On November 8, 2018, the Department of Labor (DOL) retracted its “80/20 rule,” which prevented employers from taking the tip credit when tipped employees spent more than 20 percent of their working time on non-tipped work. The Fair Labor Standards Act (FLSA) allows employers to pay their tipped employees not less than $2.13 per hour in cash wages and take a tip credit equal to the difference between the cash wages paid and the federal minimum wage.

This is great news for the hospitality industry. If a tipped employee engaged in a different, non-tipped occupation for the same employer (for example, an employee was a server and a maintenance person), the employee is said to have “dual jobs” and must be paid the cash minimum wage when engaged in the non-tipped occupation. However, the DOL also recognized that there were tipped occupations that required non-tip-generating duties not amounting to a separate occupation. For example, a server may spend time cleaning and setting tables, rolling silverware, stocking service areas, and filling condiment containers. In these situations, the DOL applied the 80/20 rule, where these related side duties could not exceed 20 percent of the employee’s time in order for the employer to utilize the tip credit.

Many employers found the 80/20 rule unworkable since it required them to constantly monitor and account for the duties of tipped employees. The 80/20 rule was challenged by employers in the courts as contrary to the regulations and the DOL’s prior guidance.

But now, the DOL has again substantially changed course and reissued an opinion letter abandoning the 80/20 rule. The opinion letter gives employers clearer guidance on what is related side work and states that employers are no longer required to track the time spent on side work as long as such work is “performed contemporaneously with the duties involving direct service to customers or for a reasonable time immediately before or after performing such direct-service duties.” Employers are advised to look to Occupational Information Network (O*NET) lists or 29 CFR §531.56(e) for what is considered directly related to the tip-producing duties of an occupation. Maintaining the “dual jobs” distinction, the opinion letter stated that employers “may not take a tip credit for time spent performing any tasks not contained in the O*NET task list” unless the tasks are de minimis as defined by the DOL regulations in 29 CFR §785.47.

While there are still ambiguities concerning what constitutes related side work and direct service for certain positions, or what is “a reasonable time” before or after direct service, the opinion letter brings welcomed clarity and a common sense framework for hospitality employers.