US Department of Labor Issues Opinion Letter Eliminating 80/20 Tip Credit Rule

Contributed by Paula Lopez.

On November 8, 2018, the U.S. Department of Labor (“DOL”) issued several opinion letters, one of which provides clarity for employers as to when they may claim a tip credit on wages paid to tipped employees for time spent on non-tip-generating duties.  Opinion Letter FLSA2018-27 addresses the application of  29 U.S.C. § 203(m) to tipped employees involved in performing related “dual jobs” and/or duties related to their tipped position.  The DOL Opinion Letter eradicates what was known as the 80/20 rule by eliminating the time limitations for how long a tipped employee may spend performing non-tip-generating duties before the employer loses the right to claim a tip credit.  Previously, DOL and court’s adhering to DOL guidance took the position that under the Fair Labor Standards Act “tipped employees who spend a substantial amount of time or more than 20% of their [working time], engaged in related but non-tipped producing work must be paid the full minimum wage for the time spent performing the non-tipped work.”

Pursuant to the recent DOL Opinion Letter, the DOL will not place a limitation “on the amount of duties related to a tip-producing occupation that may be performed, so long as they are performed contemporaneously with direct customer-service duties and all other requirements of the Act are met.”  In determining whether a particular duty is related to a tipped occupation, the DOL states that “[d]uties listed as core or supplemental for the appropriate tip-producing occupation in the Tasks section of the Details report in the Occupational Information Network (O*NET), http://oneline.onecenter.org or 29 C.F.R. § 531.56 (e) shall be considered directly related to the tip-producing duties of that occupation.” The DOL will not place a limitation “on the amount of these duties that may be performed, whether or not they involve direct customer service, as long as they are performed contemporaneously with duties involving direct service to customers or for a reasonable amount of time immediately before or after performing such direct-service duties.”  The DOL’s opinion letter also states that employers may not claim a tip credit for tasks not included in the O*NET task list but did leave an opening for employers to argue that the amount of time spent on such tasks are de minimis.  Lastly, the DOL noted that in instances where there is no O*NET task list, “the duties usually and customarily performed by employees in that specific occupation shall be considered “related duties” so long as they are consistent with duties performed in similar O*NET occupations.”

In a press release announcing the issuance of the opinion letter, the U.S. DOL expressed an intent to provide “meaningful compliance assistance to help employees understand their rights and ensure employers have the tools they need to comply with federal labor law.” While the DOL Opinion Letter is favorable to employers in the restaurant industry, many states, like New York, have adopted their own regulations setting limitations on the time a tipped employee may be required to perform non-tip-generating duties.  Employers in such jurisdictions should be mindful to ensure their policies comply with both State and Federal law.

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