The distinction between employees and independent contractors continues to be hotly discussed in both business and legal circles – and wit...Read More
We are involved in our communities, our profession, and our clients' associations and activities.
The US Department of Labor (DOL) published a final rule on October 28, 2021, that brings back the 80/20 rule that was used by the DOL until 2018 for confirming tipped employees’ eligibility for the tip credit. This rule measures the amount of side work a tipped employee could perform without impacting your ability to take the tip credit. We thought we were done with it, but it is back! Although the 80/20 rule is familiar, it has some new twists not used before. As you remember, under the old 80/20 rule, tipped employee work was divided into two categories: tip producing work and non-tip producing work. You could use the tip credit when tipped employees performed work that directly produced tips or when they performed work that was not directly tip producing, but was performed at the same time as direct customer service work or for a reasonable period of time immediately before or after tip producing work. You were simply required to ensure the employee’s wages and tips combined met or exceeded the minimum wage.
The new twists to the rule include creating three categories of tipped employees’ work to be considered (discussed below). But, instead of using the tip credit for non-tip producing work for a “reasonable” time before or after tipped work, the new rule puts strict time limits on how long a tipped employee can perform directly supporting work while being paid at the tip credit rate. If the directly supporting work exceeds 20% of the tipped employee’s hours in a workweek or if the tipped employee performs directly supporting work for more than 30 continuous minutes, you must pay the tipped employee minimum wage. This will require you to carefully evaluate your use of the tip credit and current systems for tracking employee time.
80/20 Work Categories
The rule divides work activities into three categories that determine whether you can take a tip credit for your employee’s work or must pay the employee minimum wage.
Tip-producing work– Job duties in this category are those that provide service to customers for which tipped employees receive tips. These tasks can include waiting on a table, delivering food and drinks, and other tasks that directly serve a customer’s needs. This category is broadly construed to logically include all activities that would fall under it. Note that some non-tip-producing work—such as cleaning up a particular mess—can be considered tip-producing work if a customer asks a tipped employee to do it.
Directly supporting work– Job duties in this category include work performed in preparation of or to assist tip-producing work. This category can include preparing fruit garnishes for cocktail glasses, cleaning up the work area, and similar tasks. Notably, “idle time” where an employee is between customers and is waiting for new tasks, falls under this category. While performing directly supporting work, an employee can be paid at the tip credit rate as long as they are not performing work in this category for a “substantial amount of time.” Under the new rule, a “substantial amount of time” is either more than 30 continuous minutes or more than 20% of the hours in a workweek for which an employer takes a tip credit.
Work not a part of a tipped occupation– This category encompasses all other work that is neither tip-producing nor directly supporting work. It will include tasks like preparing food in the kitchen, taking inventory of items, bookkeeping, and other similar tasks that do not remotely result in tips. Any time spent performing these tasks must be compensated with minimum wage.
At first blush, the categorizing tasks may seem simple and straightforward. But whether certain tasks fall into these categories can depend on the employee’s role. For example, setting places at a table is tip-producing work for a busser because that is exactly how a busser earns tips from customers. However, this work would likely be directly supporting work for waitstaff because it supplements their normal tip-producing work of serving tables of customers.
The chart below is derived from the new rule content and shows examples of different tasks that would fall under the categories for a member of the waitstaff, busser, and bartender. Notice how some tasks fall under the same category no matter who performs them and some fall under different categories depending on which tipped employee perform them.
|Not part of tipped occupation||
The rule is slightly ambiguous on food preparation. Generally, food prep is not work part of a tipped occupation and tipped employees must be paid minimum wage for time spent preparing food. But the rule also states that serving tables may include some work performed in the kitchen. Under the rule, waitstaff’s tip-producing work can include making toast to accompany eggs, adding garnish to plate, adding dressing to pre-made salad or ice cream to pre-made dessert, ladling soup, placing coffee in pot to brew, and assembling chips or bread in a basket. Notice this work is tip-producing, not merely directly supporting work, so it does not need to be counted towards the 20%- or 30-minute rules. Most of these tasks are focused on plating food instead of actual cooking. However, be cautious about categorizing any food preparation not listed above as tip-producing work.
Counting Hours for the 80/20 Rule
One of the biggest challenges to scheduling tipped employees will be idle time. Under the new rule, idle time where a tipped employee is between customers is directly supporting work. Therefore, you must account for idle time when calculating for both the 20% and 30-minute rules.
The good news is that some hours do not count towards the 20% calculation. If an employee performs dual roles for you, and one job is tipped and one is not tipped, only the hours the employee is in the tipped role count for the rule. Similarly, time spent in work that is not part of a tipped occupation and paid at minimum wage is not part of this calculation.
