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US DOL Proposes Changes on the FLSA ‘80/20’ Rule for Tip Pooling

The U.S. Department of Labor (DOL) published a proposed rule to amend employee tip regulations under the Fair Labor Standards Act (FLSA). The Notice of Proposed Rulemaking (NPRM), published on October 8, 2019 would eliminate the “20% Rule,” or “80/20 Rule,” under the FLSA. This proposed rule has been issued, in part, to bring the regulations into alignment with legislation approved by Congress in 2018 and to incorporate DOL guidance about tipped wages.

Currently, the 20% Rule requires employers to pay tipped employees the full minimum wage, rather than the lower cash wage applicable to tipped employees, if an employee spends more than 20% of their time performing allegedly non-tipped duties (which were undefined).

Among other things, the proposed rule would:

  • Prohibit employers (including managers and supervisors) from keeping employee tips;
  • Permit non-tipped employees to share in the tip pool, if their employer does not use the tip credit; and
  • Allow employers to use the tip credit when paying tipped employees for non-tipped activities that are “contemporaneously” performed with tipped activities.

The proposed rule would clearly eliminate the 80/20 rule, which should result in a reduction of the litigation against restaurant industry employers arising out of the difficulties associated with recordkeeping of the specific breakdown of tipped employees’ tasks throughout their shift.

This NPRM will be available for review and public comment for 60 days. The Department encourages interested parties to submit comments on the proposed rule. The NPRM, along with the procedures for submitting comments, can be found at the DOL Wage and Hour Division’s Proposed Rule website.

Next Steps

Employers with tipped employees should carefully review their tip credit and tip pooling policies to ensure that they will comply with the proposed regulatory changes. Employers should also confirm that they are not operating any tip pooling or sharing arrangement that includes supervisors or managers and that they are distributing all employees’ tips properly and in a timely manner.

HR Works will continue to monitor this and communicate any updates when the proposed rule is made final.

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