Farewell 20% Rule – DOL Clarifies Eligible Duties for Tip Credit
On November 8, 2018, the U.S. Department of Labor (DOL) reissued a previously-withdrawn opinion letter from 2009 (available here) that clarified its position on when employers can use the tip credit under the Fair Labor Standards Act (FLSA). Under the FLSA, an employer may pay tipped employees an hourly rate of $2.13 and take a “tip credit” for the difference between the wage paid and the federal minimum wage, which is presently $7.25. In order to qualify as a tipped employee for this rule, an employee must customarily and regularly receive at least $30 per month in tips as part of their job. The reissuance of this opinion letter helps employers by providing clarity as to what duties qualify for the tip credit. It also recognizes that the prior method endorsed by the DOL was not beneficial to either employers or employees because full compliance required a precise accounting of every minute of a tipped employee’s time. The reissued opinion letter removes that burden.
If an employee holds two distinct jobs within a company, one that qualifies for the tip credit and one that does not, the DOL Regulations currently provide that the tip credit may only be applied to the tipped job. However, in situations where the employee has a single job with a combination of tip-generating and non-tip-generating duties, the tip credit can be applied to all duties, as long as they are related to the tipped job. In order to help distinguish between the “dual job” scenario where the tip credit had to be separated, and the “related duties” scenario where it did not, the DOL previously created a rule that any non-tipped duties that took up more than 20% of a tipped employee’s working time were not eligible for the tip credit. Thus, when an employee was performing the non-tipped duties, they would need to be paid at least the full minimum wage.
Although this rule was originally intended to help workers by preventing employers from shifting non-tipped work onto its tipped workers, the DOL noted, when reissuing the 2009 opinion letter, that the rule has not been consistently applied by the courts. In order to provide guidance to employers on what duties qualify for the tip credit, the DOL has scrapped the 20% rule, and instead stated that the duties listed as “core or supplemental” to tip-producing duties in the Tasks section of the Details report in the Occupational Information Network (O*NET) or 29 C.F.R. § 531.56(e) shall be considered directly-related to the tip-producing duties. For example, core duties of restaurant servers include escorting customers to their tables, taking orders from patrons, and performing food preparation duties such as preparing salads, appetizers and cold dishes; supplemental duties for restaurant servers include garnishing and decorating dishes in preparation for serving. Core duties of parking lot attendants include taking numbered tags from customers, delivering vehicles, and keeping parking areas clean and orderly; supplemental duties include patrolling parking lots to prevent vehicle damage and positioning barricades to open or close parking areas. As long as these duties are performed along with duties directly involving customer service, or for a “reasonable time” immediately before or after such customer service, they qualify for the tip credit. Tasks not contained in the O*NET task list are not eligible for the tip credit.
With the advent of this new (old) rule which makes it clearer and less difficult for employers, companies who employ tipped workers and rely on the tip credit should check that they are properly applying the tip credit, especially where employees are performing multiple jobs or job duties. Obermayer attorneys have experience reviewing and revising employer policies and notices to ensure compliance with these requirements and other employment laws and regulations.
The information contained in this publication should not be construed as legal advice, is not a substitute for legal counsel, and should not be relied on as such. For legal advice or answers to specific questions, please contact one of our attorneys.