United States: Department Of Labor Eliminates 80/20 Rule For Tipped Workers

Last Updated: January 17 2019
Article by Amy J. Traub

On Nov. 8, 2018, the Wage and Hour Division of the Department of Labor (DOL) reissued Opinion Letter FLSA2009-23, effectively eliminating the DOL's longstanding 80/20 rule, which restricted an employer's ability to take a tip credit for tipped employees who also perform non-tip-generating duties when time spent on such duties exceeds 20 percent of their total daily work time. The opinion letter had previously been issued near the end of the George W. Bush administration but was promptly withdrawn by the incoming Obama administration.

Many employers have found the 80/20 rule difficult to comply with because it requires employers, particularly in the hospitality industry, to meticulously keep track of the daily tip-generating" and non-tip-generating tasks performed by tipped employees. The complexity of the rule triggered a surge of class actions from employees claiming they performed too many non-tipped duties for their employer to properly take a tip credit.

With the reissuance of FLSA2009-23, the DOL has alleviated the burden on employers to track the time spent by tipped employees on tip-generating and non-tip-generating tasks.

Unfortunately, hospitality employers in New York are still bound by the New York Hospitality Wage Order (NY wage order), which sets a stricter standard than DOL's 80/20 rule. Under the NY wage order, an employer may not take a tip credit for any day if an employee spends at least two hours or 20 percent of the shift (whichever is less) working in a non-tipped occupation.

Origins of the 80/20 Rule

The Fair Labor Standards Act (FLSA) requires employers to pay nonexempt employees the hourly minimum wage (currently, $7.25) but treats "tipped employees" differently. Tipped employees are those who customarily and regularly receive at least $30 a month in tips. The FLSA permits employers to pay tipped employees a direct wage of $2.13 an hour and take a "credit" for the tips received by the employee to satisfy the remaining portion of the minimum wage. If the combined direct wage and total tips received by an employee are less than the minimum wage for all hours worked in a given workweek, the employer must make up the difference.

In the 1988 version of the DOL's Internal Field Operations Handbook, the DOL limited employers' use of a tip credit by stating that if a tipped employee spends a substantial amount of time (in excess of 20 percent) performing non-tip-generating duties, an employer cannot take a tip credit for time spent on such duties.

Since 2011, the DOL had taken the enforcement position that if a tipped employee spends more than 20 percent of his or her time on non-tip-generating tasks (even if those tasks were directly related to tip-producing duties), the employee's time spent on those non-tipgenerating tasks must be paid at minimum wage rather than at the subminimum "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 percent of their work time and therefore are entitled to the full minimum wage for time spent performing these duties.

With the issuance of FLSA2009-23, the DOL has now abandoned the 80/20 rule in favor of a more practical approach for employers.

The Elimination of the 80/20 Rule

The DOL's opinion acknowledges that the 80/20 rule has created confusion and been applied inconsistently over the years. In the opinion letter, the DOL stated, "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." As a result, whether or not an employer can take a tip credit for time spent by an employee on a non-tip-generating task is no longer determined by the amount of time spent by the employee on that task.

Instead, the opinion letter explains that the DOL seeks to provide employers with guidance to determine which duties are related and unrelated to a tip-producing occupation so that they can take necessary steps to comply with the FLSA. Specifically, the DOL states that duties listed as "core or supplemental for the appropriate tip-producing occupation" in the Occupational Information Network (O*NET) Tasks section are those "directly related to the tip-producing duties of that occupation." The DOL explains that no limitation may be placed on the number of these duties that may be performed, whether or not they involve direct customer service, as long as they are performed contemporaneously with tip-generating duties or for a reasonable time immediately before or after the employee performs tip-generating duties.

For example, in the report for food servers, O*NET includes the following tasks on the list of relevant job duties:

  • Cleaning and setting up tables.
  • Rolling silverware.
  • Sweeping and mopping floors.
  • Filling salt, pepper, sugar and condiment containers.

As explained in the opinion letter, employers can take a tip credit for servers who perform such tasks, even if they spend more than 20 percent of their time doing so, as long as these tasks are performed either contemporaneously with tip-generating duties or for a reasonable time immediately before or after.

The DOL opinion letter also explains that "employers may not take a tip credit for time spent performing any tasks not contained in the O*NET task list." However, the DOL noted that some tasks "not listed in O*NET may be subject to the de minimis rule."

