As service industry employers are aware, the Fair Labor Standards Act (FLSA) and its implementing regulations issued by the U.S. Department of Labor (DOL) allow for employers to take a credit against their minimum wage obligations if an employee regularly receives tips. This is referred to as a “tip credit.”
The FLSA and the DOL’s regulations have always required employees to meet certain requirements in order for their employer to utilize the tip credit, taking into account the fact that employees rarely (if ever) perform only tip-generating work. For many years the DOL interpreted the FLSA as allowing employers to utilize the tip credit so long as the employee devotes at least 80 percent of their working time to tip-producing activities. This led to the concept known as the “80/20 Rule.”
In October 2019, the DOL under the Trump Administration announced a reversal in course, and sought to eliminate the 80/20 Rule in favor of a more flexible (and employer-friendly) requirement that the tip credit could be used for any amount of time so long as non-tipped work is performed contemporaneous with tipped work, or a reasonable time immediately before or after. (For more about the DOL’s prior rule, you can read our original blog, here.
That change was short lived. On October 28, 2021, the DOL under the Biden Administration announced a new final “dual jobs” rule [PEP2] set to go into effect on December 28, 2021. The new rule not only revives the 80/20 Rule, but includes several...
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