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Department of Labor Rescinds 80/20 Tip Rule

Employers in the restaurant industry are probably familiar with the tip credit, which, in general terms, allows an employer to claim a “credit” between what it pays tipped employees and the minimum wage.  The tips that such employees earn, and form the basis for the “credit,” are thought to make up for this gap.

However, problems arise when tipped employees perform side work that is related, but not part of, the tipped work.  For example, think of a server who folds napkins and sets silverware.  Until last month, the Department of Labor utilized what is commonly referred to as the 80/20 rule, which stated that employers could not claim the tip credit when tipped employees spent more than 20% of their time performing related, but non-tip producing, tasks.  This rule, however, caused employers uncertainty as to whether they could still claim the tip credit for tip-producing tasks and what constituted “related duties.”

On November 8, 2018, the Department of Labor rescinded the 80/20 rule and reissued a 2009 Opinion Letter that stated that the DOL does “not intend to place a limitation on the amount of duties related to a tip-producing occupation that may be performed, so long as they are performed contemporaneously with direct customer-service duties …”  The Opinion Letter goes on to specify what duties are considered related to a tip-producing occupation.

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