DOL’s Proposed Rule Would Limit Application of FLSA Tip Credit | Constangy, Brooks, Smith & Prophete, LLP

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For many decades, the Fair Labor Standards Act allowed employers of tipped employees to apply tip credit to meet minimum wage obligations under the federal Wages and Hours Act.

Currently, under federal law, an employer of tip employees can pay a tip employee a minimum wage of $ 2.13 per hour and apply a tip credit of $ 5.12 per hour to satisfy to the FLSA’s current minimum wage requirement of $ 7.25 per hour. (State minimum wage laws may have both higher minimum wages and stricter tip credit requirements.) Obviously, certain conditions apply, including that the tip employee must earn at the end of the day. minus enough tips to cover the tip credit amount.

In March, we wrote that the Biden administration was backtracking on rule-making efforts undertaken by its predecessor with regard to tip credits and what are commonly referred to as “secondary rights”. In the restaurant industry, these are tasks that may not directly generate tip income, but are related to the tip employee’s primary job of providing customer service to restaurant customers.

Historically, the United States Department of Labor considers side duties to include tasks such as cleaning and setting up tables, toasting bread, brewing coffee, filling containers with condiments, packing food. silverware in napkins and placing toppings on foods before serving, such as adding croutons to a salad or topping a piece of pie with whipped cream. Since the late 1980s, the DOL has adopted what is known as the “80/20 Rule,” which basically says that if a tip employee spends more than 20% of their time on side tasks, tip credit cannot be applied at this time. The 80/20 rule was a sub-regulatory effort by the DOL to clarify a regulation that spoke of “duplication” and stated that if an employee has two different jobs for the same employer and one clearly meets the definition of one “tip employee” and the other not, the tip credit can only be applied to time spent performing the job of the tip employee. The example used in the regulations was a housekeeping employee working in a hotel who also worked shifts as a waiter.

While the maintenance worker / server example is relatively straightforward, the analysis becomes much more complicated when looking at the tasks of full-time servers who also perform ‘side tasks’ (as almost all do waiters). As a result, over the years, a considerable number of class action disputes have ensued regarding compliance with the 80/20 rule, and the restaurant industry has borne the brunt of it. The biggest challenge in most litigation was how to measure every minute of every shift to gauge when tip-generating tasks were performed and when secondary tasks were performed in order to apply the 80/20 rule.

In late 2020, the Trump DOL issued a final rule that appeared to offer hope for the restaurant industry. The rule would have eliminated the 80/20 rule and replaced it with what appeared to be a more practical solution that could at least reduce the number of disputes over ancillary duties and tip credit. Under the rule, employers could have applied the tip credit to time spent on secondary tasks as long as the secondary work was performed during, or “for a reasonable period immediately before or after”, the tipping work of the employees. employees. The rule would also have further defined what constituted and did not constitute a “secondary obligation” by reference to a federal database of professions known as the O * NET. However, the new rule never came into effect.

As we wrote in March, after President Biden took office, the DOL took action to delay the effective date of the rule. Then last month the DOL has published a notice of proposed regulation which, if finalized, will reestablish the 80/20 rule and add a new twist – not just the tip credit do not be applied to the time spent performing secondary tasks exceeding 20 percent of the work week, but also any ancillary work performed during a continuous period of more than 30 minutes will not be eligible for the application of tip credit. Unfortunately, the proposed rule would take restaurant employers back to the days when they tried to analyze every minute of every shift with the goal of classifying it as tipping or side-tasks, and then assessing the performance. quantity of each for application. the 80/20 rule – while also noting if there have been periods longer than 30 minutes where secondary tasks were performed continuously.

The proposed rule also contains ambiguous language that calls into question the DOL’s intention to narrow down the list of tasks it previously considered included as a secondary duty. The new proposal defines “tipping work” as any work for which a tip employee receives tips, and makes the simple but vague statement that “[a] the waiter’s tip-generating work includes waiting tables. Examples of proposal work that “directly supports” tip-generating work but is subject to time limits on performance, are as follows: “[P]repairing items for tables so waiters can access them more easily when serving customers or cleaning tables to prepare next customers. Food preparation and bathroom cleaning are not considered to be tipping work or work that directly supports tipping work. For bartenders, preparing and serving drinks and talking to customers is considered tip-making work, but not food preparation or dining room cleaning.

Unfortunately, the ambiguities of the proposed wording and the return to minute-by-minute analysis of time spent on various tasks do not give much hope that the litigation in this area of ​​the FLSA will subside.

Again, please keep in mind that the FLSA does not prejudge state laws on wages and hours. Some states do not allow tip credits at all, and some states have tip credit rules that differ from those of the US Department of Labor. Finally, many states have minimum wages that are higher than the federal minimum wage.

The proposed regulatory notice is open for public comment until August 23. Comments can be submitted electronically to https://www.regulations.gov.

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