U.S. Department of Labor Changes Rule for Tipped and Non Tipped Work
By John R. Hunt Attorney, Stokes Wagner Hunt Martez & Terrell, ALC | December 22, 2019
The U.S. Labor Department's Wage and Hour Division ("DOL") recently revoked its so-called "80/20 rule" for employees who receive tips. This "rule" had attempted to provide guidance about what happens where restaurant servers and other tipped employees work on tasks that don't directly generate tips, such as rolling silverware or wiping tables. The rule generally stated that where a tipped employee spent a "substantial amount of time (in excess of 20 percent) performing general preparation work or maintenance," the employer could not take a tip credit and needed to pay the employee the full minimum wage.
Unfortunately, the rule also resulted in an astounding amount of litigation against hotel and restaurant companies by employees who claimed they had spent over twenty percent of their time doing things besides waiting on customers. Although the DOL's new interpretation still poses some questions, it should stem at least some of the tide of wage and hour litigation in the hospitality industry.
To understand the significance of the change, some description of the rule's history is necessary. Hotel and restaurant employees were not originally covered by the Fair Labor Standards Act, the federal law that imposes minimum wage and overtime requirements. When hospitality employees finally came within the protection of the FLSA, Congress was concerned about how to treat those persons who received most of their income from tips. It eventually chose to allow employers to take a "tip credit" which permitted a hotel or restaurant to credit some, but not all, of the tips an employee had received during a workweek when determining whether the employee had been paid the minimum wage.
After a number of amendments to the law, Congress settled upon the current framework which in most states allows an employer to pay a cash wage of $2.13 per hour and take a credit of $5.12 in tips received by the employee toward meeting the present federal minimum wage of $7.25 per hour. This "tip credit," however, only can be used for those employees who work in an occupation in which they "customarily and regularly" receive tips, and receive over $30 per month in tips.
After the addition of the tip credit amendment to the FLSA, the DOL faced the question of what wage should be paid to an employee who works for the same employer in two different occupations, one of which traditionally receives tips and one which does not. For example, a hotel employee who splits his or her time between working as a restaurant server and a maintenance person. In consequence, the DOL issued a "dual jobs" regulation which stated that: "In some situations an employee is employed in a dual job, as for example, where a maintenance man in a hotel also serves as a waiter.
In such a situation the employee, if he customarily and regularly receives at least $30 a month in tips for his work as a waiter, is a tipped employee only with respect to his employment as a waiter. He is employed in two occupations, and no tip credit can be taken for his hours of employment in his occupation of maintenance man."