DOL Withdraws "80/20 Rule" for Tipped Employees

Author: Michael Cardman, XpertHR Legal Editor

November 13, 2018

The US Department of Labor (DOL) will no longer place limits on the amount of time that tipped employees spend performing duties - such as washing dishes or making coffee - that do not directly produce tips.

Under the Fair Labor Standards Act (FLSA), employers may count tips that wait staff, bartenders, bellhops, valets and other tipped employees receive toward their minimum wage obligations. Employers that wish to take advantage of the tip credit must pay a cash wage of at least $2.13 (and many states require a higher cash wage).

A DOL regulation permits an employer to take the tip credit for some time that the tipped employee spends in duties related to the tipped occupation (known in the industry as "sidework"), even though the duties are not by themselves directed toward producing tips. For example, a waitperson who spends some time cleaning and setting tables, making coffee, and occasionally washing dishes or glasses is considered to be engaged in a tipped occupation even though these duties are not tip producing.

Enforcement guidance from the DOL's Field Operations Handbook had prohibited an employer from taking a tip credit for time spent performing related duties / sidework if an employee spent more than 20% of his or her workweek performing related duties / sidework. Commonly referred to as the "80/20 rule," it was the basis for several lawsuits, including a recent challenge from the legal arm of the National Restaurant Association.

However, on November 8, 2018, the DOL issued an opinion letter superseding the 80/20 rule. It says the DOL will not limit the amount of related duties / sidework that may be performed as long as they are performed contemporaneously with direct customer-service duties and all other requirements of the FLSA are met.

The DOL outlined principles it will apply to determine whether a particular duty is part of a tipped occupation, including references to certain duties that will be considered directly related. For example, waiters and waitresses may stock service areas with supplies such as coffee, food, tableware and linens; and bartenders may clean glasses, utensils and bar equipment.