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The Fair Labor Standards Act (FLSA) allows an employer to pay a “tipped” employee less than the minimum wage, provided the tips the employee receives at least make up for the difference between what the employer pays and the statutory minimum wage. The FLSA allows employer to take a tip credit of $3.02 per hour toward the minimum wage, meaning that in Florida, where the minimum wage is now $10.00 per hour, the employer must pay a direct wage of $6.98 to tipped employees. So far so good. Now the hard part.
The problem arises when tipped employees perform duties unrelated to or only marginally related to their tipped duties. A server does not spend his or her entire shift taking meal and drink orders and delivering those items to their assigned tables. Can the employer take the tip credit for these other duties? What if the server spends a lot of time doing things related to serving customers but not actually serving customers? The U.S. Department of Labor has traditionally applied what is called the 20% rule or 80/20 rule. Under the rule, (1) an employer cannot take the tip credit for time an employee spent performing duties that were unrelated to the tipped occupation and (2) an employer can take the tip credit for time the employee performed duties related to the tipped occupation, provided that the employee did not spend more than 20% of his or her working hours on those duties.
So why am I writing about this now? In mid-September, the Eleventh Circuit Court of Appeals, which has jurisdiction over Florida, rejected the now dead 2018 DOL rule intended to replace the 20% rule, and firmly planted the 20% rule as the standard to apply for tipped workers. (Rafferty v. Denny’s, Inc.) The court identified related duties for which the employer can take the tip credit, provided they do not exceed 20% or the employee’s work hours – setting tables, rolling silverware, toasting bread, making coffee, readying serving items, occasionally washing dishes or glasses, and sweeping under the table to keep the area clean. Janitorial work, regular dishwashing, and food prep are out. While this guidance helps, the Eleventh Circuit emphasized that it is the employer’s duty to keep track of the employee’s wages, hours, and conditions of employment. In other words, it is the employer’s burden to prove the amount of time the tipped employee spent on various tasks or at least reasonably refute the employee’s claims. Practically speaking, short of following tipped workers around with stop watches and clipboards, employers will remain susceptible to claims that they failed to pay tipped workers the minimum wage because the tipped worker spent too much time on tip-related tasks.
None of the options for controlling abuse of the 20% rule are perfect. Employers could remove all tip-related duties and delegate those duties to employees who receive the full minimum wage. However, this could leave tipped employees with downtime for which the employer is paying. Tipped employees could use an app that requires them to “clock in and clock out” when performing tip-related tasks, but such a system is dependent on the employee’s diligence to account for his or her time. Employers could pay employees the full minimum wage directly, eliminating the tip credit issue entirely, but this obviously adds expense and could result in lower total compensation to the workers. Or, employers can pay tipped employees the full minimum wage for, say, two hours a shift to cover any tip-related work the employee might perform on the shift.
The 20% rule is the law of the land in Florida, for the time being. However, the USDOL issued a notice of proposed rulemaking in June. The proposed rule reaffirms the 20% rule but with a wrinkle – the proposed rule not only limits tip-related work to less than 20% of the employee’s hours for the week but also to no more than thirty continuous minutes. Pass the acetaminophen.
