Here’s a tip: No more 80/20/30 tip rule

Complications of the previous rule

The vacated final rule defined three categories of work: (Note – these no longer apply)

1. Directly tip-producing work (e.g., a server “providing table service”);
2. Directly supporting work (e.g., a server “setting and bussing tables”); and
3. Work not part of the tipped occupation (e.g., a server “preparing food”).

Employers could take a tip credit for tip-producing work, but if employees spent more than 20 percent of their workweek on directly supporting work, they could not claim a tip credit for that excess. Nor could they if employees performed directly supporting work for more than 30 minutes at any given time.

A bartender, for example, who retrieves a particular beer from the storeroom at the request of a customer sitting at the bar, is performing tip-producing work. Yet that same bartender is only performing “directly supporting work” when retrieving a case of beer from the storeroom. But the bartender in both examples is indisputably performing the duties of the bartender occupation.

These details in the previous rule were overly complicated for employers to navigate.

Previous rule was ‘arbitrary and capricious’

The court, thus, found that the rule was contrary to the FLSA’s text. It also found that the rule was “arbitrary and capricious” (i.e., inconsistent).

The law ties the applicability of the tip credit solely to whether an employee is performing the tasks making up their occupation. The vacated rule’s consideration of those duties’ relationship to pursuing tips, rather than their relationship to the occupation as a whole was, therefore, not a permissible distinction.

What this means for employers

Employers no longer need to follow the 80/20/30 rule. They do, however, still need to follow the 1967 “dual-jobs” rule, which focuses on whether employees perform tasks unrelated to their tipped occupation. In other words, if employees perform tipped work (e.g., serving customers) and non-tipped work (e.g., doing accounting for the business), the employer may not get the tip credit for both.

Employers must, however, consider whether similar state or local laws or rules apply.

This ruling could result in other courts following it. The DOL could also seek a review before the Fifth Circuit or an appeal to the U.S. Supreme Court.

Restaurant Law Center; Texas Restaurant Association, v. U.S. Department of Labor; Fifth Circuit Court of Appeals, No. 23-50562, August 23, 2024.

Key to remember: Employers no longer need to worry about following the 2021 80/20/30 tipped employee rule.