Restaurants Must Be Aware of the “80/20 Rule”

It seems like a trendy new restaurant opens every week in Nashville’s booming restaurant community. Entrepreneurs are drawn to the city and bring their culinary creativity with them. These business people, however, need to be careful with the “80/20 rule.”

Wait, what are you talking about?

Under the Fair Labor Standards Act, employees who “regularly and customarily” receive tips need not be paid the full minimum wage. Instead, employers can take a “tip credit” and pay $2.13 per hour instead of the normal minimum wage, which is $7.25. So long as tips make up the difference between the amount paid to the employee and the minimum wage, there is no problem. However, only employees who regularly and customarily receive tips may be paid the lesser amount.

What if an employee performs more than one function? For example, consider employees who are servers but also roll silverware, set tables, toast bread, and do other things that are incidental to their duties as a server.

Fortunately for employers, employees’ duties may be considered “side work,” and they may not be entitled to the full minimum wage. This is subject to two limitations. First, the “side work” must be incidental to the employee’s tipped work. Rolling silverware is incidental to a waitress’ job. Picking up trash on the parking lot is not.

Second is the “80/20 rule.” The tipped employees’ side jobs must not constitute more than 20% of their work. In other words, if a server is spending 1/3 of his or her time rolling silverware, then he or she may be entitled to the full minimum wage, regardless of the fact that they also receive tips.

What does this mean?

There has been significant litigation over the “80/20 rule,” but there is no statute or regulation that adopts this rule formally. The Department of Labor, however, includes the “80/20” rule in its Field Operations Handbook. Some courts give this interpretation deference. Therefore, restaurant owners must carefully monitor the job duties of servers and other employees who receive tips. Side work is fine, but it must truly be side work. It also should not constitute more than 20% of an employee’s duties. If it does, some courts would say that the employee is entitled to the full minimum wage and that the employer cannot rely on the tip credit.

Wage and hour law continues to be a ticking time bomb for employers. Be careful out there.