It’s official: 80/20 limit on tip credit won't be enforced

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The U.S. Department of Labor officially killed the 80/20 rule for determining when restaurants can count servers’ tips as part of their wages Friday, directing its Wage and Hour Division to cease using that standard for determining when employers can legally pay a lower direct wage. 

The 80/20 rule required restaurants and other employers to pay the full minimum wage to servers, bartenders and other tipped employees for any “side work”—nontipped functions such as setting tables, prepping garnishes or rolling silverware—that exceeded 20% of their duties on any given shift. Otherwise, employers could take a tip credit, or count servers’ tips toward the minimum wage they’re due.  On a federal basis, the tip credit can be as high as $5.12 per hour, meaning restaurant employers are legally required to directly pay servers only $2.13 an hour. 

Because restaurants don’t usually keep precise records of what servers do minute by minute, and side work is not exactly defined, tipped employees have frequently sued their employers, alleging they should have been paid the higher full minimum wage instead of an amount lowered by the tip credit.

Restaurants, meanwhile, have argued that servers don’t hold two jobs, one tipped and the other a conventional hourly wage position. They’ve contended that side work factors into the tips a waiter or waitress receives, and therefore should be subject to the tip credit, just as taking orders or running meals are. 

In an update to the Wage and Hour Division’s Field Operations Handbook, the Labor Department formalized the one-job interpretation of the rules governing tip credit use. It specified that tips can be counted toward servers’ pay for duties “performed contemporaneously with direct customer-service duties or for a reasonable time immediately before or after performing such direct-service duties.” 

The switch to that standard is expected to enable restaurateurs to make more liberal use of a tip credit and be less vulnerable to credit-related lawsuits.

The change was set forth in an “opinion letter,” a communication alerting regulators to a change in the interpretation of a rule, in November. But in January, the U.S. District Court for the Western District of Missouri essentially reaffirmed the 80/20 standardfor determining when a tip credit can be taken by employers. The district court dismissed the opinion letter from the Wage and Hour Division as “unpersuasive and unworthy.”

The opinion letter “does not persuade this court to apply a new interpretation to this litigation,” District Court Judge Stephen Bough wrote at the time. 

Today’s update to the Field Operations Handbook affirms that Wage and Hour Division enforcement authorities will nonetheless no longer apply the 80/20 standard.

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