Tipped Employees and the New 80/20 Rule

The U.S. Department of Labor’s newly revamped “80/20 guidance” for tipped workers is in effect after an emergency motion to withdraw it was denied. What is it and how does it affect Texas restaurants and other tip-based businesses?

Restaurants in most states including Texas have been relying on the “tip credit” for decades, which allows them to pay tipped employees a lower hourly wage as long as that employee customarily and regularly receives enough tips to earn at least the full minimum wage.

An “80/20” rule for the credit isn’t exactly new. “The DOL historically has limited the amount of non-tip-producing work tipped employees can perform at a tip credit rate to 20% of their work time,” The National Law Review published. But, as of December 28, 2021, the Biden administration overhauled the rule with one that imposes even more restrictions.

As Littler Attorney Daniel B. Boatright outlines here, the changes are very nuanced and their relevance depends on your industry, the types of tipped employees you have, and what their duties entail.

To summarize, employers can only take a tip credit for the time tipped employees spend performing work that is strictly defined as work that either produces tips or directly supports tip-producing work (although that second category can only be performed less than 20% of the time or for less than 30 continuous minutes). For restaurant wait staff, the final rule itself states that “a waiter/waitress, who spends some time cleaning and setting tables, making coffee, and occasionally washing dishes or glasses,” is performing tip-supporting duties.

Any duties not fitting those two categories—which curiously calls out the task of salad preparation but not adding dressing to pre-made salads—are considered outside the parameters of the tip credit, no matter how long the employee spends doing it. Therefore, “if a tipped employee spends 30 seconds tidying up a restroom, the employee is entitled to full minimum wage for that 30 seconds,” Boatright suggests.

The Restaurant Law Center and Texas Restaurant Association (TRA) sought an emergency motion seeking to enjoin nationwide enforcement of the rule, but that request was denied on February 22, 2022.

“Tasks such as getting the restaurant ready for customers, restocking items during meal service, cleaning, and closing down the restaurant at the end of the day have long been an integral part of the tipped occupations commonly found in restaurants,” said Emily Williams Knight, President and CEO of the Texas Restaurant Association. “Because restaurant employees often move rapidly from one task to another throughout a shift, there is no practical way for an employer to keep the task by task records the Administration’s regulations would demand to avoid potential liability. Operators are exhausted after a very difficult 20 months of the pandemic; now is the wrong time to burden them with unnecessary regulations.”

With the temporary enjoinment denied, it’s advised that business owners with tipped employees review their operations immediately including scheduling and time-keeping practices, job descriptions and assignments, and payroll and other wage and hour practices. It would be wise to also seek the help of a business attorney to comb through the rule as it applies to your employees specifically. What about tipped employees who multi-task, such as talking to a customer while organizing the bar? Paid breaks and time between customers? Some answers you may find outlined in the rule, others you may not. For questions on how the rule may affect payroll and other money matters, feel free to contact us.

Photo from 123rf.com

April 19, 2022

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