New Rule May Require Employers to Closely Track Tipped Employees' Work

Author: Michael Cardman, Brightmine Legal Editor

October 28, 2021

Employers that wish to claim a minimum wage tip credit will soon need to make sure their employees don't spend too much time performing tasks that don't directly serve customers, such as cleaning tables or making coffee.

The US Department of Labor (DOL) tomorrow will issue a new rule establishing three categories of work:

  • Tip-producing work, such as a server waiting tables or a bartender making drinks;
  • Directly supporting work, such as a server folding napkins, sweeping the floor or setting tables, or a bartender wiping down the bar or fetching liquor; and
  • Work that is not part of a tipped occupation, such as preparing food, cleaning a bathroom or even waiting for customer service to begin after a shift has started (i.e., "down time").

Under the new rule, which will take effect December 28, employers will be able to claim a tip credit only during the time their employees spend on tip-producing work or on directly supporting work that takes up no more than 20% of their workweek and no more than 30 continuous minutes at any one time.

"Women, people of color and immigrants represent more than half of all tipped workers," Jessica Looman, acting administrator of the DOL's Wage and Hour Division, said in a statement. "Today's final rule enhances protections for this vital segment of the nation's essential workforce, and combats income disparity and promotes equity."

Background

A Fair Labor Standards Act (FLSA) regulation allows employers to claim the minimum wage tip credit for some of the time that a tipped employee spends in duties related to their occupation (known in the industry as "sidework"), even though the duties are not by themselves directed toward producing tips. For example, a waitperson who spends some time cleaning and setting tables, making coffee, and occasionally washing dishes or glasses is considered to be engaged in a tipped occupation even though these duties are not tip-producing.

Longstanding DOL enforcement guidance had prohibited an employer from taking a tip credit for time spent performing related duties / sidework if they took up more than 20% of an employee's workweek. Commonly referred to as the "80/20 rule," it was the basis of several lawsuits.

In 2018, under the Trump administration, the DOL issued an opinion letter, followed up by a field assistance bulletin in 2019, superseding the 80/20 rule. The DOL said it would no longer limit the amount of related duties / sidework that could be performed as long as the work was performed "contemporaneously with" or for a "reasonable time" before or after direct customer-service duties and all other requirements of the FLSA were met.

In 2020, the DOL issued a final rule that would have, among other things, codified this stance into a notice-and-comment regulation entitled to deference from the courts.

Under the Biden administration, the DOL has changed course. In April, it postponed the Trump administration's rule. Tomorrow's rulemaking will be the final nail in its coffin - withdrawing the "reasonable time" standard and replacing it with a new rule that some are calling the "80/20 plus 30 rule."

Practical Considerations

After the DOL proposed its new rule last summer, hospitality industry groups raised concerns that it would require employers to engage in "perpetual surveillance" of tipped workers to classify what type of work they were performing and to track the amount of time spent performing each type of work.

In a preamble to its new rule, the DOL dismissed those concerns, saying, "[E]mployees do not perform such tasks on an 'immediate, time-sensitive basis,' as they might perform tasks for their customers and for which they receive tips. ... Nor do employees need to 'quickly pivot' or 'switch' between such tasks while serving customers."

Daniel B. Boatright, an Office Managing Shareholder for Littler, disagreed. "The ability to track [directly supporting work] is a huge challenge, especially when you look at how tipped employees have historically operated, which is to pivot from one task to another in rapid succession," he said. "The DOL's response to that was essentially, 'Well, don't have them do that anymore.'"

Complying with the new rule will prove challenging for restaurants, bars and other employers that wish to take advantage of the tip credit. Boatright said he is advising clients to:

  • Pay tipped employees the full minimum wage for the periods right before and after their guest-service shifts begin;
  • Begin looking at technological methods to track the time employees spend on different categories of work (although this is probably not feasible with current point-of-sale (POS) systems, Boatright said he anticipates new solutions will emerge);
  • Exercise caution before having employees self-report how they spend their time, as this could expose an employer to a claim for off-the-clock work; and
  • Restrict directly supporting work to chunks of time that are measurable.