Department of Labor Revives Controversial Policy on Tipped Workers
The U.S. Department of Labor gave new life to the so-called “80/20” Rule, which President Trump ended late in his presidency. Under the reinstated policy, which differs slightly from its prior iterations, when tipped employees spend at least 20% of their workweek performing duties that support their occupation but don’t directly produce tips, their employers are required to pay them a direct cash wage of $7.25/hour for that work, instead of a direct cash wage of $2.13/hour, with the remainder made up by tips. For the work performed that does customarily produce tips, these employees will continue to earn at their $2.13/hour rate.
The 80/20 Rule had been in continuous effect since 1988, until the DOL withdrew the rule in a November 2018 Opinion Letter in favor of a “reasonable time” standard. Under the “reasonable time standard,” the DOL permitted employers to pay $2.13/hour on secondary duties for an unlimited amount of time, provided the tasks were related to the worker’s tipped occupation and performed “contemporaneously” or directly before or after customer-facing tipped activities. Following President Biden’s election, in June 2021, the DOL issued a Notice of Proposed Rulemaking, seeking to reinstate the 80/20 Rule. Most recently, in September 2021, the U.S. Court of Appeals for the Eleventh Circuit ruled that the 2018 opinion letter was not entitled to deference, holding that the 80/20 Rule remained good law. The DOL’s Final Rule sounds the death knell for the “reasonable time” standard, at least for now.
In its Final Rule, the DOL offers more explicit guidance on the type of non-tipped side work considered subject to the Rule. As an example, the DOL offers a waiter who, in addition to waiting tables, must also fold napkins and make coffee. Under the 80/20 Rule, if that tipped employee spends more than 20% of their work week performing such tasks, the employer must pay them a direct cash wage of $7.25/hour for that work. In addition to the standards previously in place, under the newly issued Rule, tipped workers will be owed the full minimum wage when fulfilling side tasks for at least 30 continuous minutes, regardless of their weekly hours.
The new Rule comes into effect on December 28, 2021. What legal challenges the new rule might face remains to be seen. Please contact Stephanie Poucher or any member of Phelps’ Labor and Employment team if you have questions or need compliance advice and guidance.
