After being 86’d a year ago under the President Trump administration, the Department of Labor (DOL) is bringing back the “80/20” tip credit rule under President Biden. And it’s got a few new attributes you’ll want to note.
We break down what you need to know about the revived rule, scheduled to take effect on December 28, and what you should be doing now to prepare.
What is the 80/20 tip credit rule?
We all know plenty of the restaurant industry relies on making tips. And employers of tipped employees can often take a “tip credit” against the minimum wage.
Tip credits allow employers to pay an employee below minimum wage without violating the law. While it varies by state, this could mean paying as low as $2.13 per hour versus the federal $7.25 per hour minimum wage. But there are some federal prerequisites.
The original 80/20 rule said that you can pay an employee on a tip credit if the amount of sidework – like rolling silverware, refilling condiments, or general cleaning –- was not more than 20% of their total working time, hence the “80/20” moniker. If an employee spent more than 20% of their time engaging in duties that don’t produce tips, then the employer must pay the full minimum wage rate.
What changes have been made to the original 80/20 tip credit rule?
Some of the main disputes with the original 80/20 rule stem from the fact that it can be challenging to clearly define what’s tip-producing work and what’s not. The new version seeks to address this issue while potentially giving staff more earning opportunities.
Under the new rule, you can take a tip credit only when an employee spends a minimum of 80% of their time doing “tip-producing work” and a maximum of 20% of their time doing “tip-supporting work”. The tip-supporting work must also not be carried out for longer than 30 consecutive minutes – one of the more noteworthy changes to the rule.
To help differentiate between these categories, DOH lays out some specific examples of both. Tip-producing work is defined by the DOH as “any work performed by a tipped employee that provides service to customers for which the tipped employee receives tips”. DOL examples include tasks like providing table service, making drinks and refilling glasses, cleaning up customer spills, and processing payments. Tip-supporting work is defined by the DOL as “work that assists a tipped employee to perform the work for which the employee receives tips”. DOL examples include refilling salt and pepper shakers and ketchup bottles, rolling silverware, folding napkins, sweeping or vacuuming under tables, and setting and bussing tables.
It’s called the 80/20 tip credit “rule” – is that different from an actual law?
Technically, the 80/20 tip credit rule isn’t actually written into law. Read the Fair Labor Standards Act (FLSA), and you won’t see anything about it.
“The idea of the 80/20 rule has a bit of a tortured history,” says Chris Nickels, labor and employment attorney and partner of Quarles and Brady. “It was developed through the DOL, who’s charged with carrying out the FLSA, and they put it in their field operations handbook.”
This makes it more easily subject to litigation. “While the 80/20 rule has been challenged a number of times, if you look back, many courts have upheld the historical 80/20 rule as a reasonable interpretation of the FLSA – the actual law,” says Nickels. “Now they’re making it an administrative agency rule, which is not a law or part of the FLSA, but it’s a rule that essentially carries the force of law.”
What this means for restaurant owners
Little has changed when it comes to the “80/20” part of the tip credit rule. It’s just now more explicitly defined: an employee must spend a minimum of 80% of their time doing “tip-producing work” and no more than 20% of their time doing “tip-supporting work” in order to take a tip credit.
Perhaps more notable is the 30-minute policy – you can’t take a tip credit if tip-supporting work is being carried out for more than a consecutive half hour. Why the change? Chairman of the Committee on Education and Labor Bobby Scott says the 30-minute limitation sets out “to ensure employers are not paying employees the tipped subminimum wage for an hour of work in which the employee has limited or no opportunity to actually earn tips.” Essentially, it’s designed to protect tipped workers by limiting the amount of non-tipped work they receive while still relying on tips.
Both parts of the tip credit policy require similar actions on your end: Make sure you’ve got timekeeping processes that are well-organized and easily accessible. You’ll want to set up a record keeping system where employees can quickly track the amount of time they’re engaged in tipped work and the amount of time they’re doing sidework. Many staffing and HR platforms have functionality that supports this type of tracking.
“I think a lot of employers at this time operate more off of presumptions, but what we’ve seen with litigation is that there are ample attorneys out there and plaintiffs who are willing to bring class action lawsuits claiming that, in theory, more than 20% of an employee’s time was spent doing non-tipped work, but in practice it was different,” says Nickels. “In a sense, the 30-minute rule helps provide more of a clear line to keep track and add clarity.”
If you plan to pay on tip credit, you may also want to set up safeguards that prevent tipped employees from performing excessive sidework in violation of the 30-minute rule, says Nickels. For example, make sure you’re scheduling so that tipped employees aren’t arriving more than a half hour before doors open to customers.
“Quite frankly, 30 minutes evaporates quickly, so you may need to go to a system where you pay on tip credit, and then if you want your same servers to stick around and clean up for an hour, you have them clock over to a fully minimum wage position,” says Nickels.
Get the 30-minute rule written up as part of your internal policy, too. “If you have it written that employees are not allowed to perform sidework for more than 30 consecutive minutes, in part, you’re saying to employees that you have a policy that your managers are trained to enforce,” says Nickels.
Pros and cons
Sound impossible? We get it. Keeping task-by-task records in a busy restaurant environment is far from easy – and it’s something the National Restaurant Association (NRA) is currently taking up a fight against. Recently, the NRA's Restaurant Law Center and the Texas Restaurant Association filed a lawsuit against the DOL over the new tip regulation policy, saying it’s an impossible task for operators to carry out in order to avoid liability. They also argue it presents an added burden during an already difficult time.
“It’s hard to say if the court will think it’s reasonable, but again, other courts have thought it’s a reasonable [interpretation of the FLSA] in the past – it could go either way,” says Nickels.
While the new rule presents a potential recordkeeping headache, there is a prospective upside. At a time where hiring and retention is more challenging than ever, the 80/20 rule has potential to bring added income for tipped staff, which could be the extra boost some employees are looking for.
“Any restaurant operator who’s going to move away from the tip credit, even if it’s just at the beginning or end of a shift, should certainly advertise and market that to job applicants,” says Nickels.