DOL Reaches Tipping Point on the 80/20 Tip Credit Rule - Articles

All Content


Posted by: Bradford Harvey & Megan Welton on Jan 15, 2019

The saying goes that 90 percent of restaurants fail in the first year.[1]  It may only seem like 90 percent of restaurants get sued for alleged wage and hour violations, but the industry has been as popular with the plaintiffs’ bar as a late-night drive-through is with college students.

Fortunately, the U.S. Department of Labor (DOL) at least has now taken the 80/20 Rule off the menu. Succinctly, the 80/20 Rule prohibited employers from using the lower tipped wage rate of $2.13 per hour when a tipped employee spent more than 20 percent of his/her working time on non-tipped work, such as busing tables, preparing food, or doing other non-customer facing roles.

Employees have filed 80/20 FLSA collective actions for the better part of three decades. As President George W. Bush was exiting the White House, his DOL issued an Opinion Letter rescinding the 80/20 Rule, but President Obama’s DOL quickly withdrew the Opinion Letter.  Like last night’s entrée that sees new life as a casserole, Bush’s Opinion Letter has now been reinstated by President Trump’s DOL.

Blurred Lines: Dual Jobs or Related Duties?

As an alternative to the federal minimum hourly wage (currently $7.25), Section 3(m) of the FLSA allows employers to take a “tip credit” for “tipped employees.”[2]  The “tip credit” accounts for the difference between the $7.25 minimum wage rate and a reduced cash wage (currently $2.13 per hour).  Employers may apply the tip credit as long as the reduced cash wage and tips earned total $7.25 an hour.[3]

The employer may only apply the tip credit to a “tipped employee,” which the FLSA defines as an employee “engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.” Seems simple, but the DOL has continued to tinker with this recipe.

The DOL first attempted to define whether an employee works in a tipped occupation 50 years ago when it established the concept of “dual jobs.” A “dual job” is one where an employee serves in one role satisfying the tip requirement and a second role not satisfying the requirement. In such a situation, the employer may only take a tip credit when compensating the employee for the tipped duties. The DOL provides the example of a hotel maintenance worker who also works as a waiter at the hotel, in which case only the waiter position would be subject to the tip credit.[4]

The definition of a “tipped employee” is further blurred by the DOL’s recognition that some occupations require both tip-generating and non-tip-generating duties but do not constitute a dual job, such as “a waitress who spends part of her time cleaning and setting tables, toasting bread, making coffee and occasionally washing dishes or glasses.”[5]  Where is the dividing line between a “dual job” and “related duties?" That’s what the 80/20 Rule sought to answer.

The 80/20 Rule advised that where “tipped employees spend a substantial amount of time (i.e., in excess of 20 percent) performing preparation work or maintenance, no tip credit may be taken for the time spent in such duties.” Neither the FLSA nor a regulation prescribe the Rule. Instead, it came from the Field Operations Handbook that DOL field officers use like a cookbook to guide their investigations.  Why publish a 20 percent limitation on “related duties” without statutory support, especially when the FLSA[6] utilizes a primary duty analysis (which focuses on an employee’s most important job duty)?  That’s a good question without a good answer. 

The After-Effects of the 80/20 Rule

It is easy to see how the 80/20 Rule was burdensome. Without incredibly detailed time records apportioning an employee’s time between tipped and non-tipped duties, the hospitality industry had an uphill battle defeating claims brought under the Rule.

Employers often challenged the Rule in court, but courts generally deferred to the DOL’s interpretation.[7]  As noted by the dissent in a recent collective action before the U.S. Court of Appeals for the Ninth Circuit, however, the 80/20 Rule “does not constitute an interpretation of the dual jobs regulation,” but, rather “is a completely different approach to the tip credit” that is “unworkable as a practical matter.”[8]

Because of the impracticality of the stopwatch approach, many in the hospitality industry simply stopped using a tip credit. Those that continued to claim it risked uncertainty with the 80/20 Rule’s application.

