On Nov. 8, 2018, the U.S. Department of Labor (DOL) rescinded its prior guidance that prohibited employers from using the tip credit if an employee’s non-tipped duties exceeded 20% of the employee's weekly hours. Non-tipped duties can include work such as cleaning tables or refilling condiments.
The DOL’s reversal is important for employers, especially in the restaurant and hospitality industries. The previous rule required employers to maintain meticulous time records as to each employee’s particular job duties, and division of time spent on tipped and non-tipped duties, to avoid collective action litigation by employees alleging violations of the federal Fair Labor Standards Act. The time spent on related non-tipped work was difficult to track without supervisors persistently surveilling employees and maintaining records regarding each employee’s job functions. Without diligent oversight and detailed records, employers often lacked the evidence necessary to effectively defend employees’ claims.
The reissued opinion letter allows employers to take a tip credit on all related non-tipped work "performed contemporaneously with the duties involving direct service to customers or for a reasonable time immediately before or after performing such direct-service duties." This means, for example, that a restaurant employer no longer needs to separate time that a waiter spends on preparing a table for a meal (related non-tipped work) and directly serving customers (tip-producing work) to calculate and take a tip credit. The reissued opinion letter refers employers to the Occupational Information Network (O*NET) to determine what non-tipped tasks are related to the tip-producing duties of an occupation. Only the non-tipped tasks listed on O*NET are eligible for a tip credit. Some of those tasks include:
- Collecting payments from customers.
- Preparing tables for meals, including setting up items such as linens, silverware and glassware.
- Stocking service areas with supplies such as coffee, food, tableware and linens.
Employers can access the full list on O*NET, a website sponsored by the DOL, here.
While the DOL's new guidance is helpful, the reissued opinion letter and tip credit law still retain certain ambiguities that invite claims against employers. Some occupations are not listed on O*NET and "reasonable time immediately before or after" is not defined. Moreover, the reissued opinion letter maintains the DOL’s "dual job" distinction in 29 C.F.R. § 531.56(e). That distinction, such as when a security employee in a hotel also serves as a waiter, does not allow employers to take a tip credit for an employee’s hours worked in the non-tipped occupation. Employers also should be aware that the DOL’s opinion letter does not govern state wage-hour laws. Several states (New York, Virginia, West Virginia and others) have adopted their own 20% rule. Additionally, some courts have incorporated the 80/20 rule into case law that may be viewed as binding precedent. Accordingly, employers utilizing the tip credit or tip pooling should consult with counsel to ensure compliance with governing law and evaluate potential exposure in each location where the employer does business.
Taft’s Employment and Labor Relations practice group is ready to help employers navigate these legal issues and follow best practices. Please call us with questions regarding tip credits and how they impact your business practices.