A panel of three judges of the U.S. Fifth Court of Appeals recently struck down the 2021 DOL Final Rule regarding tipped employees, which allows employers to count a portion of tips received by an employee classified as “tipped” toward the federal minimum wage requirement. Employers are currently permitted to take a tip credit of up to $5.12 per hour, paying a cash wage of $2.13 to equal the federal minimum wage of $7.25.
The 80/20 rule went into effect in 1988, while the 80/20/30 rule went into effect in October of 2021. It established the three categories of tipped work:
- Directly tip-producing work (providing table service in a restaurant)
- Directly supporting work (bussing and setting tables)
- Work that doesn’t earn tips (making food in a restaurant)
If an employee spends more than 20% of their working time in the second category (directly supporting work), the employer can’t take the tip credit for any time over 20%. Similarly, when employees spend 30+ continuous minutes directly supporting work, employers can’t take a time credit for any time after the first 30 minutes.
Groups in the restaurant industry took legal action in an effort to halt the rule under the belief that it was contrary to the FLSA and in violation of various rules and regulations.
The DOL has not responded to the ruling. We will continue to monitor and report on any additional developments.
This article is informational and does not constitute legal or financial advice. Consult with an employment lawyer or accountant for additional clarification on how these changes impact your company.
