To paraphrase Queen: 'Another Rule Bites the Dust' as the DOL 80/20 Tip Credit for Restaurant Workers Ends

This blawg is primarily for all you restaurateurs out there, but anyone who claims the “tip credit” against the Florida minimum wage will want to hear this: as of August 23, 2024, you are no longer required to keep track of how long your tipped employees are engaged in “non-tipped” workplace duties to maintain the tip credit.

Under the “old” (circa 2021) standard, employers could only claim a tip credit for employees who spent 80%+ of their working time engaged in tip-earning activities. This rule was intended to ensure that the tip credit could not be abused to compel tipped employees to perform menial labor for sub-minimum wage. 

Every law, rule, and policy under the sun was intended to solve some problem or other, and in this case, the problem was that certain restaurants were abusing the tip credit by having employees ostensibly classified as “servers” spend half, or even the majority, or their time mopping, rolling silverware, cleaning bathrooms, or performing other “side work” at a rate as low as $2.13/hour ($$8.98/hour in Florida). After all, why would a bad actor hire a custodian at the minimum wage when you can just overschedule your servers and effectively have an entire custodial staff on-call for a fraction of the cost?

Well, as of August 23, 2024, the answer to that query is “Why indeed?” Because thanks to the de facto highest court in the land, the Fifth Judicial Circuit of – who else? – Texas, the 80/20 rule is dead.

The Fifth Circuit Court did clarify that, in extreme cases, an employee’s duties may be so varied that, upon judicial scrutiny, they might actually be designated as working two entirely different occupations, e.g. “server” and “maintenance worker.” The Court dubbed this the “dual jobs” exception, and it survived the Court’s analysis. In that case, the “server” role could be paid sub-minimum wage, but time spent in the “maintenance” role would be paid according to the standard applicable minimum wage.  

So, in essence, the practical effect of this decision is that, to qualify for the tip credit, tipped employees must now spend 51%+ of their working time engaged in tip-earning activities, rather than the old 80%+ standard. For 99% of the restaurant industry, this is really all you need to know. 

In the instant case, the Court went with “arbitrary and capricious,” as the reason for declaring the standard null and void.  To their (limited) credit, the federal courts of Texas aren’t quite at the point of signing their opinions “because we said so” just yet. In the instant case, the Fifth Circuit declared that, as a matter of law, “tipped employee” status was based on the nature of the position as a whole, and not the sum amount of the duties associated with that position. Per the Court: “"[I]f the server is idly standing by to serve customers for 21 percent of his workweek, or for 31 continuous minutes, he is no longer engaged in his occupation and is no longer a tipped employee for the duration of that excess time. What occupation, then, would he be engaged in?" It’s admittedly not a bad point.

Please review your tip policies and adjust how you keep your time records for your serving staff to be sure you are properly recording time per this new rule so that your restaurant is in compliance with the updated rule.  The employer still has a burden of tracking time appropriately for all hours worked and for servers, being aware of how 51% of time is being spent.  You may want to consider having a wage and hour audit of your past records and ensuring you know how to keep the records per the DOL’s standard in the future.