DOL Eliminates “80/20” Tip Credit Rule

Originally published by Emily Harbison and Remi Balogun.

The Department of Labor’s newly issued opinion letter provides good news for employers who use tipped workers. On November 8th, the DOL reversed its previous “80/20” guidance on use of the tip credit. The tip credit permits employers to pay employees in tip-based positions, such as bartenders and waiters, a lower hourly wage than the federally mandated minimum wage (with the thought that earned tips will make up the difference). Under the previous “80/20” rule, employers were barred from paying the lower cash wage to tipped employees who spent more than 20% of their time performing non-tip generating duties such as setting tables or cutting lemons.

 

The previous “80/20” rule saddled employers with the unworkable burden of continually monitoring and accounting for how tipped employees spent their time. The rule sparked copious litigation about whether tipped employees’ non-tip generating duties accounted for 20% of the employees’ time. Recognizing the confusion and inconsistent application of the former rule, the DOL’s new guidance seeks to protect workers while enabling “employers to determine up front whether their actions are in compliance.”

In the opinion letter, the DOL discards the “80/20” rule and clarifies that it does not “intend to place a limitation on the amount of duties related to a tip-producing occupation that may be performed.” However, the rejection of these limits is conditioned on the duties being “performed contemporaneously with” or “for a reasonable time before or after” the employee’s direct service or tip-generating duties.

Even though the opinion letter eliminates the “80/20” rule, it maintains the dual jobs categorization, which applies where an employee takes on two positions, one a traditionally tipped role and the other a non-tipped role. Employers should still be mindful as employees engaged in dual jobs are entitled to the full minimum wage for time spent on the non-tipped job.

It remains to be seen how this new guidance will be applied, but the elimination of the “80/20” rule relieves employers of the taxing burden of monitoring and accounting for tipped employees tip and non-tip generating time.

For more, please reach out to your Baker McKenzie employment lawyer.

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.

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