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DOL Eliminates Employer-Plaguing “80/20” Tip Credit Rule

12/01/18

Author: ADP Admin/Tuesday, December 4, 2018/Categories: Bulletin News

Overview: The Department of Labor (“DOL”) has rescinded its prior guidance that made the tip credit unavailable for tipped employees who spend more than 20% of their time performing allegedly non-tip generating duties.

Details:
The 20% limitation, contained in an internal DOL Field Operations Handbook, spawned numerous so-called “80/20” lawsuits, claiming servers spent too much time performing allegedly non-tipped work. The DOL rescinded the rule by reissuing Opinion Letter FLSA2009-23, which was first promulgated during the waning days of the George W. Bush administration and which had eliminated the rule. That opinion letter, withdrawn by the Obama administration, has been reissued as Opinion Letter FLSA2018-27. In so doing, the Wage and Hour Division has rendered invalid the Eighth Circuit Court of Appeals decision upholding the Obama-era rule in Fast v. Applebee’s International, Inc., 638 F.3d 872 (8th Cir. 2011), and the recent Ninth Circuit decision in Marsh v. J. Alexander’s LLC, 905 F.3d 610 (9th Cir. 2018). Those decisions were grounded in giving deference to the Obama-era DOL guidance that the DOL has now abandoned.

When an employee is “engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips,” the employer may pay a reduced cash wage (currently $2.13) and claim a “tip credit” to make up the difference between the reduced cash wage and the $7.25 hourly minimum. See 29 U.S.C. § 203(m). Such individuals are referred to as “tipped employees.” Since 2011, the DOL had taken the enforcement position that if a tipped employee spends more than 20% of his or her time on non-tip-producing tasks (even if those tasks were directly related to tip-producing duties), the employee’s time spent on those non-tip-producing tasks must be paid at minimum wage rather than at the sub-minimum “tip credit” rate. As a result, plaintiffs’ attorneys have used the DOL’s enforcement position as the basis for lawsuits – often, collective actions – alleging that the tipped employees in question engage in non-tipped work for more than 20% of their work time and therefore are entitled to the full minimum wage for their work.

“We do not intend to place a limitation on the amount of duties related to a tip-producing occupation that may be performed, so long as they are performed contemporaneously with direct customer-service duties and all other requirements of the Act are met,” the reissued Opinion Letter notes.

Action Required: Employers with tipped employees should review their policies and job descriptions. As always, please be sure to contact your HR Business Partner for guidance and if you have any questions.

*Produced in cooperation with Jackson Lewis P.C.

This content provides practical information concerning the subject matter covered and is provided with the understanding that ADP is not rendering legal advice.

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