The 80/20 Rule Clarifications from the Department of Labor

Side Work and the Department of Labor’s NEW 80/20 RULE

By KEVIN JOHNSON

For many years, the Department of Labor (DOL) has enforced a regulation that limits when employees can be paid the subminimum tipped wage. This “dualjobs” regulation has long had two parts.

The first part was easy to understand: When an employee worked in a non-tipped occupation (e.g., virtually all back-of-house jobs), the employee could not be paid the tipped wage.

The second part of that regulation was far more difficult to understand. Known colloquially as the “80/20 rule,” it attempted to limit the length of time that an employer could require a tipped employee to perform duties that were part of the tipped occupation but non-tip-producing. If those duties exceeded 20% of the tipped employee’s workweek, they had to be paid at the full minimum-wage rate.

The problem with this rule was that there was no accepted industry definition of “non-tip-producing duties” and DOL did not provide one. This absence spawned much litigation about side-work duties over the last 30 years.

Plaintiffs’ counsel and many courts have frequently assumed that all side-work duties could be equated with non-tip-producing related duties. Using this assumption, they argued that the 80/20 rule restricted side work to no more than 20% of a tipped employee’s workweek. Hospitality employers pushed back, arguing that nothing in the statute or the regulation had ever expressly said that all side work had to be considered non-tip-producing.

In December, the DOL released a revised version of the 80/20 rule that attempts to solve the definitional problem. The new rule starts by breaking the work in a tipped occupation into two categories: 1. Work that produces tips. 2. Work that directly supports the tipproducing work, if the directly supporting work is not performed for a substantial amount of time.

The rule then goes on to provide a list of examples of tip-producing duties, followed by a corresponding set of examples of “directly supporting work.”

The rule then moves on to define the meaning of a “substantial amount of time.” According to DOL, the tip credit cannot be applied to directly supporting work when directly supporting work is performed: 1. For more than 20% of the hours in the workweek for which the employer plans to take a tip credit. 2. For any continuous period of time that exceeds 30 minutes.

If either of those two conditions is breached, the employer cannot claim the tip credit for the amount of work that exceeds those limits.

In adopting this rule, the DOL has still failed to explain how an employer can determine which tasks its customers are actually tipping for, even though that is the touchstone of the entire rule. The DOL did note that the National Restaurant Association had argued that “all tasks in a full-service restaurant . . . produce tips.” DOL said that it “does not agree with that assertion,” but did not explain why.

In short, the dual-jobs regulation has been given a substantive refresh that includes new definitions, new terminology and a much more extensive list of illustrations. There are many nuances to consider that may necessitate revising side-work policies and even the organization of tasks or labor in front-of-house roles.

Employers may wish to consider implementing a rule that all side work or prep work performed when an employee has not yet started to serve customers should be paid at the full minimum wage. Likewise, employers may wish to have employees clock into a full-minimum-wage job code once their active customer service has ceased.

At a minimum, employers should review their side-work policies with employment counsel who are familiar with the new regulation.

Kevin Johnson is an employment law defense attorney and shareholder at Johnson Jackson, PLLC.