On August 23, 2024, the Fifth Circuit Court of Appeals made a landmark decision by vacating the Department of Labor’s (DOL) “80/20/30” tip credit rule. This decision will have a nationwide impact, altering how employers manage and compensate tipped employees.

Understanding the “80/20/30” Rule

The “80/20/30” rule was a detailed requirement for employers who use a tip credit to compensate their tipped employees. Under this rule, employers were required to pay the full minimum wage without a tip credit for work time that:

• Was not directly tip-producing but only tip-supporting if that work took more than 30 continuous minutes.
• Constituted more than 20% of their workweek.

Example in Practice

Consider a waiter:

• Tip-producing work: Serving patrons, taking orders, delivering food and drinks.
• Tip-supporting work: Bussing tables, setting up dining areas, preparing side dishes.

Under the “80/20/30” rule, if a waiter spent more than 30 continuous minutes or more than 20% of their workweek on tip-supporting duties, the employer had to pay the full minimum wage without a tip credit for that time.

Impact of the Court’s Decision

The Fifth Circuit Court’s ruling significantly simplifies the application of the tip credit under federal law:

• Elimination of Detailed Tracking: Employers no longer need to distinguish between tip-producing and tip-supporting work or monitor the time spent on tip-supporting duties.
• Simplified Compliance: Employers can now focus on ensuring all tipped employees receive proper compensation without the cumbersome tracking requirements.

Key Takeaways for Employers

While the federal application of the tip credit is now simplified, employers must remain vigilant about other regulations:

1. State and Local Laws:

• Employers are still subject to local or state laws that may be more beneficial to employees or may prohibit tip credits altogether.
• It is crucial to stay informed about state-specific regulations to ensure compliance.

2. Unrelated Tasks:

• Employers cannot take a tip credit for tasks unrelated to the employee’s tipped occupation.
• For instance, if a hotel waiter also performs maintenance tasks, the time spent on maintenance work must be compensated at the full minimum wage without a tip credit.

Future Considerations

The DOL may decide to appeal this decision. Employers should stay updated on any changes or legal developments. We will provide alerts and updates if there are any significant shifts in the regulatory landscape.

Sierra Stephens, CPP and Senior Payroll Specialist, comments:

“The recent changes to the tip credit rule signify a major shift for employers, requiring them to closely review their compensation practices to ensure compliance and fair treatment of tipped employees.”

Conclusion

The Fifth Circuit Court of Appeals’ decision in Restaurant Law Center v. U.S. Department of Labor marks a significant shift in managing tipped employees. While this ruling simplifies federal compliance, staying informed and adaptive to local regulations is essential for employers.

For more information or to discuss how this change affects your business, contact our CDS experts at (888) 388-1040 for expert guidance and support.