United States Department of Labor Discards “80/20 Rule” for Tipped Employees

The federal Fair Labor Standards Act (FLSA) requires employers nationwide to pay a minimum wage of $7.25 per hour, although many states, including New Jersey, have set a higher minimum wage. Workers who customarily receive tips are not subject to the same federal minimum wage rules. The FLSA sets a much lower base wage for tipped employees and allows employers to take a “tip credit” when the employee receives an amount of tips that puts their total compensation at or above $7.25 per hour. The U.S. Department of Labor (DOL) has developed rules for determining when an employer may take a tip credit for employees who do both tipped and untipped work. The Wage and Hour Division’s (WHD) Field Operations Handbook (FOH) established the “80/20 rule,” which proved to be unpopular among many employers. An opinion letter issued by the DOL in November 2018 disavowed that rule. In February 2019, the DOL updated the FOH to make rescission of the 80/20 rule official.

Employers are obligated to pay tipped employees a base rate of $2.13 per hour, plus any amount needed to bring the employee’s total hourly compensation, including tips, to $7.25. 29 U.S.C. §§ 203(m), 206(a)(1)(C). The FLSA defines a “tipped employee” as anyone who “customarily and regularly receives more than $30 a month in tips” in the course of their job. Id. at § 203(t). Tipped employees therefore often rely on tips for any income over minimum wage.

The 80/20 rule arose from the DOL’s rule regarding dual jobs, which states that employers cannot take tip credits for hours that are not spent on tipped work. The rule gives an example of “a maintenance man in a hotel [who] also serves as a waiter.” 29 C.F.R. § 531.56(e). It draws a distinction, however, between that and workers in tipped occupations who occasionally perform “related duties,” such as “a waitress who spends part of her time cleaning and setting tables.” Id.

The distinction between “dual jobs” and “related duties” caused some confusion. Section 30d00(e) of the FOH, now found in subsection (f), stated that an employer cannot take a tip credit for an employee who spends more than twenty percent of their work time doing untipped work. Employers disliked this rule partly because it required careful tracking of employee hours.

In January 2009, the WHD issued Wage and Hour Opinion Letter FLSA2009-23, which briefly rescinded the 80/20 rule. It stated that employers should determine whether untipped work is “related” to tipped work by using job information in the Occupational Information Network (O*NET), rather than looking at percentages of work time. The WHD withdrew the letter in March 2009 “for further consideration,” leaving the 80/20 rule in effect.

In November 2018, the WHD issued Opinion Letter FLSA2018-27, which reproduces FLSA2009-23 as “an official ruling.” Field Assistance Bulletin No. 2019-2, issued in February 2019, amends the FOH to remove the 80/20 rule from § 30d00(f) and replace it with the O*NET provisions.

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