{"id":4869,"date":"2021-06-28T11:30:00","date_gmt":"2021-06-28T15:30:00","guid":{"rendered":"https:\/\/employerdefensereport.com\/?p=4869"},"modified":"2026-03-20T11:49:39","modified_gmt":"2026-03-20T15:49:39","slug":"new-dol-proposed-rule-reverses-course-on-treatment-of-tipped-employees","status":"publish","type":"post","link":"https:\/\/www.connmaciel.com\/employer-defense-report\/new-dol-proposed-rule-reverses-course-on-treatment-of-tipped-employees\/","title":{"rendered":"New DOL Proposed Rule Reverses Course on Treatment of Tipped Employees"},"content":{"rendered":"

On Monday, June 21st<\/sup>, the Department of Labor (\u201cDOL\u201d) issued a Notice of Proposed Rulemaking<\/a> (\u201cNPRM\u201d) that would alter regulations interpreting who is considered a \u201ctipped employee\u201d under the Fair Labor Standards Act (\u201cFLSA\u201d) yet again.\u00a0 Specifically, the NPRM proposes (1) to withdraw the dual jobs \"Picture1\"<\/a>portion of the Final Rule promulgated in December 2020; and (2) a new regulatory framework by which to determine whether an employee is performing work that meets the definition of a tipped occupation and allows the employer to take a tip credit under the FLSA.\u00a0 Specifically, the FLSA allows an employer to pay a tipped employee less than the minimum wage \u2013 specifically $2.13 per hour under Federal law \u2013 only when the worker is engaged in a tipped occupation because the tips the employee receives should make up for the rest of minimum wage hourly rate.\u00a0 The NPRM creates a revised standard by which an employer would determine who is a \u201ctipped employee\u201d and for what portion of that employee\u2019s work hours the employer can take a tip credit and pay the employee at the lower rate.\u00a0 The standard the DOL proposes to adopt generally reflects the interpretive guidance it maintained for decades before a new standard was established during the Trump Administration \u2013 the \u201c80\/20 Rule\u201d \u2013 along with some other changes that the DOL asserts better define tipped work.\u00a0<\/p>\n

Background of the Dual Jobs Standard for Tipped Employees<\/u><\/strong><\/p>\n

Under the FLSA, \u201ctipped employees\u201d are defined as those employees who customarily and regularly receive more than $30 a month in tips.\u00a0 As stated, employers can pay tipped employees a reduced cash wage and claim a \u201ctip credit\u201d to make up the difference between the reduced cash wage and hourly minimum wage.\u00a0 When the DOL first published its regulations on application of the tip credit, it directly addressed the scenario where an employee has \u201cdual jobs\u201d under 29 C.F.R. 531.56(e) \u2013 two jobs for the same employer.\u00a0 In that situation, employers can take the tip credit only for the tipped job (i.e., the one routinely satisfying the $30-a-month provision).\u00a0 Later, the DOL revised its Field Operations Handbook (FOH), vastly broadening the scope of its \u201cdual jobs\u201d distinction by applying it to dual tasks<\/em>.\u00a0 It stated that when \u201ctipped employees spend a substantial amount of time (in excess of 20%) performing preparation work or maintenance, no tip credit may be taken for the time spent in such duties.\u201d\u00a0 This is what\u2019s known as the \u201c80\/20 rule.\u201d<\/p>\n

The DOL enforced this interpretation until 2018 when it withdrew the relevant guidance and replaced the \u201cdual jobs\u201d analysis with an opinion letter<\/a> originally published in 2009.\u00a0 That opinion letter set a new standard by which to evaluate what time can be treated as part of the tipped job for which an employer can take a tip credit; namely that an employer could take a tip credit for all<\/em> tasks directly related to tip-producing work.\u00a0 We delve into the 2018 interpretation in more detail here<\/a>.\u00a0 More specifically, this letter and subsequent guidance issued in 2019<\/a> explained that an employer can take a tip credit for any time<\/em> (i.e. greater than 20%) the employee spends performing duties related<\/em> to the tipped occupation even if those duties do not directly produce tips.\u00a0 It directed employers to tasks listed in O*Net to determine what would be considered \u201crelated duties.\u201d\u00a0 The guidance also stated that related duties must be performed contemporaneously with the tipped duties for a reasonable time<\/em> immediately before or after performing tipped duties.\u00a0 On December 30, 2020, the DOL published a Final Rule (\u201c2020 Tip Rule\u201d) that largely incorporated this guidance into the updated regulations.\u00a0 In supporting the issuance of the 2020 Tip Rule and its incorporation of the updated guidance, the DOL pointed out that the 80\/20 rule was difficult to administer because it did not explain what non-tipped duties are considered \u201crelated\u201d and it created a significant administrative burden to closely monitor employee time.<\/p>\n

After extending the effective date of the 2020 Tip Rule twice, the DOL issued the current NPRM, which proposes to withdraw the new interpretation of \u201cdual jobs\u201d because it does not actually meet the justifications to support its passage.\u00a0 Namely, the DOL argues that the 2020 Tip Rule does not clearly define key terms, so it would not limit litigation and or be any easier for employers to administer.\u00a0 In addition, the DOL asserts that reference to O*NET to determine what constitutes \u201crelated duties\u201d for tipped work did not provide the clarity needed to justify the new rule.\u00a0 And as part of withdrawing the \u201cdual jobs\u201d portion of the 2020 Tip Rule, the DOL described a new standard to assess what constitutes time for which the employer can take a tip credit, that incorporates the old 80\/20 guidance into the regulations and creates a new carve out by expanding the definition of \u201csubstantial amount of time.\u201d<\/p>\n

New Standard Proposed by the Biden DOL<\/u><\/strong><\/p>\n

The proposed rule establishes two main types of work for which an employer can take a tip credit because the employee is considered engaged in a \u201ctipped occupation\u201d \u2013 (1) tip-producing work; and (2) work that \u201cdirectly supports tip-producing work provided it is not performed for a substantial amount of time.\u201d\u00a0 For example, a server\u2019s tip-producing work would be waiting tables, while her tip-supporting work would be cleaning tables to prepare for the next customers.\u00a0 In the NPRM, the DOL explains its determination that the term \u201cdirectly supports\u201d is more concrete than the prior used \u201crelated duties\u201d terminology, which could be interpreted to mean duties only remotely related to the tipped work.\u00a0 The DOL also proposes to provide examples of both tip-producing work and tip-supporting work in the standard to assist employers in determining which tasks are included.\u00a0 The proposed rule includes a couple illustrative tasks for different types of tipped occupations, such as servers and bartenders, but it is certainly not an inclusive list, leaving ultimate interpretation of those terms to employers.<\/p>\n

Where the proposed rule significantly differs from the 2020 Tip Rule and 2018 and 2019 guidance, is in how it defines \u201csubstantial amount of time.\u201d\u00a0 Again, an employer can only take a tip credit for work that directly supports tip-producing tasks where that work is not performed for a \u201csubstantial amount of time.\u201d\u00a0 The proposed rule defines \u201csubstantial amount of time\u201d as work either:<\/p>\n