Article contributed by Paul P. Rooney, Ellenoff Grossman & Schole LLP
The United States Department of Labor (U.S. D.O.L.) has issued new regulations regarding what was previously known as the “80/20 Rule” and is now known as the “80/20/30 Rule.” As explained below, New York employers can largely ignore the rule with regard to pay for straight time hours but must follow it with regard to overtime pay.
Current FLSA Minimum Wage and Overtime Pay Requirements
The FLSA provides that “[e]very employer shall pay to each of his employees… $7.25 an hour” and an employee employed “for a workweek longer than forty hours” must be paid, for hours over forty, “at a rate not less than one and one-half times the regular rate at which he is employed.” The FLSA allows employers to satisfy the federal minimum wage for tipped employees by paying $2.13 per hour and receiving credit towards the minimum wage of $5.12 per hour.
U.S. D.O.L.’s 80/20/30 Rule
An employer taking the tip credit with respect to time a tipped employee has worked must ensure that it satisfies the requirements of taking the tip credit, including the new 80/20/30 Rule, which becomes effective December 28, 2021.
Where an employee is employed in both a tipped occupation and a non-tipped occupation, the tip credit may only be claimed when the employee is engaged in the tipped occupation. Under the 80/20/30 Rule, an employee is engaged in a tipped occupation when the employee performs work that pertains to the specific tipped occupation, which includes both:
- Work that actually produces tips (“Tip -Producing Work”), and
- Work that directly supports the Tip-Producing Work (“Directly-Supporting Work”), provided it is not performed for a substantial amount of time.
The 80/20/30 Rule also clarifies that an employer may only take the tip credit for time spent on Directly-Supporting Work that does not exceed 30 consecutive minutes or cumulatively more than 20% of the tipped employee’s workweek. A server’s Directly-Supporting Work includes dining room prep work, such as refilling salt and pepper shakers and ketchup bottles, rolling silverware, folding napkins, sweeping or vacuuming the dining area, and setting and bussing tables.
An employer may not claim the tip credit for non-Tip-Producing Work or for non-Directly Supporting Work.
Effect on State Laws
Businesses subject to the FLSA and an overlapping state law must comply with both. Accordingly, once the rule takes effect, New York employers will need to comply with both the new federal 80/20/30 rule and existing New York law, under which employers cannot take a tip credit for any day in which food service or services workers work more than 20% of their shift or 2 hours, whichever is less, performing non-tipped work.
A New York Employer Who Fails to Follow the 80/20/30 Rule With Respect To Straight Time Hours Will Not Violate FLSA.
A New York employer who ignores the 80/20/30 Rule with respect to straight time hours, but pays $10.00/hr. ($15.00 minimum wage minus a $5.00 tip credit) to a tipped employee as New York law requires, will not violate FLSA minimum wage requirements.
The FLSA requires that employers pay employees at least $7.25 per hour. When a New York employer pays its tipped employees $10.00 per hour, that employer has paid its employees more than $7.25 per hour, and thus the employer is not relying on the tip credit to satisfy federal minimum wage. Accordingly, the employer’s failure to follow the 80/20/30 Rule with regard to straight time hours, does not violate the FLSA.
A New York Employer Seeking To Satisfy FLSA Overtime Requirements Must Follow The 80/20/30 Rule.
A New York employer who ignores the 80/20/30 Rule with regard to straight time hours must follow that rule during overtime to comply with the FLSA.
Under the FLSA, an employee working overtime must be paid “one and one-half times the regular rate.” The regular rate for tipped employees for FLSA purposes is a state’s minimum wage.
Accordingly, in New York, if the minimum wage is $15.00 per hour, for overtime the employer must either (a) pay the employee $22.50 per hour; or (b) pay $17.50 per hour in cash and do what is required to entitle the employer to a tip credit of $5.00, including complying with the 80/20/30 Rule.
Importantly, under the 80/20/30 Rule, an employer may not receive a tip credit for any hours during which it does not comply with the 80/20/30 Rule. Accordingly, if a New York employer fails to comply with the 80/20/30 Rule for overtime hours for which it takes a tip credit, that employer will violate the FLSA.
In summary, with respect to straight time hours, New York employers need only comply with New York state law requirements for taking the tip credit and may ignore the 80/20/30 Rule. With regard to overtime hours, however, New York employers must follow it, which is both difficult and burdensome. New York hospitality employers should consider implementing protective measures, such as paying premium rates for overtime to ensure compliance or documenting employees’ performance of non-Tip-Producing Work or non-Directly Supporting Work.
Paul P. Rooney is a Partner at Ellenoff Grossman & Schole LLP. He specializes in employment law and civil litigation, and advises clients about their legal rights and responsibilities, drafts employment agreements, handbooks, and policies, and performs employment-related corporate due diligence. His cases have included numerous collective actions under The Fair Labor Standards Act, and claims under Title VII of the Civil Rights Act of 1964, and The New York State and City Human Rights Laws. Mr. Rooney has also litigated cases involving covenants not to compete, claims of breach of contract and breach of fiduciary duty, and defamation. Paul P. Rooney (prooney@egsllp.com) can be reached via phone at 212-370-1300.
