United States: DOL Issues Proposed Regulations On Handling Tips And The "80/20 Rule"

Last Updated: October 21 2019
Article by David B. Jordan and Dan Boatright

Over a year after Congress amended the Fair Labor Standards Act (FLSA) to clarify tip ownership questions, the U.S. Department of Labor (DOL) finally published a Notice of Proposed Rulemaking on October 8, 2019, with proposed changes to its current regulations on handling tips under its minimum wage guidance. The proposed regulatory changes address two key areas. First, the DOL proposes to finalize a rule previously outlined in its 2018 Field Assistance Bulletin that clarified who can, and who cannot, receive tips when a tipped worker does not receive a tip credit. Second, the proposed regulations adopt the DOL's 2018 opinion letter that outlined the proper scope of the dual jobs regulation and the so-called 80/20 Rule involving work done by employees receiving a tip credit.

Tip Ownership

In March 2018, Congress amended the FLSA as part of the Consolidated Appropriations Act of 2018. The amendment provided that "[a]n employer may not keep tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion of employees' tips, regardless of whether or not the employer takes a tip credit." The effect of the amendment was that employers could compel tipped employees paid above minimum wage (and thus not taking a tip credit) to share tips with other employees, so long as the tips were not shared with supervisors, managers, or the employer itself.

This amendment led the DOL to issue a Field Assistance Bulletin in April 2018 providing clarity on the amendment. The DOL noted that "supervisor" and "manager" would be defined as those managers that meet the duties test of the executive overtime exemption under 29 CFR § 541.100(a)(2)-(4).

The DOL's proposed regulations adopt this "duties" test for identifying supervisors and managers prohibited from receiving tips from other tipped employees. The regulations also prohibit forced sharing of tips with persons owning 20% or more of the business, as defined by 29 CFR § 541.101. The proposed regulations also include express language permitting compulsory tip pools among non-management employees, such as dishwashers and cooks. Finally, the proposed regulations adopt the DOL's long-standing position that an employer does not improperly "keep" tips because it holds the tips (including credit card tips) until the next regularly scheduled payday. Of note, the proposed regulations do not discuss the DOL and court-adopted position that employers may withhold the actual credit card transaction fee associated with liquidating an employee's credit card tips. The employer community, therefore, can weigh in on this topic during the proposed regulations' notice and comment period. Aside from that missed opportunity for the DOL to provide clarity, this portion of the proposed regulations is a relatively non-controversial update to bring the regulations into conformity with the recent legislation.

80/20 Rule

The 80/20 Rule aspect of the proposed regulations is likely to garner much more attention. In 1988, the DOL attempted to clarify an existing "dual jobs" regulation by inserting a provision in its Field Operations Handbook instructing DOL field investigators that the tip credit is not available when tipped employees devote more than 20% of their time to non-tip producing activities. That provision was relatively dormant until the early 2000s, when it started becoming the focus of litigation brought by tipped employees. During the Obama administration, the DOL publicly took the position that an employer was allowed to apply a tip credit towards workers' wages only when the employees were spending less than 20% of their shift performing work that does not explicitly produce tips from the guests. This position fostered even more litigation and a completely unworkable standard for the hospitality industry, which became tasked with identifying, down to the minute, the work done by tipped employees on any given shift.

In November 2018, however, the DOL reissued and adopted a nearly decade-old opinion letter clarifying how employers must pay tipped employees who perform dual jobs. In the opinion letter, the DOL stated that it did not intend to place a limitation on the amount of duties related to a tip-producing occupation that may be performed, so long as these tasks are performed contemporaneously with direct customer service duties, or for a reasonable period of time immediately before or after performance of direct customer service duties. In other words, as long as the side work is "running side work" there is no limit to the amount of side work that can be performed. So, if servers are brewing coffee and rolling and polishing silverware during operational hours while they are also serving guests, this type of work can be performed while the employer is still applying a tip credit towards the employees' wages. The only quantitative limitation is that the server's wages and tips combined must equal or exceed the minimum wage. To decide whether a duty was related to a tipped occupation, the DOL relied upon duties set out in the federal occupational database, O*NET, www.onetonline.org, noting that if the duties were included in the database, then the DOL would presume they were related to the tipped occupation.

Since the November 2018 reissuance of the opinion letter, some courts declined to grant deference to the DOL's change in position. The proposed regulations adopt the language in the opinion letter and amend the dual jobs regulation to make clear to stakeholders that the 20% rule previously set forth in the DOL's Field Operations Handbook no longer applies. The new rule would confirm that an employer may take a tip credit for any amount of time that an employee performs related, non-tipped duties contemporaneously with their tipped duties, or for a reasonable time immediately before or after performing the tipped duties. This is an important clarification that eliminates an unworkable task-by-task timekeeping requirement, and replaces it with a reasonable, occupation-focused standard that ensures tipped employees receive the full protection of the FLSA's minimum wage and overtime provisions. Employers should consider voicing support for this proposed regulation through the regulatory comment process. In addition, the DOL is seeking comments on how to identify related duties for tipped occupations for which there is not an O*NET entry, such as in emerging positions and industries.

Comments to the proposed regulations must be made no later than December 9, 2019. More information on making comments can be found at www.regulations.gov.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions