SimplyHR | Employment & Labor Blog 

Under the Fair Labor Standards Act (FLSA), when an employee is “engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips,” the employer may pay a reduced wage of $2.13 and claim a tip credit equal to the difference between the wage paid and the federal hourly minimum of $7.25, for a credit of $5.12. See 29 U.S.C. § 203(m). The 80/20 rule acted to limit use of the tipped wage rate of $2.13 per hour when a tipped worker spent more than 20 percent of his or her time on non-tipped work. Stated differently, employers could only apply a tip credit to time spent on non-tipped work if such duties did not exceed 20 percent of the employee’s time.

Pursuant to the DOL Field Operations Handbook section 30d00(e), employers are permitted to take a tip credit for time spent on duties related to the tipped occupation, even though such duties were not by themselves directed toward producing tips. However, where an employee is routinely assigned to non-tipped work or spends a substantial amount of time performing non-tipped duties, no tip credit may be taken. As the DOL notes in its Nov. 8 Opinion Letter, this caused some confusion. For example, in Fast v. Applebee’s Int’l, Inc., 502 F. Supp. 2d 996 (W.D. Mo. 2007), the court held the rule prohibited employers from taking a tip credit for duties unrelated to the tip-producing work and for duties related to the tip-producing work if the duties exceeded 20 percent of the employee’s working time. By contrast, the court in Pellon v. Business Representation Int’l, Inc., rejected the Fast court’s holding that the 20 percent limitation applied to related duties. 528 F.Supp.2d 1306 (S.D. Fla. 2007), aff’d, 291 Fed. Appx. 310 (11th. Cir. 2008). The Pellon court said, “nearly every person employed in a tipped occupation could claim a cause of action against his employer if the employer did not keep perpetual surveillance or require them to maintain precise time logs accounting for every minute of their shifts.” Pellon, at 1314.

In rescinding the 80/20 rule, the DOL said it does “not intend to place a limitation on the amount of duties related to a tip-producing occupation that may be performed, as long as they are performed contemporaneously with direct customer-service duties and all other requirements of the Act are met.” The DOL further said employers should determine upfront which duties are related and unrelated to a tip-producing occupation so they can comply with the FLSA. For reference, the DOL pointed to the Occupational Information Network website and says duties listed as core or supplemental for the appropriate tip-producing occupation in the Tasks section shall be considered directly related. For example, for waiters and waitresses, direct tasks can include duties such as sweeping, vacuuming and cleaning bathrooms. If a task is not contained on the Tasks list, employers may not take a tip credit for time employees spent performing those tasks.

What does this mean for employers with tipped workers? While employers no longer need to keep track of how much time their workers spend on certain tasks now that the 80/20 rule has been abandoned, employers should still make sure tipped employees are performing tasks related to the tip-generating work. If you have questions about specific tasks or would like more information on the DOL’s Opinion letter, please contact one of the attorneys in our Employment & Labor Department.