E-Alert: DOL Reinstates 80/20 Rule for Tipped Employees

On October 28, 2021, the DOL published its final rule, the “dual job” rule, that revives the “80/20” rule regarding how employees receiving a tip credit must be paid under the Fair Labor Standards Act (FLSA). The final rule is a vast departure from the 80/20 rule of the past and becomes effective on December 28,2021. The new rule states that tipped employees job duties must be divided into three categories:

(1) tip-producing work;

(2) directly supporting work; and

(3) work that is not part of a tipped occupation.

According to the rule, work is “tip-producing” if it “provides service to customers for which tipped employees receive tips.” Work is “directly supporting” if it “is performed in preparation of or to otherwise assist tip-producing customer service work.” Any duties that are neither tip-producing nor directly supporting are not part of the tipped occupation and must be paid at a full minimum wage for the time spent on those duties.

Employees who perform work covered under the first category can be paid utilizing the tip credit for all their time worked. However, employees who perform work under the second category (“directly supporting”) may be paid using the tip credit, but only if the work is not performed for a “substantial amount of time” that is defined as either: (1) more than 30 continuous minutes; or (2) more than 20% of the hours in the workweek for which the employer has taken a tip credit. The rest of these employees’ time must be paid at minimum wage. Finally, employees who perform work under the third category must be paid at minimum wage for all of their time worked.

The final rule also indicates that there will not be a de minimis exception for employees who perform work under the second or third category which makes compliance exceedingly complicated. For example, if an employee works anytime over the 30 consecutive minutes allowed under category two, that time, no matter how small, cannot be paid using the tip credit.

The rule will likely face legal challenges on or before its effective date. CGWG will issue more guidance as it becomes available. If you have any questions regarding this new regulation and the impending effective date, please contact one of our labor and employment attorneys at 501-371-9999.