Employers should continue to track and keep records of the percentage of time tipped wage earners spend performing non-tip eligible tasks, as the U.S. Department of Labor (DOL) has pressed pause on several provisions of the Trump Administration’s 2020 Final Rule addressing Tip Regulations under the Fair Labor Standards Act (FLSA). Among the provisions paused is one that effectively eliminated the so-called “80/20” Rule and allowed an employer to still take a tip credit for certain non-tipped duties.
The DOL’s 2020 Final Rule (the “Final Rule”) addressing myriad of FLSA tip regulations was issued in December 2020 and set to go into full effect on April 30, 2021. However, on the eve of the effective date, the DOL announced that it was delaying implementing three parts of the Final Rule, specifically: (i) the “80/20” Rule under the “dual jobs” provisions of the FLSA regulations as it concerns tipped workers; and (ii) two aspects concerning the DOL’s ability to assess civil money penalties, until December 31, 2021. The other portions of the Final Rule were given the greenlight by the DOL effective as of April 30, 2021.
First, the DOL will reconsider the application of the FLSA tip credit to tipped employees who perform tipped and non-tipped work. Under FLSA regulations, the so-called “80/20” Rule limited the percentage of time (i.e., 20%) that a tipped worker could spend performing non-tipped duties, but for which the employer could still take a tip credit. For example, if a tipped employee spends more than 20% of his or her time during a workweek performing duties that are not directly related to generating tips, such as a server rolling silverware or cleaning and setting dining tables, the employer may not take a tip credit for the time spent performing those tasks.
The proposed Final Rule eliminated any percentage time limit and would have allowed employers to continue to take a tip credit for any non-tipped work that a tipped employee performed so long as such non-tipped tasks related to the employee’s tipped occupation and the work was performed “contemporaneously with” or “for a reasonable time immediately before or after” the employee’s tipped work. However, under the Biden Administration, the DOL had numerous concerns with this limitation of the 80/20 Rule. Specifically, the DOL indicated that removing the percentage of time that a tipped employee could perform related non-tipped duties might present a situation where a tipped employee was actually engaged in a non-tipped occupation. In other words, the DOL seemed concerned that under the proposed Final Rule employer’s might be able to pay a lower tip credit wage rate for non-tipped related jobs. The DOL also noted that certain of the terms used in the Final Rule, such as “contemporaneous” and “reasonable time,” may not be adequately defined. We will stay tuned, but it appears that the DOL will likely modify the “80/20” Rule yet again in some shape or form.
In the meantime, employers should be mindful that while the “80/20” Rule under federal law may be in a state of flux, some states, like New York, have their own version of the “80/20” Rule so employers should ensure that they are complying with applicable state law as it concerns tipped employees and the types of non-tipped duties they might perform on a daily or weekly basis.
Second, under the Trump Administration’s proposed Final Rule, the DOL would have only been permitted to assess civil money penalties against employers for “keeping tips” under circumstances involving repeat or willful violations. However, under the Biden administration, the DOL seems to believe that a willfulness finding is not required for the DOL to assess civil money penalties when employers unlawfully keep employees’ tips. Should the DOL ultimately remove such requirement, it would make it easier for the DOL to impose penalties when an employer wrongly keeps employees’ tips.
Lastly, the DOL will also take a further look into the Final Rule’s assessment of civil money penalties for “willful” FLSA violations. The DOL noted that until the proposed Final Rule, the DOL’s regulations provided that an employer would have been considered to have known of its wrongful conduct if, among other things, the employer received advice from the DOL’s Wage and Hour Division that the conduct in question was not lawful. Additionally, the DOL’s regulations also considered an employer’s conduct to be in “reckless disregard” of the FLSA if the employer should have inquired further whether its conduct was compliant with law, but failed to do so. Under the Trump Administration’s proposed Final Rule, the meaning of “reckless disregard” would have been deleted. Further, under the proposed Final Rule, it appears that only an employer’s receipt of advice from the Wage and Hour Division could demonstrate an employer’s knowing violation of the FLSA. In reconsidering this part of the Final Rule, the DOL stated it had serious concerns with: (i) removing the meaning of “reckless disregard” from the regulations, which could inadvertently suggest that an employer’s failure to inquire further about the lawfulness of its conduct when it should have would not qualify as a willful violation of the FLSA; and (ii) limiting an employer’s receipt of advice from the Wage and Hour Division as the only basis for demonstrating a knowing violation of the FLSA. The DOL stated it was going to review this aspect of the Final Rule to align the regulations with Supreme Court precedent, which has long held that a violation of the FLSA is willful if the employer knew or showed reckless disregard for whether its conduct violated the FLSA.
As a reminder, other provisions of the Final Rule went into effect on April 30, 2021, which includes, among other things: (i) prohibiting employers, managers, and supervisors from keeping any tips received by employees; and (ii) for employers that do not take a tip credit, employers may allow non-tipped workers, such as chefs, cooks, custodians and dishwashers, to participate in tip pool arrangements.