Department of Labor Scraps 80/20 Rule for Tipped Income Earners
January 8th, 2019 by David Minces
If you are one of the millions of Americans who are paid below the minimum wage for a tipped income, the way your pay is calculated has recently changed. In November, the Department of Labor announced that it would no longer recognize the 80/20 rule, a guideline the DOL began recommending in 2011. This is significant because in the past, as we have covered in a previous blog post, the rule has been used by the courts in favor of employees.
What is the 80/20 rule?
To understand the 80/20 rule, it is important to recognize the distinction between regular and tipped workers. Most employees are paid at least a minimum wage of $7.25 per hour. However, the government allows employers to pay professionals whose wages are conventionally subsidized by tips a minimum of $2.13 per hour. This “tip credit” can be used by an employer if the employee receives enough in tips to make a total of $7.25 an hour.
A problem arises when tipped workers spend a large portion of their time doing untipped work. For example, servers often spend time cleaning and setting up the restaurant. During this time, they are paid at the tipped minimum wage rate despite not being tipped. The 80/20 rule tried to solve this by dictating that, if employees spent more than 20% of their time on “untipped” tasks, their employer had to compensate this time based on the regular minimum wage.
How was it applied in the past?
The 8th Circuit, which covers seven states, and numerous district courts has affirmed the 80/20 rule. While the rule was technically nonbinding in the past, courts have been willing to defer to it. For example, in a lawsuit by a waiter against Outback Steakhouse in Florida, the defendant, Outback Steakhouse, hoped that the Tampa Division of the United States District Court would drop the suit. They argued that the 80/20 rule was a rule by a government department, not a law. However, the court refused to drop the suit because many others before them had affirmed the 80/20 rule so they saw upholding the rule as “the majority view.”
DOL changes position
On November 8th, however, the DOL took the position that the 80/20 rule burdens employers by limiting the scope of work that could be done by tipped employees. Now, employers no longer have to track the amount of time their tipped employees spend performing specific duties. However, the workers must still primarily do tip-generating work in order to qualify for the tip credit.
Though the change in position offers employers greater liberties, it decreases the amount tipped employees can make. Servers will continue to make a minimum of $7.25 an hour, whether that comes from tips or by the employer. However, because more of an employee’s time can be spent doing untipped tasks, the amount they can make from tips could be restricted.
The change also eliminates a large degree of legal ambiguity. In the past, several courts have ruled in favor of the 80/20 rule. However, ultimately, the guidelines are nonbinding and up to the individual judge’s discretion to enforce.
Whether you are an employee or a business, Minces PLLC can help you clear up any ambiguities regarding wage and hour requirements. Contact our office if you have a question about how you are being paid or how you are paying your employees.
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