DOL Cancels 80/20 Rule for Tipped Employees

November 29, 2018

Lía Fiol-Matta, Esq., Ty Hyderally, Esq.

Are you a tipped employee in New Jersey or New York? If so, you should know that in a new opinion issued earlier this month, the US Department of Labor’s (DOL) Wage and Hour Division ended what is known as the “80/20 rule” for tipped employees. Under that rule, employers were barred from taking a tip credit for tipped employees, having to pay employees full minimum cash wages, if employees spent more than 20% of their time performing non-tipped activities. This frequently led to litigation by employees, often in collective actions, in which they claimed they were not paid the full minimum wage for performing services related but non-tipped duties over the 20% threshold.

The Fair Labor Standards Act (FLSA) allows employers to pay tipped employees at an hourly rate that is lower than the regular minimum wage. 29 U.S.C. §203(m). Federal law requires a wage of at least $2.13 per hour be paid to employees that receive at least $30 per month in tips. If wages and tips do not equal the federal minimum wage of $7.25 per hour during any week, the employer is required to increase cash wages to compensate. This is called a tip credit, which allows the employer to count all or part of an employee’s tips towards its minimum wage obligations, as if the employer had paid them directly to the employees.

New Jersey allows an employer to pay an employee less than minimum wage, so long as the worker’s salary plus tips is equal to the state minimum wage of $8.60. In New York, tipped workers currently make between $7.50 and $10.85 an hour without tips depending on where they live and the industry they work in. The minimum wage for all employees in New York varies between $10.40 and $13.00 depending on location and industry.

In a move that favors employers, the current administration has rescinded the 80/20 rule in opinion letter FLSA2018-27. Now, there is no limit on the amount of time a tipped employee may be assigned to perform related non-tip producing duties as long as they are “performed contemporaneously with the duties involving direct service to customers or for a reasonable time immediately before or after performing such direct-service duties.” Such side-work, which applies mostly to workers in the restaurant and hospitality industries,  may include tasks such as setting tables, making coffee, taking orders, preparing checks, stocking service areas, performing cleaning duties, describing and recommending wines or other beverages, answering phones to take reservations or take-out orders, providing guests with information on local areas, and many other tasks enumerated in O*Net Online, which FLSA2018-27 refers employers to for guidance on which duties are related to tipped activities.

The DOL also clarified the difference between a tipped employee performing related side work and a tipped employee with a dual job. Having a dual job is when a tipped employee also performs non-tipped work unrelated to the tipped work, as in the case of a hotel employee who is a server and also does maintenance work. In that case, the employer can take a tip credit and pay the employee the lower tipped wage only for time the employee worked as a server.

With the abandonment of the 80/20 rule, employers are allowed to assign tipped employees to perform related non-tipped work for any amount of time, paying the employees as low as $2.13 per hour in New Jersey and between $7.50 and $10.85 an hour in New York, while taking the tip credit. Restaurant and hospitality employers will now be relieved of wage and hour litigation that resulted from plaintiffs arguing violations of the 80/20 rule. If you are a tipped employee and wish to understand the new guidance issued by the DOL and how it may impact your employment, you may want to consider contacting an employment lawyer.

This blog is for informational purposes only.  It does not constitute legal advice, and may not reasonably be relied upon as such.  If you face a legal issue, you should consult a qualified attorney for independent legal advice with regard to your particular set of facts.  This blog may constitute attorney advertising.  This blog is not intended to communicate with anyone in a state or other jurisdiction where such a blog may fail to comply with all laws and ethical rules of that state of jurisdiction