We have all admired (or perhaps been one ourselves) the multitasking, be everywhere and do everything restaurant server. But one question that has long vexed employers in the service industry is how to properly compensate servers who bounce between "tip-generating" work, like serving customers, and arguably "non-tipped" work, like folding napkins and cleaning tables, throughout their shifts. On October 8, 2019, the Department of Labor (DOL) proposed a new rule that seeks to address this dilemma and do away with its own longstanding guidance on the subject.
For nearly 30 years, the DOL used the "80/20" rule: If employees spend more than 20% of their time doing non-tipped work, the employer must pay them the regular federal minimum wage of $7.25 per hour for such work. "Tip-generating" work, on the other hand, could be compensated at the special "tipped" federal minimum wage of $2.13 per hour. (If employees' $2.13 per hour + tips doesn't get them over the $7.25 floor, employers must make up the difference, and can't take advantage of the so-called "tip credit.")
As a practical matter, the 80/20 rule was difficult to administer—essentially requiring employers to track employees' actions down to the minute. And beyond counting problems, the rule came with no guidance as to what constitutes tipped work, as compared to non-tipped work. Issues like the classic "lemon wedge" conundrum—is time spent cutting a lemon wedge before a customer asks for a lemon wedge tipped or untipped work?—spurred prolific litigation.
In light of these difficulties, the DOL has been trying for some time to bid farewell to the 80/20 rule. As we previously alerted, about a year ago the DOL issued an "Opinion Letter" stating that it "did 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."
So why bother with the proposed rule, saying essentially the same thing, just this month? Because courts essentially ignored the DOL's change in tune, finding that the Opinion Letter was not due deference in reaching court opinions.
The Notice of Proposed Rulemaking seeks to establish, on a regulatory level, that the 80/20 rule is no longer the means to determine whether an employee can be compensated at the tipped minimum wage or must receive regular minimum wage. According to the DOL, "the proposed regulation would clarify that an employer may take a tip credit for any amount of time that an employee performs related, non-tipped duties contemporaneously with his or her tipped duties, or for a reasonable time immediately before or after performing the tipped duties."
What is a related, non-tipped duty? The DOL directs us to a list of tasks commonly performed in tip-producing jobs maintained by the Occupational Information Network ("O*NET"), which include cleaning tables, filling salt and pepper shakers, and rolling silverware napkins.
Stakeholders have until December to submit comments on the proposed rule, so its final iteration remains to be seen. Employers in the service industry may want to submit comments before the deadline. And while the proposed rule would offer relief from administrative burdens, employers should remain mindful of their tipped workers' daily duties. If these employees are spending significant time doing non-tipped work, they might be found to have a "dual" job, which opens yet another can of worms.
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