The U.S. Department of Labor (DOL) published its Notice of Proposed Rule Making (NPRM) regarding tipped employees. Rejecting the Trump administration’s proposed rules governing tip-credit employees performing non-tipped duties, the DOL proposes to adopt what is known as the 80/20 rule. The devil is in the details, and the DOL now limits the 20 percent of allowable non-tipped duties to only those duties that “directly support[] the tip-producing work.” This change is significant for employers because the DOL has narrowly defined what duties directly support tip-producing work. Additionally, if the tipped employee performs such work continuously for 30 minutes or more, full minimum wage must be paid for that time.
Partial Withdrawal and Replacement of Trump Administration’s Proposed Final Rules
The NPRM is the long-awaited publication of the DOL’s withdrawal and replacement of a portion of the Trump administration’s revisions to the Fair Labor Standards Act’s (FLSA) tip regulations: Tip Regulations Under the Fair Labor Standards Act (2020 Tip Final Rule). Specifically, the NPRM clarifies 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 final rule declares 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). With these proposed final rules, the DOL replaces the regulatory framework that determines what duties are part of the tipped employee’s occupation.
New Definition of Duties that Can Be Performed by Tipped Employees
Citing complaints that the prior regulations and the 2020 Tip Final Rule were unclear and asserting that they were unfair to industry employees, the DOL amends 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 is defined in the proposed final rules as “assists tipped employees perform work for which the employee receives tips.” See Prop. Reg. 531.56(f)(1)(ii). The DOL’s proposed final rules eliminate the use of O*NET to identify qualifying duties and instead provides examples within several key occupations including servers, bartenders and nail technicians. See Prop. DOL Reg. 531.56(f)(1) and (2). An example that directly supports a server is wiping down the table, but food preparation and cleaning bathrooms are provided as examples that do not directly support a server. Id. Additionally, a bartender can wipe down a bar, clean bar glasses and cut fruit to garnish drinks in support of the position, but cannot clean the dining room or prepare food. Id.
The DOL Adopts the 80/20 Rule
The DOL also moved the 80/20 rule from its status as sub-regulatory guidance to a proposed final rule because the DOL believes it serves as an “essential backstop to prevent abuse” of employees who are paid a sub-minimum wage. The 80/20 rule, which limited a tipped employee’s non-tipped duties to 20 percent of the employee’s aggregate time during the workweek, originated as internal guidance in the Wage and Hour Division’s Field Operation Handbook, but was rescinded by the Wage and Hour Division in 2018. See WHD Field Operations Handbook, 30d00(e) Revision 563 (Dec. 9, 1988); WHD Opinion Letter FLSA2018-27 (Nov. 8, 2018); see also FAB No. 2019-2 (Feb. 15, 2019) and WHD FOH Revision 767 (Feb. 15, 2019). Subsequently, several federal district court opinions, which the DOL cited as support in the NPRM, rejected the new Wage and Hour Division guidance. See Belt v. P.F. Chang’s China Bistro, Inc., 401 F. Supp. 3d 512, 533 (E.D. Pa. 2019); Berger v. Perry’s Steakhouse of Illinois, 430 F. Supp. 3d 397 (N.D. Ill. 2019).
The qualifications to be in a tipped occupation provided in the proposed final rule include the requirement that work that directly supports the tip-producing work is not performed for a “substantial period of time.” See Prop. DOL Reg. 531.56(f)(1)(iii). The DOL used the 80/20 rule to define a “substantial period of time.” See Prop. DOL Reg. 531.56(f)(1)(iii)(A). Accordingly, the proposed 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 that week.
Additional 30-Minute Rule Created
The requirement that tipped employees not perform duties that directly support the tip-producing work for a “substantial amount of time” was defined not only by the constraints of the 80/20 rule but also by an additional requirement that any such work that exceeds 30 continuous minutes be paid at a rate of pay not below minimum wage. See Prop. DOL Reg. 531.56(f)(1)(iii)(B). Periods during which an employee is paid at least minimum wage for 30 or more minutes of continuous work performing duties that directly support the tip-producing work are not counted toward the aggregate total to determine whether the 20 percent maximum threshold is met under the 80/20 rule.
Implementation
The Wage and Hour Division will be accepting public comment regarding the proposed final rules for 60 days, closing on Aug. 23, 2021. Consequently, the proposed final rules are subject to change.
The Bottom Line
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 these proposed final rules. The DOL believed excluding blocks of time exceeding 30 minutes from the 80/20 calculation will further reduce the likelihood that an employee’s supporting duties will surpass 20 percent of the aggregate workweek. The DOL explained this should reduce employers’ concerns over application of the 80/20 rule.
Considering the upheaval of the restaurant industry due to the COVID-19 pandemic, employers may find the new guidance regarding what duties directly support the tip-producing work insufficiently clear to apply the proposed final rule to the dynamic nature of many tipped employees’ jobs. While this overhaul of the tipped employee regulations may be well intentioned, it is poorly timed and inadequate for real-world application.
