DOL Issues New Guidance for Hospitality Employers on Tipped Employees

Earlier this month, the U.S. Department of Labor (“DOL”) issued Opinion Letter FLSA2018-27 providing updated guidance to employers on how to pay tipped employees.  The new Opinion Letter abandoned the previous 80/20 tip credit rule. The DOL’s new guidance provides no limit on the amount of time a tipped employee spends on related non-tip-producing duties so long as such duties 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.”

The Fair Labor Standards Act allows employers to pay tipped employees (employees that customarily and regularly receive more than $30 per month in tips) at an hourly rate that is lower than the regular minimum wage. See 29 U.S.C. § 203(m).  Employers can pay tipped employees the lower tipped minimum wage and use the amount an employee receives in tips as a credit against the employer’s minimum wage obligation to the employee.  This “tip credit” makes up the difference between the regular minimum wage (currently $7.25) and the lower tipped minimum wage (currently $2.13).[1]

Under the DOL’s previous guidance, when an employee spent more than 20% of his or her time on non-tipped side work (i.e., rolling silverware, cleaning and setting tables, making coffee, etc.), the employee had to be paid the regular minimum wage rate and the employer could not take a tip credit for that time.  This became known as the “80/20 rule” and required restaurant and other hospitality employers to constantly monitor employees’ activities and time to the minute.

In the new Opinion Letter, the DOL overruled the 80/20 rule, stating that there is no limit to the amount of related side work that a tipped employee may perform, as long as such work is performed contemporaneously or immediately before or after direct tipped work.  To determine whether specific side work is considered “related” to direct tipped work, the DOL directs employers to the Occupational Information Network (O*NET), an online database with occupational definitions, job requirements, and other information.  For example, the DOL pointed to the Tasks section for waiters and waitresses on O*NET, which lists specific tasks such as bussing tables, answering phones, greeting and seating guests, filling salt and pepper shakers, rolling silverware, stocking supplies, etc.  If a tipped employee spends times on tasks that are not listed on O*NET, the DOL stated that, unless the time spent is de minimus, the employee must be paid the regular minimum wage rate and no tip credit can be taken for such time.  For new or unique occupations that qualify as tipped jobs but are not included in O*NET, the DOL instructs employers to look to similar occupations on O*NET.  For example, in the case of a teppanyaki chef, the DOL compares the related duties of a counter attendant in the restaurant industry.

In addition to the new guidance on time spent on tipped duties, the DOL also clarified the distinction between a tipped employee that performs related side work and a tipped employee that has a dual job.  A tipped employee that performs non-tipped work unrelated to the employee’s tipped work will be considered to have “dual jobs.”  The DOL provides the example of an employee that has dual jobs where a hotel employee works both as a server and a maintenance man.  In this 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.  For time spent by the employee working as a maintenance man, the employer cannot take a tip credit and must pay the employee the regular minimum wage.

The DOL’s Opinion Letter provides welcome guidance and flexibility to hospitality employers.  However, it remains to be seen how the new guidance will be applied in different jurisdictions.  Employers should continue to ensure that they are in compliance with current federal, state, and local laws, which often add additional requirements to employers.

If you have questions regarding the new guidance or need assistance in reviewing your employment policies, please check with legal counsel.  Here is contact information for our Labor and Employment attorneys across the U.S.

[1] The minimum wages listed are the current federal minimum wages.  In states or jurisdictions that have a higher minimum wage than the federal minimum wage, the Fair Labor Standards Act provides that an employee must be paid whichever is higher.  See 29 U.S.C. § 218(a).

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