In December of 2020, the DOL under President Trump issued a final rule dispensing with the longstanding “80/20” tip credit rule—whereby an employer was only required to pay a tipped-employee the full minimum wage rate for non-tip producing work if the employee spent in excess of 20% of their workweek performing such work. In early 2021, the DOL under President Biden delayed the effective date of the Trump-era rule (initially until April 30, 2021, then again until December 31, 2021).

On October 23, 2021, the DOL officially withdrew the Trump-era rule and finalized its proposed rule with respect to tipped employees who perform multiple job duties for the same employer. For background, the basic “tip rule” allows a qualifying employer to offset a portion of its minimum wage obligation to certain tipped employees with amounts those employees earn from tips. This offset is known as a “tip credit,” and there are a number of prerequisites an employer must satisfy before it can rely on the tip credit.

The DOL’s prior 80/20 rule limited an employer’s ability to rely on the tip credit for employees who performed multiple job duties for the employer. Essentially, the old 80/20 rule divided an employee’s job duties into two buckets: 1) job duties that directly produce tips, and 2) job duties that do not directly produce tips. The rule required an employer to pay an employee the full minimum wage rate for worktime spent performing job duties that do not directly produce tips if the employee spent in excess of 20% of the employee’s workweek performing those duties.

In the new October 23rd rule, the DOL has resurrected the 80/20 rule and added a new wrinkle.   The new rule divides an employee’s job duties into three buckets for purposes of determining whether an employer qualifies for the tip credit: 1) job duties that directly produce tips, 2) job duties that directly support tip-producing work, and 3) any other job duties. An employer is entitled to take a tip credit for work that falls into bucket 1 and is not entitled to take a tip credit for work that falls into bucket 3.

As it relates to bucket 2, an employer is entitled to take a tip credit for work that directly supports tip-producing work if the work “is not performed for a substantial amount of time,” which the DOL defines as (a) work that exceeds 20% of the employee’s workweek or (b) work that is performed “for a continuous period of time exceeding 30 minutes.”  If the time spent performing duties that directly support tip-producing work exceeds either the 20% or 30 continuous-minutes thresholds, the employer cannot rely on a tip credit for the portion of the work that exceeds the applicable threshold and must instead pay the full minimum wage for such time.

The new DOL tipped-employee rule goes into effect on December 31, 2021. Employers who intend to continue relying on the tip credit will need to revisit how they assign and administer payment to tipped employees, including how they track hours worked and duties performed by tipped employees.