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U.S ends the 80/20 rule for tipped employees

November 13, 2018

By Robert E. Maclin III

The U.S. Department of Labor has undone the “tip credit provision,” what has colloquially been called the 80/20 rule.

On Nov. 7, 2018, the department issued an advisory opinion letter (FLSA 2018–17) that amends previous guidance regarding the tip credit provision, which addressed the payment of minimum wage and applies to employees who usually receive at least $30 per month in tips.

These tipped employees are not required to be paid the federal minimum wage (currently $7.25 per hour), but instead, only $2.13 per hour. In 2011, the department issued an opinion rescinding a 2009 opinion and instituting the 80/20 rule. With FLSA 2018-17, the department fully reinstated the prior 2009 determination. This will have far-reaching consequences for employers of tipped employees.

In order to understand the ramifications of this change, it is important to understand the old 80/20 rule, illustrated by the following example:  A server primarily engages in the act of serving customers—a tip-producing occupation. However, the server may engage in other work that does not directly generate tips, often called side work. This may involve folding napkins, wrapping silverware, cleaning tables and similar tasks. The 80/20 rule, at its core, mandated that if such non-tipped tasks exceed 20 percent of an employee’s duties, the employer would not be able to use the tip credit provision and could be required to pay the employee minimum wage. This led to numerous claims by employees that their collateral duties exceeded 20 percent of their working time, and they demanded to be paid full minimum wage.

Last week’s new guidance from the Department of Labor undoes the 80/20 rule. Now there will be no limitation on the amount of side work, provided those duties are related to the tip-producing occupation and are performed at the same time as direct customer service or tip-producing duties.

Note that this would not apply to employees who engage in dual occupations, rather than those who complete some non-tipped work related to their customer-service duties. For instance, the opinion letter cites the example of an employee who performs duties both as a waiter and as a maintenance man. The employer is not entitled to take the tip credit for the time that the employee works as a maintenance man, because it is not a tipped profession. The opinion is limited to work performed that is related to the tipped profession.

Also be advised that this determination applies only to federal minimum wage standards. Certain states and localities may have different laws and regulations concerning minimum wage.

Robert E. Maclin III, with McBrayer Law Firm, serves as NTA’s general counsel.

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