Client Alert 
November 3, 2021

DOL ISSUES FINAL RULE ON REVISED
80/20 RULE FOR TIPPED EMPLOYEES
On October 29, 2021, the Department of Labor issued a Final Rule regarding tip credit regulations under the Fair Labor Standards Act (FLSA). The Final Rule is effective December 28, 2021.

Under the Fair Labor Standards Act (FLSA), an employer is permitted to satisfy a portion of its minimum wage obligations to a tipped employee by taking a tip credit toward the full minimum wage based on the tips an employee receives, provided that certain requirements are met. Where an employee is employed in both a tipped occupation and a non-tipped occupation, the tip credit may only be claimed when the employee is engaged in the tipped occupation.
 
Under the Final Rule, an employee is engaged in a tipped occupation when the employee performs work that is part of the tipped occupation, which includes both:

  • Work that produces tips (“Tip -Producing Work”), and
  • Work that directly supports the tip-producing work (“Directly-Supporting Work”), provided it is not performed for a substantial amount of time.
 
The Final Rule specifically defines “Tip-Producing Work” and “Directly-Supporting Work,” and provides examples of each type of work based on the category of tipped position. It also clarifies that an employer may only take the tip credit for time spent on Tip-Producing Work, and for Directly-Supporting Work that does not exceed 30 consecutive minutes or cumulatively more than 20% of the tipped employee’s workweek.
 
Tip-Producing Work
 
A tipped employee’s Tip-Producing Work includes all aspects of the service to customers for which the tipped employee receives tips. For example:

  • A server’s Tip-Producing Work includes providing table service, such as taking orders, making recommendations and serving food and drinks, but can also include wiping up a spill at a customer’s table or placing coffee into a coffee pot for brewing.
  • A busser’s Tip-Producing Work includes the work for which they receive tips such as cleaning and resetting tables, provided customers are present.
  • A hotel bellhop’s Tip-Producing Work includes assisting customers with their luggage, and can also include taking a photo for a hotel guest after assisting with the luggage.
 
Directly-Supporting Work
 
Directly-Supporting Work is work performed by a tipped employee in preparation of, or to otherwise assist, tip-producing customer service work. Generally, Directly-Supporting Work is performed before or after table service or during down time. For example:

  • A server’s Directly-Supporting Work includes dining room prep work, such as refilling salt and pepper shakers and ketchup bottles, rolling silverware, folding napkins, sweeping or vacuuming under tables in the dining area, and setting and bussing tables.
  • A bartender’s Directly-Supporting Work includes slicing fruit for drinks, wiping down bar or seating areas, arranging bottles, fetching bottles or glassware and cleaning glasses.
  • A hotel bellhop’s Directly-Supporting Work includes rearranging the luggage storage area and maintaining clean lobbies and entrance areas of the hotel.
 
If the otherwise Directly-Supporting Work is being performed concurrently with Tip-Producing Work, such as a bartender talking to customers about drink offerings while wiping down another area of the bar so new customers can be served or retrieving a specific bottle of wine to serve to a customer, all of the work would be considered Tip-Producing Work.
 
Non-Tipped Work
 
An employer may not claim the tip credit for non-Tip-Producing Work or for non-Directly Supporting Work. For example, neither preparing food nor cleaning the kitchen/bathroom is considered part of the tipped occupation of any tipped restaurant employee. Similarly, retrieving room service trays from guest rooms is not part of the tipped occupation of a hotel bellhop.
 
Effect on New York State Labor Laws

Businesses subject to the FLSA and an overlapping state law must comply with both. Accordingly, once the FLSA Final Rule takes effect, New York employers will need to comply with both New York law and the FLSA Final Rule — to an extent. In New York, employers wishing to take the tip credit and pay the tipped minimum wage will need to track compliance with both the New York 80/20 rule and the FLSA Final Rule because violations of the FLSA Final Rule will require New York employers to pay overtime at the full overtime wage rate with no tip credit. 
 
In New York, you may continue (for now) to take the tip credit on straight time (hours under 40) as long as you comply with New York’s 80/20 rule (even if you violate the FLSA Final Rule) because the New York tip credit minimum wage ($10) is greater than the full federal minimum wage ($7.25). This would change when/if the federal minimum wage rises above $10/hour. 
 
By contrast, because of a wrinkle in federal law that requires overtime be paid at 1 ½ times the “regular rate” (which is the New York full $15 minimum wage), New York employers will not be able to take the tip credit on overtime if they do not satisfy the new FLSA Final Rule (because satisfying that rule is a requirement for taking the tip credit under federal law).
 
Obviously, this is very complicated and will certainly lead to increased litigation.

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If you have questions or would like additional information, please contact our Labor & Employment attorneys or the primary EGS attorney with whom you work.

This memorandum is published solely for the informational interest of friends and clients of Ellenoff Grossman & Schole LLP and should in no way be relied upon or construed as legal advice.