The DOL Giveth and Taketh Away … and Giveth and Taketh Away Again[9]

On Jan. 16, 2009, the Bush DOL rescinded the 80/20 Rule by issuing Opinion Letter FLSA2009-23. Less than two months later, on March 2, 2009, the Obama administration withdrew the Opinion Letter “for further consideration,” with the promise that it would “provide a further response in the near future.” That wait proved almost as interminable as an inattentive server’s return with the dessert menu.

Apparently, 2018 constitutes the “near future.” In November of this past year, the DOL finally sought to end the confusion by re-issuing the Opinion Letter (designating it as FLSA2018-27) and officially repealing the 80/20 Rule. 

Specifically, the Opinion Letter provides as follows:

We do 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 and all other requirements of the [Fair Labor Standards] Act are met.

It further provides guiding principles to determine whether a duty is part of a tipped occupation:

  1. Check the DOL’s Occupational Information Network (O*NET) or 29 C.F.R. § 531.56(e) to determine whether the duties are listed as core or supplemental to the tip-producing occupation. Those core or supplemental duties are considered directly related to the tip-producing duties and no limitation is placed on the amount of those duties that may be performed, whether or not they involve directly customer service (so long as they are “performed contemporaneously with the duties involving direct service to customers or for a reasonable time immediately before or after performing direct-service duties”).
  2. Do not take a tip credit for time spent performing any tasks not contained in the O*NET task list. The DOL, however, does note that tasks not listed on the O*NET task list and which are considered de minimis[10] are excluded from this guidance.

What the “Near Future” May Hold

With the 20 percent hard limit erased, employers have more leeway establishing that an occupation is one in which an employee is “customarily and regularly” tipped.  At the very least, an exacting calculation of every minute devoted to every task will not be required. That said, the “tip credit” rule has always given restaurants just enough rope to expose them to lawsuits. Restaurants should remain vigilant in recording work time, administering tip pools, applying the tip credit, and calculating all wages and overtime owed.


Bradford Harvey is a member of Miller & Martin at its Chattanooga office. Brad received his J.D., Order of the Coif, from Vanderbilt University School of Law in 1995. He concentrates his practice in labor and employment law and class and collective action defense. Brad may be reached at 423-785-8210 or brad.harvey@millermartin.com.

Megan Welton is an associate of Miller & Martin at its Chattanooga office. She focuses her area of practice on Labor & Employment law. Megan received her J.D. from University of Memphis Cecil C. Humphreys School of Law in 2015. She may be reached at 423-785-4326 or megan.welton@millermartin.com.


[1] But see https://www.forbes.com/sites/modeledbehavior/2017/01/29/no-most-restaurants-dont-fail-in-the-first-year/#36392b274fcc.  While the 90% figure may be myth, feeding people still has to rank up there with plowing snow in Florida and practicing law among the more difficult ways to make a living.

[2] 29 C.F.R. § 203(m).

[3] If the employee’s combined tips and $2.13 hourly wage do not reach $7.25, then the employer must increase the cash wage to make up the difference. 

[4] See29 C.F.R. § 531.56.

[5] Id.

[6] See, e.g., 29 C.F.R. § 541.700(a) (“To quality for exemption under this part, an employee’s ‘primary duty’ must be the performance of exempt work.”); 29 C.F.R. § 541.106.

[7] Auer v. Robbins, 519 U.S. 452 (1997) (where an agency interprets its own regulation, even if through an informal process, its interpretation of an ambiguous regulation is controlling unless “plainly erroneous or inconsistent with the regulation”).

[8] Marsh v. J. Alexander’s LLC, 905 F.3d 610, 641 (9th Cir. 2018) (Ikuta, J., dissenting).

[9] Much like an all-you-care-to-eat Brazilian steakhouse.

[10] See29 C.F.R. § 785.47 (“In recording working time under the Act, insubstantial or insignificant periods of time beyond the scheduled working hours, which cannot as a practical administrative matter be precisely recorded for payroll purposes, may be disregarded. The courts have held that such trifles are de minimis.”).