The tip credit rules have changed again, reverting back to the original 80/20 rule. A new rule, called the 80/20/30 rule was enacted by the Obama administration, ended by the Trump administration, reintroduced during the current administration, and was just recently struck down by “the Fifth Circuit Court of Appeals for being “both arbitrary and capricious” and contrary to the Fair Labor Standards Act,” writes Nation’s Restaurant News (NRN).
NRN provides a brief overview of the 80/20/30 rule that has been revoked:
The updated rule, sometimes called the 80/20/30 rule, only allowed employers to pay their employees the subminimum wage (or federal tip credit of $2.13 per hour) to supplement earned gratuities while workers were performing tip-earning tasks. The rule was enacted during the Obama administration, rolled back during the Trump administration, and then brought back under the Biden presidential administration with updated clarifications about what constitutes tipped work and what does not. If a tipped employee spent more than 20% of their workweek on tip-supporting tasks or more than 30 minutes in a row, employees would not be allowed to take a tip credit.
Under the original 80/20 rule, employers “only need to supplement workers’ wages beyond the federal tip credit if a worker does not receive the rest of the federally mandated minimum wage in gratuities, or if a state law says otherwise.”
Ultimately, this equates to a gain for restaurant owners, not to mention, there is less time and confusion spent managing the nuances of the 80/20/30 rule. NRN’s write-up on the matter includes advice and opinions from lawyers who see the change as a positive one for restaurant owners. “I think the main impact will be positive, because this 80/20/30 rule was just one more layer of complication that made it difficult for businesses, including restaurants, to operate,” Paul DeCamp of Epstein Becker Green law firm, said. “It was very difficult for restaurants to track minute-by-minute the time that people spent on directly tip-producing tasks versus side work, versus tasks that have nothing to do with tips.”
Though there is always the possibility the rule could adjust again following November’s election, for now, restaurant owners can work with their employees as the rule stands at 80/20. DeCamp did point out that owners should also bring themselves up to speed on state rules, as six states have created their own version of an 80/20 tip credit law.
“ The 80/20/30 rule created a difficult process for foodservice operators to manage. It is the hope that the restated 80/20 rule will allow operators to be able to adhere to requirements, but also provide clarity to staffs,” writes Richard Weil, principal and owner of National Restaurant Consultants.
Managing a happy, well-trained staff can be complicated and relies heavily on employees feeling as though they are compensated fairly. Our restaurant consultants are experts in staff training and operations and can work with your business under your state-issued regulations. Should legislative changes impact the tip credit rules again, our consultants are always up-to-speed on the latest developments in tax and business laws impacting the restaurant industry.