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On Oct. 28, The United States Department of Labor (DOL) announced the finalized version of the “dual jobs” rule, which effectively withdrew a Trump-era provision and adopted the “80/20” guidance that governs how tipped employees must be paid under the Fair Labor Standards Act (FLSA) from its original proposed rule in June.
Absent any legal challenges, the final rule becomes effective Dec. 28, and addresses situations in which tipped employees perform both work that produces tips as well as work that directly supports their tip-producing work. The rule determined that the latter is only considered part of an employee’s tipped occupation if it’s not performed for a “substantial amount of time.” The DOL defined “substantial” as either more than 20% of the employee’s hours worked during the workweek or a continuous period of time exceeding 30 minutes.
Ultimately, the DOL has declared that a tipped employee’s work duties must be divided into three categories:
- Tip-producing work,
- Directly supporting work and
- Work that is not part of a tipped occupation.
The DOL stated that this categorization of work duties is part of a “functional test to determine when a tipped employee is engaged in their tipped occupation because they are performing work of the tipped occupation, and therefore the employer may take a tip credit against its minimum wage obligations.”
The DOL notes that work is “tip-producing” (the first of the three categories) if it “provides service to customers for which tipped employees receive tips.” Work is “directly supporting” (the second category) if it “is performed in preparation of or to otherwise assist tip-producing customer service work.” Any duties that are neither tip-producing nor directly supporting are not part of the tipped occupation (the third category).
Under the final rule, any time spent in the third category (tasks not part of the tipped occupation) must be compensated at full minimum wage (i.e., no tip credit may be taken). There is no exception for this category. So, if a tipped employee spends two minutes wiping down tables, for example, they are entitled to full minimum wage for that two minutes.
The final rule does contain examples for tipped employees employed in restaurants and hotels, nail salons and valet parking as a reference for employers. Some of the items in the “directly supporting” category are elevated to the tip-producing category if they are performed in response to a specific customer request. For example, a bartender who retrieves a particular type of beer from the storeroom to satisfy a customer request is performing tip-producing work, but if the bartender simply retrieves beer to restock for future orders the work is only “directly supporting.”
While there’s a chance the rule could face legal challenges, Daniel B. Boatright, office managing shareholder at Littler Mendelson P.C., noted in a written analysis of the rule that employers should be prepared to comply by Dec. 28.
“Employers should focus tipped employees’ work on those activities that the DOL has found lead to tips,” Boatright wrote. “The final rule and preamble clearly explain that customer-related work does not necessarily have to be performed in the presence of the customer (e.g., adding a garnish to a plate in the kitchen), but the final rule is very much focused on customer-specific work.”
Boatright added that employers will need to find a way to track “directly supporting” work time, which, given the nature of the work, isn’t easily done. There are additional rates of pay implementations that employers should consider to minimize risk as well, Boatright added.
“Finally, employers must continue to be mindful that the FLSA does not preempt more protective state or local laws,” he wrote. “Many states have tipped employee pay provisions that do not allow for a tip credit at all, or otherwise differ from the FLSA in important respects.”