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Department of Labor Outlines New Enforcement Position on “Side Work” and the FLSA’s Tip Credit

Feb 21, 2019
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In a welcome development for employers in the hospitality industry, the U.S. Department of Labor (“DOL”) recently issued Field Assistance Bulletin 2019-2 (“Bulletin”), which provides Wage and Hour Division (“WHD”) investigators with guidance on enforcement positions and clarification of policies.

The Bulletin reflects the DOL’s updated enforcement position regarding under what circumstances an employer with tipped employees, such as a restaurant employing servers, can pay an employee an hourly rate less than the federal minimum wage and use a “tip credit” to make up the difference to satisfy the minimum wage obligation.

The DOL initially addressed this issue in an Opinion Letter issued late last year, which rescinded prior Obama-era guidance that made the tip credit unavailable for tipped employees who spend more than 20% of their time performing allegedly non-tip generating duties. With this latest action, the DOL has brought its enforcement position in line with the November 2018 Opinion Letter.

The Fair Labor Standards Act (“FLSA”) generally requires covered employers to pay employees at least the federal minimum wage. Under the FLSA, however, an employer may pay a tipped employee a lower direct cash wage and count a limited amount of the employee’s tips as a partial credit to satisfy the difference between the direct cash wage and the federal minimum wage. This is known as the “tip credit.”

An employer may utilize the tip credit for the time that its tipped employee spends performing duties related to the employee’s tipped occupation, even though such duties are not by themselves directed toward producing tips. For example, a server who also engages in “side work”—e.g., rolling silverware, setting and clearing tables, etc.—is engaged in duties related to a tipped occupation, even though the server is not tipped for these related duties.

However, under the prior Obama-era rule, commonly referred to as the “80/20 rule,” employers were barred from paying their servers a lower minimum wage and taking a tip credit for such related side work when it accounted for more than 20% of the server’s time.

In light of the November 2018 Opinion Letter and the recently-issued Bulletin, employers may now take a tip credit for any amount of time that their servers spend on related, non-tipped side work performed contemporaneously with tipped duties—or for a reasonable time immediately before or after performing tipped duties—regardless of whether those duties involve direct customer service. According to WHD, related, non-tipped side work includes, but is not limited to, the following: cleaning tables or counters after patrons have finished dining; preparing tables for meals (which includes setting up items such as linens, silverware, and glassware); stocking service areas with supplies such as coffee, food, tableware, and linens; and garnishing and decorating dishes in preparation for serving.

To determine if a specific non-tipped duty is “related” to an employee’s normal tipped duties, WHD instructs that employers may consult the Occupational Information Network ("O*NET") task list for the employee’s specific tipped occupation. An employer still may not take the tip credit for the time an employee spends performing any tasks not contained in the O*NET task list for the employee’s tipped occupation.

The DOL’s new stance on this issue will provide affected employers with a defense to lawsuits that have been prevalent in recent years claiming that employers cannot take a tip credit where tipped employees engage in non-tipped side work for more than 20% of their shift. Many employers who operate in jurisdictions only subject to the FLSA, or who operate in jurisdictions that follow the FLSA with respect to tip credits, will no longer be forced to track the amount of time employees spend doing related side work, so long as such duties are performed contemporaneously with (or immediately before or after) tipped tasks (and the employer otherwise follows the FLSA’s requirements).

Importantly, employers electing to use the tip credit must still ensure tipped employees receive at least the federal minimum wage when direct cash wages and the tip credit amount are combined. If an employee's tips combined with the employee’s direct cash wages do not equal the federal minimum hourly wage of $7.25 per hour, the employer must continue to make up the difference. In addition, the Bulletin only provides guidance regarding the FLSA, so it is important for employers to be aware of and comply with any state or local laws and regulations regarding tip credits and minimum wage.

If you have further questions, please feel free to contact Tom Green, John Hofstetter, or any other KWW attorney.