Alert to Employers: Elimination of the "80/20" Tip Credit Rule

Alert to Employers: Elimination of the "80/20" Tip Credit Rule

The Fair Labor Standards Act (“FLSA”) permits employers to take tip credits toward their minimum wage obligations for tipped employees equal to the difference between the required cash wage and the federal minimum wage.   Under the “80/20 Rule” or “20% Rule,” which was established by the Wage and Hour Division of the United States Department of Labor (“DOL”), the tip credit was unavailable to employers for tipped employees who spent more than 20% of their time performing non-tip-generating job duties.  The 80/20 Rule required employers to pay workers minimum wage if they spent more than 20% of their time doing non-tipped work, such as setting tables, rolling silverware, and making coffee.

On November 8, 2018, the DOL re-issued a 2009 opinion letter regarding the tip credit which completely eliminates the 80/20 Rule.

The DOL advised that it no longer intends to place a limit on the amount of duties related to a tip-producing occupation that may be performed, so long as those duties are performed contemporaneously with direct customer-service duties.  The DOL has issued new guidance providing that determinations of whether particular job duties are part of a tipped occupation should be based on the following principles:

1. First, duties listed as “core” or “supplemental” for the appropriate tip-producing occupation in the “Tasks” section of the “Details” report in the Occupational Information Network (“O*NET”) must be considered directly related to the tip-producing duties of that occupation.   (see http://online.onetcenter.org or 29 C.F.R. § 531.56(e)). There is no limit on the amount of these duties that may be performed by tipped employees, as long as these duties are performed at the same time as those involving direct service to customers or for a reasonable time immediately before or after providing direct service to customers.   

2. Second, employers may NOT take a tip credit for time spent performing any tasks not contained in the O*NET task list.   

The DOL’s elimination of the 80/20 Rule will cause significant changes in the way tip credits are calculated.  While tipped employees still cannot spend a majority of their work doing non-tip-generating activities, the DOL’s recent guidance makes it far less difficult for employers to obtain tip credits.   

If you have any questions about the recent change in the DOL’s policy regarding tip credits, or any other labor and employment matter, please feel free to contact Thomas N. Ryan, Esq., Ursula H. Leo, Esq., Jessica A. Jansyn, Esq., or Nicole C. Tracy, Esq.