customers for which tipped employees receive tips.” Work is “directly supporting” (the second category) if it “is performed in preparation of or to otherwise assist tip-producing customer service work.” Any duties that are neither tip-producing nor directly supporting are not part of the tipped occupation (the third category).
The proposed rule offers some explicit guidance on the types of non-tipped work that are “directly supporting.” In general, the DOL tries to cabin tip-producing work into the category of specific work done for specific customers (even if not done in the presence of those customers). For example, the DOL uses a waiter who, in addition to waiting tables, must also fold napkins and brew coffee. Under a return to the 1988 version of the 80/20 Rule, if that tipped employee spends more than 20% of their work week performing such tasks, the employer must pay them a direct cash wage of $7.25/hour for that work. However, in addition to that, under the new version of the Rule, tipped workers will be owed the full minimum wage when fulfilling these direct support tasks for at least 30 continuous minutes, regardless of their weekly hours. Importantly, that time counts toward both calculations, just like laws that require paying overtime after both 8 hours a shift and 40 hours a week.
The DOL helpfully takes the clear position in the preamble to the proposed final rule that idle time while waiting for customer service activity is “directly supporting” work and is subject to the 30-minute and 20% limitations. Unpaid rest breaks would therefore be included in the “directly supporting” category and be subject to the 20% limit. Intermittent idle time during “slow” periods could be difficult to capture, though.
Problematically (at least for those of us who like clear rules), the DOL also tries to draw a line between preparing food and plating food in the rule. The agency does not do a very good job of it. The DOL says that tipped employees cannot perform any food preparation (like making salads), but then uses examples of tip-producing work that are clearly food preparation, like toasting bread, brewing coffee, and dressing salads. The rules around bussing are just as muddy–“pre-bussing” is tip-producing while bussing/resetting tables is “directly supporting” (but only for servers); pulling beer from a storeroom for a specific order is tip producing, but restocking beer after filling a specific order is directly supporting.
Employer Takeaways
The new Rule is scheduled to take effect on December 28, 2021, subject to inevitable legal challenges. Idle time computations will be very critical under the new rule. An employee with more than 30 continuous minutes of idle time will be eligible for the full minimum wage, in addition to that 30 minutes adding to the 20% calculation employers used before. With the added language around untipped work, employers will need to pay attention to exactly what customer-focused activities servers engage in to avoid pitfalls under the strengthened 80/20 Rule. Of course, nothing in the FLSA impacts heightened standards that states and localities may impose.
The biggest consideration for employers, particularly in the face of massive labor shortages in the hospitality industry: stop using the tipped wage exception altogether. Customers will pay for exceptional service experiences. Creating substantial FLSA compliance difficulties, underpaying servers, and impacting customer service just to try to cram in a $2.13/hour base wage is not going to attract or retain staff or customers. The DOL is clearly happy to make these waters muddy to provide hospitality employers with more incentive to improve wages and abandon the tip credit.
Now is a good time to take the hint.