This new standard should make it easier for employers to comply with the FLSA and properly apply the tip credit. Employers should, however, thoroughly understand the duties listed on the O*NET list to ensure they are using a tip credit for the appropriate types of tasks.

Key Takeaways

Although employers no longer need to vigilantly track the amount of time tipped employees spend on non-tipgenerating tasks, they should become very familiar with O*NET's Tasks section to ensure the tip credit is being taken against the appropriate types of job duties. More important, employers should continue to monitor state laws, which tend to be stricter than the federal standards. Hospitality employers in New York are still required to follow the 80/20 rule contained in the NY wage order.

SEC Office of the Whistleblower Reports Record-Breaking Year

The Securities and Exchange Commission (SEC) Office of the Whistleblower issued its annual report for fiscal year 2018, reporting that it paid more in whistleblower awards this year – more than $168 million – than it had in all prior years combined. These awards included the two largest awards made by the program to date: almost $54 million to two individuals and a total of $83 million shared by three individuals. The volume of whistleblower tips received by the office was similarly unprecedented; the commission reported that it received more whistleblower tips in FY2018 than it had in any prior year since the inception of the program.

The commission noted that the volume of whistleblower tips increased in the months following the Supreme Court's decision in Digital Realty. There the Supreme Court ruled that to qualify for the enhanced whistleblower protections against retaliation provided under the Dodd-Frank Act, an employee must report potential securities law violations to the SEC. Prior to Digital Realty, several circuit courts (including New York's Second Circuit) had found eligibility for employees who reported suspected violations internally within their companies. As the SEC noted in its report, the observed uptick in reports to the SEC may be attributable, at least in part, to this ruling.

The annual report also referenced the proposed amendments to the whistleblower rules, which were published in the Federal Register on July 20, 2018, and open for public comment through Sept. 18, 2018. Among other things, the proposed rules would conform the definition of "whistleblower" in Rule 21F-2 to the holding in Digital Realty, establishing a uniform definition of "whistleblower" for purposes of the statute. The proposed rules would also provide the commission with additional discretion in determining the amount of an award, including the ability to decrease the amount of the award in cases where sanctions may reach $100 million or more, if it determines the payout would otherwise exceed the amount reasonably necessary to reward the whistleblower and incentivize other whistleblowers. The latter proposal has drawn objections from the National Whistleblower Center and others, who oppose what they characterize as a "cap" on whistleblower awards.

Regardless of whether we see any cabining at the upper limits of awards, the rapid growth of the whistleblower program seems poised to continue. The increasing size and number of whistleblower awards will continue to attract publicity, while the enhanced anti-retaliation protections of reporting to the commission provide additional incentive for potential whistleblowers.

Takeaways: Employers should continue to prioritize their compliance and internal reporting programs and ensure that they have processes and systems in place to address whistleblower issues and minimize retaliation complaints.

How to Avoid a Holiday Party Faux Pas (and the #MeToo Effect)

This is the second holiday season with a #MeToo presence, but arguably, the movement has far more power and momentum during this holiday season than it did last year, when the movement had just begun and was more focused on sexual assault. According to a recent survey, only 65 percent of companies are holding holiday parties this year, which is the lowest percentage since 2009, when the drop likely was attributable to the economic crash. Experts report that this year's decrease in holiday parties is not attributed to economic reasons, as many companies are reporting healthy financials. Instead, this one presumably is a direct result of #MeToo.

#MeToo, however, does not have to (and should not) prevent employers from celebrating the holiday season. Employers need to be vigilant against #MeToo scaring them into isolating employees from each other and discouraging interaction between males and females, and a holiday party is a perfect opportunity for employees to mingle, bond and get exposure to individuals they typically do not otherwise spend time with. Instead of canceling a party, employers need to be clear about expectations around behavior – both interpersonally and, oftentimes more importantly, related to alcohol. Frequently, when events take place off-site and involve alcohol, employees forget they are employees and at a work event. Employers should take this time of year to remind employees that alcohol should be enjoyed in moderation, and that, even when off site, employer sponsored parties are subject to employer codes of conduct, including their anti-harassment policies, and behavior contrary to such policies will not be tolerated.

Employers may also consider making other changes to holiday parties, such as including spouses, holding the party on-site, holding a luncheon, limiting alcohol only to beer and wine or shortening the length of the party. Another tactic employers may want to employ is incorporating more activities that give employees the opportunity to do something other than drink, such as photo booths, games and auctions. Above all and as always, it is imperative that management set an example of proper behavior

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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