Also, the calculation of 20% of a tipped employee’s hours only needs to be made once a workweek. The rule does not require running calculations every day to make sure the employee did not exceed 20% of their time on directly supporting work in the previous days.
So, if a waitress works 40 hours a week, but 10 of those hours are paid at minimum wage for any reason, the 20% calculation only applies to the 30 hours for which the employer took the tip credit. Therefore, the employee can spend up to 6 of those 30 hours on directly supporting work before an employer has to pay minimum wage for directly supporting work. If the employee works for 7 hours on directly supporting work, you must pay the extra hour at minimum wage. If an employee is multi-tasking by performing a tip-producing activity and a non-tip-producing activity at the same time, the tip-producing activity trumps the other activity, and you can still apply the tip credit to this time without worry.
A 30 Minute Rule, Too!
If that wasn’t enough fun, know that there’s more: if a tipped employee spends more than 30 continuous minutes on directly supporting work, you must pay them minimum wage. Note that the 30 continuous minutes do not have to all be spent on the same task. This rule is in conjunction with the 20% rule. So even if an employee spends 85% of their workweek on tip-producing activity, if that employee is wiping tables, filling saltshakers, and vacuuming for more than 30 continuous minutes in a given shift, you must pay the employee minimum wage for any amount of time over 30 minutes spent on that work. On the other hand, even if an employee never spends more than 30 continuous minutes on directly supporting work, but during the workweek still spent more than 20% of their time on directly supporting work, you must pay that employee minimum wage for that extra time.
Your bartender clocks into work at 3:00 PM.
- From 3:00 to 3:30, she prepares the bar for her shift by slicing fruit for drinks, cleaning, and restocking the bar.
- From 3:30 to 4:00, she serves a few customers.
- Then, from 4:00 to 4:15, she attends a pre-shift daily meeting to discuss the daily specials and promotions.
- The rest of the evening she continuously serves customers.
Here, you can take a tip credit for the full shift. Her time spent preparing for her shift and in the daily meeting, which are both directly supporting work, never exceeded 30 continuous minutes.
Change the Facts: if she went straight from preparing for her shift from 3:00 to 3:30 to the daily meeting from 3:30 to 3:45, she spent more than 30 continuous minutes on directly supporting work. Therefore, she is entitled to minimum wage for the time over 30 minutes. Of course, you can still use the tip credit for the time the bartender spends serving customers.
Don’t Forget: We certainly clear one hurdle if the bartender spends her whole workweek on the same shift in the first scenario, because she never spends more than 30 continuous minutes on directly supporting work. BUT, at the end of the workweek, you must still calculate whether she spent a total of more than 20% of her time during the workweek on directly supporting work. If she spent more than 20% of her workweek on directly supporting work, you must pay her minimum wage for any time spent on directly supporting work in excess of 20% of the workweek.
The 80/20 and 30 minutes rules go into effect on December 28, 2021.
Complying With the New Rule in Your Workplace
Although the basic concept of the 80/20 Rule is familiar, it was not often closely monitored, and the new changes may require you to make adjustments. The rule in some ways clarifies the types of tasks that are tip producing and how long an employee can spend on directly supporting work before you must pay minimum wage. But, bringing your workplace into compliance will take time and careful planning. By December 28, 2021, be sure to:
- Create a clear policy that complies with the new rule and distribute it to all tipped employees.
- Train tipped employees, supervisors, and managers on the different task categories so records are accurate.
- Implement a precise procedure for employees to record their time in the different task categories.
- Focus on creating clear and strategic schedules for tipped employees that avoid idle time.
- Avoid assigning tipped employees work that is not a part of a tipped occupation or large chunks of time in directly supporting work.
- Make sure employees are accurately recording their time in dual roles.
- Utilize the exception for multi-tasking. Although a tipped employee’s assigned tables may not need anything at the moment, the tipped employee can remain in the tip-producing work category by helping other tipped employees run food to tables or helping other customers while keeping a watchful eye on their own assigned tables.
- Pick one day a workweek to calculate whether employees spent more than 20% of their time in directly supporting work. Continue to calculate the numbers on the same day every week.
- As always, document, document, document! Keep clear records of how tipped employees spend their time.
Wages for tipped employees can be a complex area of law with serious consequences for errors. If your workplace needs assistance complying with these rules, our business and labor and employment teams are experienced in this area of law and happy to address any questions you may have.
Talk to an AttorneyRequest a Consultation
At Fahey Schultz Burzych Rhodes PLC, we’ve been helping municipalities, franchised businesses, employers, and more with their legal needs since 2008. We’d love to learn how we can help you, too.