Rules surrounding tipped employees have long been a source of confusion. One rule in particular—the 80/20 rule—is an example of a confusing rule for employers who have tipped employees on staff. On November 8, 2018, in an effort to minimize confusion, the U.S. Department of Labor issued an opinion letter directly related to the business of paying tipped employees. In the letter, the U.S. Department of Labor does away with the 80/20 rule and replaces it with a new rule.
What is the 80/20 Rule?
The 80/20 rule allowed the employer to take a tip credit toward minimum-wage for a tipped employee as long as the employee did not spend more than 20% of his or her time on non-tip generating duties. But what exactly does that mean? The meaning was unclear and led to a lot of costly litigation, including class actions, and the courts sometimes interpreted the meaning differently. For instance, there was considerable litigation over which duties could be considered non-tip generating duties and how much time employees spent on such duties. Moreover, some courts said that if any employee spent more than 20% of his or her time on non-tip producing duties the employer could not take the tip credit for all of the hours worked, while some said that the tip credit could not be applied only the time spent on non-tip producing duties.
What is the new Rule?
The new rule explains that the DOL 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.” Rather, the determination of whether a particular duty is part of a tipped occupation should be decided based upon:
- 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) http://online.onetcenter.org or 29 C.F.R. §531.56(e) shall be considered directly related to the tip-producing duties of that occupation. No limitation shall be placed on the amount of these duties that may be performed, whether or not they involve direct customer service, as long as they are performed contemporaneously with the duties involving direct service to customers for a reasonable time immediately before or after performing such direct-service duties.
- Employers may not take a tip credit for time spent performing any tasks not contained in the O*NET task list.
Employers should become familiar with the Opinion Letter for further details. A full version of the newest Opinion Letter, can be found here.
How Does the New Rule Affect Employers and Employees?
The new rule does not limit the amount of duties that a tipped employee can perform along with direct customer-services duties provided the duties are listed on O*NET task list for the employee’s position. However, employers may not take a tip credit for duties that are not on the task list for the particular position.
In order to ensure employers are following all necessary protocol before taking a tip credit, the employer should review O*NET for all tipped positions to ensure that the credit is not taken for any tasks not listed for the employee’s position. Failure to do so could result in liability for the employer.
By: Kendra Presswood
Kendra Presswood is an attorney in the Labor & Employment Law and Business Litigation Practice Groups. If you have any questions or concerns about this issue or any other matter, please contact Kendra directly at 813-223-1099.