On Monday, October 7, 2019, the Department of Labor (DOL) issued new proposed rules regarding the circumstances in which employers may (1) apply a “tip credit” to satisfy their minimum-wage obligations under the Fair Labor Standards Act (“FLSA”) and (2) permit non-tipped employees to participate in mandatory tip-pooling arrangements.

1. The Proposed Rules abolish the 80/20 Rule.

Current “tip credit” rules allow employers to offset a portion of their minimum-wage obligations toward their “tipped employees” (i.e., those who customarily and regularly receive more than $30 per month in tips) by attributing a limited amount of tips that those employees receive from customers. There is an exception, however: if a tipped employee engages in work that does not generate tips (e.g., cleaning and setting tables, making coffee, and occasionally washing dishes or glasses) for more than 20 percent of the shift, the employer may not apply a tip credit for that employee. This is known as the “80/20” rule.

The 80/20 rule has proven administratively burdensome and confusing for employers and employees alike, resulting in substantial litigation. Fortunately, a welcomed changed is on the horizon. Under the proposed rules, an employer may apply a tip credit regardless of the amount of time that a tipped employee performs non-tip generating work, so long as the work is performed “contemporaneously with” the employee’s tipped duties, “or for a reasonable time immediately before or after performing the tipped duties.”

2. The Proposed Rules permit back-of-house employees (but not supervisors and managers) to share in tip pools.

The proposed rules also confirm the eligibility of back-of-the-house employees (such as kitchen workers, cooks, dishwashers, and other non-tipped employees) to participate in an employer’s mandatory tip pool.

The new rule only applies to employers who do not take a tip credit for their tipped employees’ wages. Employers who do take a tip credit may maintain a tip pool only among tipped employees (and may not include back-of-the-house employees). Additionally, the proposed rules do not change existing prohibitions on supervisors and managers participating in tip pools, regardless of whether a tip credit is take

3. The Proposed Rules (or some modified version) will likely take effect next year.

The proposed rules will be available for public review and comment until December 9, 2019. A final rule will be implemented sometime thereafter.