A federal court just refused to block the U.S. Department of Labor’s infamous 80/20 rule, which applies to employers that take the tip credit toward their minimum wage obligation under federal wage and hour law – which means now’s time to ensure you’re in compliance. Several restaurant industry groups filed a lawsuit seeking to halt the rule, but a Texas federal court issued an order on July 6 rejecting the challenge. Although the industry groups plan to appeal the decision, the DOL’s new rule will remain in effect…for now. Here’s a brief background on the rule and a 10-step action plan to ensure your wage and hour practices are up to date.
A Brief Background on the 80/20 Rule
If you are not familiar with the two federal rules on tips provisions that went into effect near the end of 2021, you can read our detailed Insights here and here. Notably, the DOL’s Wage and Hour Division reinstated the infamous “80/20” Rule in December 2021, amending the tip provisions of the Fair Labor Standards Act (FLSA) regarding when restaurants with tipped employees may take a tip credit and modifying the definition of work that is considered part of a tipped occupation.
The FLSA permits employers to take a so-called “tip credit” and pay employees who traditionally receive tips – such as servers and bartenders – less than the federal minimum wage, so long as employees make up the difference in tips and the employer follows certain other requirements. Under the 80/20 rule, employers lose the...
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