On Friday, the U.S. Department of Labor (DOL) published its Final Rule governing tipped employees. The DOL kept the sweeping changes to the regulation of employees paid using a tip credit wage, which it introduced this past June in its Notice of Proposed Rulemaking (NPRM). Buttressed by the 11th Circuit’s recent decision in Rafferty v. Denny’s, Inc., which adopted the 80/20 rule, the DOL changed little from the NPRM despite considerable pushback from industry interests. The DOL codified the 80/20 rule and now limits tipped employees’ performance of duties that directly support the tip-producing work to 20 percent of the workweek and no more than 30 continuous minutes. Work that falls outside these limits and work that does not qualify as either tip-producing work or directly supporting work must be paid at full minimum wage.

Amendments Proposed in the NPRM – Duties

The NPRM proposed to replace the regulatory framework that determines what duties are part of the tipped employee’s occupation. Specifically, the NPRM clarified that a tipped employee who performs duties that are not part of the tipped employee’s occupation is disqualified from the tip credit wage because he or she is no longer meeting the requirement of working in a “tipped occupation.” See 29 U.S.C. § 203(t). The key proposed amendment declared that “an employee is only engaged in a tipped occupation under 29 U.S.C. § 203(t) when the employee either performs work that produces tips, or performs work that directly supports the tip-producing work, provided that the directly supporting work is not performed for a substantial amount of time.” See Prop. DOL Reg. § 531.56(f).

The devil was in the detail, because the DOL proposed to amend the current wording of the regulations so that duties that are part of the tipped employee’s occupation are no longer those that are “related” to the tipped occupation, but only those that “directly support the tip-producing work.” Compare 29 C.F.R. § 531.56(e) with Prop. DOL Reg. § 531.56(f)(1). This was defined in the proposed Final Rule as “assists tipped employees perform work for which the employee receives tips.” See Prop. Reg. § 531.56(f)(1)(ii).

Changes in Final Rule – Duties

The DOL modified the definition of tip-producing work in the Final Rule to encompass “any work performed by a tipped employee that provides service to customers for which the tipped employee receives tips.” 29 C.F.R. § 531.56(f)(2)(i). The definition of directly supporting work was similarly modified in the Final Rule to include “work performed by a tipped employee in preparation of or to otherwise assist tip-producing customer service work.” 29 C.F.R. § 531.56(f)(3)(i). The definition of work that is not part of the tipped occupation also was modified to reflect the customer-centric definition of tip-producing work. See id. at 531.56(f)(5).

The DOL asserts that the definition of tip-producing work should be broadly construed. 86 Fed. Reg. 60,114, 60,115 (Oct. 29, 2021). Additionally, the DOL explained that it intended tip-producing work “to encompass any task logically included within the scope of that tip-producing work.” Id. at 60,126. The DOL clarified that tip-producing work “includes all aspects of the service to customers for which the tipped employee receives tips.” Id. at 60,128. In contrast, the DOL explained that directly supporting work “is either performed in preparation of or otherwise assists the tip-producing customer service work.” Id. at 60,126. For advice on interpretation, the DOL suggests employers and employees ask “whether the task is work that provides service to customers for which tipped employees receive tips” to determine whether it is tip-producing work, and to ask “whether the task is either performed in preparation of, or otherwise assists, the tip-producing customer service work” to determine whether it is directly supporting work. While this may or may not be a helpful exercise, the DOL provides both definitions with an expanded number of examples, adding more clarity.

Key Illustrations

The DOL provides many examples in the Final Rule as well as within the specific amended regulations. Several instructive examples are repeated here:

• A bartender’s tip-producing work of preparing drinks may include generally talking to the customer seated at the bar and ensuring that a patron’s favorite game is shown on the bar television. 86 Fed. Reg. at 60,128.
• A server’s tip-producing work includes bringing a highchair and coloring book for an infant seated at their table. Id.
• A bartender who retrieves a particular beer from storage for a specific customer request is performing tip-producing work, but a bartender who retrieves a case of beer from the storeroom to stock the bar in preparation for serving customers is performing directly supporting work. Id.
• A server who folds napkins while waiting for her last table to pay their bill is performing directly supporting work. Id.
• A server wiping down a spill on a customer’s table is performing tip-producing work, but a server assigned to clean around the beverage station is performing directly supporting work. Id.
• A busser resetting tables during table service in between customers is performing tip-producing work, but a busser setting tables, folding napkins, and rolling silverware before the restaurant opens is performing directly supporting work. Id.
• Servers assigned general tasks such as filling condiment containers “to be completed during . . . lulls in customer service” are performing directly supporting work. Id. at 60,133.

Pandemic Changes in Restaurant Services

Responding to industry feedback, the DOL recognized that the pandemic has changed the nature of tipped work and the types of duties performed for customers. Specifically, the DOL asserted that its modified customer-centric definition of tip-producing work should incorporate changing duties such as servers taking to-go orders on the telephone and providing the customer with a carryout meal. Id. at 60,126.

80/20 Rule Codified

The 80/20 rule, which limited a tipped employee’s nontipped duties to 20 percent of the employee’s aggregate time during the workweek, originally proposed in the NPRM, is now codified in the Final Rule. The qualifications to be in a tipped occupation provided in the Final Rule include the requirement that work that directly supports the tip-producing work is not performed for a “substantial period of time.” See 29 C.F.R. § 531.56(f)(1)(ii). The DOL used the 80/20 rule to define a “substantial period of time.” Id. at 531.56(f)(4). Accordingly, the Final Rule requires that tipped employees work no more than 20 percent of their total aggregate time during the workweek on duties that directly support the tip-producing work. Employees who exceed this maximum threshold must be paid the full minimum wage “for directly supporting work that exceeds the 20 percent tolerance.” Id. at 531.56(f)(4)(i).

30-Minute Rule Codified

The requirement that tipped employees not perform duties that directly support the tip-producing work for a “substantial amount of time” was defined in the Final Rule not only by the constraints of the 80/20 rule, but by an additional requirement that, if any such work exceeds 30 continuous minutes, “the employer cannot take a tip credit for any time that exceeds 30 minutes.” Id. at 531.56(f)(4)(ii) (emphasis added). The italicized portion of the section above reflects a modification in the Final Rule described by the DOL as a “tolerance for the first 30 minutes of continuous non-tipped, directly supporting work” allowing the employer to take a tip credit for “this time that does not exceed 30 minutes, subject also to the 20 percent workweek limit.” 86 Fed. Reg. at 60,136. Furthermore, “[t]ime in excess of the 30 minutes, for which an employer may not take a tip credit, is excluded in calculating the 20 percent tolerance.” 29 C.F.R. § 531.56(f)(4)(ii). The DOL believes this will alleviate the need to constantly monitor directly supporting work. 86 Fed. Reg. at 60,137. Notably, employers are not required to keep time records of directly supporting work. Id.

Implementation

The Final Rule will be effective on Dec. 28.

The Bottom Line

The modifications from the NPRM to the Final Rule do not significantly change the overhaul of the tipped employee regulations that are now codified by the DOL. The DOL both narrowed the scope of what duties can be performed by a tipped employee and set a limit on the amount of time in which those duties can be performed. Thus, the duties a tipped employee can perform within the tipped employee occupation clearly have been limited by the Final Rule. While a broader customer-centric definition of tip-producing work is helpful, it still does not reflect the dynamic nature of many tipped employees’ jobs. As the hospitality industry grapples with COVID-19 realities and labor shortages, the Final Rule creates yet another hurdle.