DOL Resurrects 80/20 Tip Rule; Now With More Bite

In December of 2020, the DOL underneath President Trump issued a remaining rule dishing out with the longstanding “80/20” tip credit score rule—whereby an employer was solely required to pay a tipped-employee the total minimal wage price for non-tip producing work if the worker spent in extra of 20% of their workweek performing such work. In early 2021, the DOL underneath President Biden delayed the efficient date of the Trump-era rule (initially till April 30, 2021, then once more till December 31, 2021).

On October 23, 2021, the DOL formally withdrew the Trump-era rule and finalized its proposed rule with respect to tipped workers who carry out a number of job duties for a similar employer. For background, the fundamental “tip rule” permits a qualifying employer to offset a portion of its minimal wage obligation to sure tipped workers with quantities these workers earn from ideas. This offset is named a “tip credit,” and there are a selection of conditions an employer should fulfill earlier than it may depend on the tip credit score.

The DOL’s prior 80/20 rule restricted an employer’s skill to depend on the tip credit score for workers who carried out a number of job duties for the employer. Primarily, the previous 80/20 rule divided an worker’s job duties into two buckets: 1) job duties that straight produce ideas, and a pair of) job duties that don’t straight produce ideas. The rule required an employer to pay an worker the total minimal wage price for worktime spent performing job duties that don’t straight produce ideas if the worker spent in extra of 20% of the worker’s workweek performing these duties.

Within the new October twenty third rule, the DOL has resurrected the 80/20 rule and added a brand new wrinkle.   The brand new rule divides an worker’s job duties into three buckets for functions of figuring out whether or not an employer qualifies for the tip credit score: 1) job duties that straight produce ideas, 2) job duties that straight help tip-producing work, and three) some other job duties. An employer is entitled to take a tip credit score for work that falls into bucket 1 and isn’t entitled to take a tip credit score for work that falls into bucket 3.

Because it pertains to bucket 2, an employer is entitled to take a tip credit score for work that straight helps tip-producing work if the work “is not performed for a substantial amount of time,” which the DOL defines as (a) work that exceeds 20% of the worker’s workweek or (b) work that’s carried out “for a continuous period of time exceeding 30 minutes.”  If the time spent performing duties that straight help tip-producing work exceeds both the 20% or 30 continuous-minutes thresholds, the employer can’t depend on a tip credit score for the portion of the work that exceeds the relevant threshold and should as an alternative pay the total minimal wage for such time.

The brand new DOL tipped-employee rule goes into impact on December 31, 2021. Employers who intend to proceed counting on the tip credit score might want to revisit how they assign and administer fee to tipped workers, together with how they monitor hours labored and duties carried out by tipped workers.

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