DOL final rule restores 80/20 standard for tipped employees

The U.S. Department of Labor (DOL) is resurrecting the so-called 80/20 rule under which an employer can take a tip credit on work that directly supports tip-producing work only if it’s less than 20 percent of all hours worked during the workweek. The new standard is effective December 28, 2021.

How we got here

The Fair Labor Standards Act (FLSA) generally permits employers to pay tipped employees less than the minimum hourly wage, provided (1) the tips they receive are at least equal to the difference between the required cash wage (at least $2.13 per hour) and the federal minimum wage and (2) the workers are given appropriate notice. The approach is known as the “tip-credit rule.”

In December 2020, the DOL promulgated proposed FLSA regulations for tipped employees, which would have allowed employers to take the tip credit for tipped employees performing “dual jobs” involving both tipped and nontipped duties. Their enactment was repeatedly delayed, however, until they were eventually abandoned. The agency recently announced the publication of its final rule, which officially withdrew the 2020 proposed rule and returned to the traditional 80/20 standard.

What new regulation requires

The DOL’s new rule also requires that work directly supporting tip-producing work must be less than 30 continuous minutes to qualify for the tip credit. It also clarifies what is considered (1) tip work, (2) work that directly supports tip-producing work, and (3) nontipped work. The final rule contains numerous examples of duties meeting each definition: