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Got tipped employees who perform non-tipped tasks?

Ninth Circuit ruling supports the 20% tip credit rule

Posted September 24, 2018

The U.S. Department of Labor (DOL) allows employers to take a tip credit for employees in tipped occupations. The credit offsets an employer’s obligation to pay the hourly minimum wage; employers may therefore pay as little as $2.13 per hour to tipped employees. The Ninth Circuit Court of Appeals recently grappled with whether employees need to spend less than 20% of their time in non-tipped duties. This is sometimes referred to as the 80/20 rule.

The DOL has a dual jobs rule and guidance on this, but there were questions as to whether the rule was ambiguous when it came to an employee performing both tipped and non-tipped tasks, as it did not include the 20% threshold — it used terms such as “customarily” and “regularly” — and whether the DOL’s guidance should be used, as it did include the threshold.

For example, the dual jobs regulation states that a server who occasionally washes dishes is not a dual job employee. The guidance, however, states that a server who spends 20% of her time or less washing dishes is not a dual job employee.

In the case, employees alleged that their employers abused the tip credit provision by paying them a reduced tip credit wage and treating them as tipped employees when they were engaged in either

  • Non-tipped tasks unrelated to serving and bartending, such as cleaning toilets; or
  • Non-incidental tasks related to serving or bartending, such as hours spent cleaning and maintaining soft drink dispensers in excess of 20% of the workweek.

Last year, a three-judge panel (not the full court) of the Ninth Circuit found that the DOL’s guidance was not entitled to any deference. In the current case, however, a full Ninth Circuit held that the DOL guidance was entitled to deference, generally supporting the 20% rule. Such deference allowed the court to defer to the DOL’s interpretation of its own regulation, since it was not “plainly erroneous” or “inconsistent with the regulation,” and because the regulation was ambiguous and the guidance’s interpretation "is both reasonable and consistent with the regulation."

This decision ends a split with the Eight Circuit.

The Ninth Circuit includes the states of Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington, but only Arizona, Hawaii and Idaho allow employers to take a tip credit. Therefore, employers in those three states will need to evaluate how they will control the time employees spend on tipped and non-tipped tasks.

This article was written by Darlene M. Clabault, SHRM-CP, PHR, CLMS, of J. J. Keller & Associates, Inc.

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