Crib Sheet: Time Management

Breaking down the 80/20 rule.

The 80/20 rule, which regulates when an employer can (or can’t) take the tip credit, was first introduced by the Department of Labor in 1988. Since that time, it has been tweaked and revoked and now, under the Biden administration, reinstated. In all cases, it adds to the confusion of compensation. What this all means for you:

The Fair Labor Standards Act (FLSA) and state and local laws generally require employers to pay non-exempt employees a minimum, hourly wage. The federal minimum wage for non-tipped employees is $7.25 per hour. For 2021, the Colorado minimum wage for non-tipped employees was $12.32 per hour, and Denver’s was $14.77 per hour. Starting January 2022, it goes up to $12.56 per hour in Colorado, and $15.87 per hour in Denver. 

Employers can pay workers whose tips customarily and regularly total more than $30 per month less than minimum wage. The federal minimum wage for tipped employees is just $2.13 per hour. In 2021, the tipped minimum wage was $9.30 per hour in Colorado, and $11.75 per hour in Denver. In 2022, Colorado’s minimum wage for tipped employees is $9.54 per hour, and Denver’s is $12.85 per hour. The lower hourly wage paid to tipped employees is known as a “tip credit” to employers. 

It is critical for employers to understand when they can take a tip credit and when they must pay tipped employees the full minimum wage. 

Some employees perform two distinct jobs for an employer: one tipped job (i.e., server) and one non-tipped job (i.e., maintenance). An employer is not allowed to take the tip credit for the non-tipped job. In other words, employees must be paid the full minimum wage whenever they perform the non-tipped job. 

Other employees perform a single tipped job that may involve different types of work.

• Tip-producing work: This is when a tipped employee provides the service for which they receive tips. A waiter’s tip-producing work includes taking orders and serving food. A busser’s tip-producing work includes clearing tables and filling water glasses. A valet’s tip-producing work includes parking and returning cars. A hotel housekeeper’s tip-producing work includes cleaning hotel rooms. 
• Directly supporting work: This is when a tipped employee prepares for or assists tip-producing work. For a server, directly supporting work includes refilling salt and pepper shakers and tidying the dining room. A busser’s directly supporting work includes rolling silverware and cleaning ice machines. A valet’s directly supporting work includes cleaning the valet stand. A hotel housekeeper’s directly supporting work includes stocking the housekeeping cart. In practical terms, directly supporting work is “side work.” 
• Non-tipped work: This is when a tipped employee performs work that is neither tip-producing work nor directly supporting work. Preparing food and cleaning bathrooms is non-tipped work for servers and bussers. Repairing cars is non-tipped work for valets. Cleaning a restaurant or conference room is non-tipped work for a hotel housekeeper. 

Can an employer take a tip credit for tip-producing work?

Yes. An employer can always take a tip credit when a tipped employee performs tip-producing work. 

Can an employer take a tip credit for non-tipped work?

No. An employer can never take a tip credit when a tipped employee performs non-tipped work. 

Can an employer take a tip credit for directly supporting work?

It depends. An employer can take a tip credit when a tipped employee performs directly supporting work if it is not performed for a substantial amount of time. Directly supporting work is performed for a substantial amount of time if it:

• Exceeds 20 percent of the workweek: If directly supporting work exceeds 20 percent of the hours in a workweek that a tipped employee is paid less than non-tipped minimum wage, the employer cannot take a tip credit for the time that exceeds the 20 percent threshold. This is known as the “80/20 rule.” For example, if a server works 20 hours in a workweek and spends five hours on side work, then the employer must pay full minimum wage for one hour of work. The employer can take the tip credit for the remaining hours worked. 
• Continues for more than 30 minutes: If directly supporting work continues for more than 30 minutes at a time, then the employer cannot take a tip credit for the time over 30 minutes. 

The 80/20 rule may seem daunting to employers because it can be difficult to track the amount of time tipped employees perform directly supporting work. In tracking these tasks, employers should keep in mind that such work is usually not performed on an immediate or time-sensitive basis. For example, servers who roll silverware at the end of their shifts are performing directly supporting work because it is work that prepares for or assists their tip-producing work. However, a server who sets a table, takes orders at that table, picks up beverages, and makes a pot of coffee before delivering the beverages to the table is performing only tip-producing work the entire time. 

How can employers avoid taking an improper tip credit?

Employers should not assign non-tipped work to tipped employees who receive less than minimum wage. However, it is unlikely employers can eliminate directly supporting work from tipped employees’ job duties. Instead, if possible, employers should assign directly supporting work at the beginning or end of tipped employees’ shifts. This way, employers can better track the amount of directly supporting work and determine if it exceeds 20 percent of employees’ weekly hours or 30 minutes. If it does, employers must pay tipped employees the full minimum wage for time over the 20 percent threshold or beyond 30 minutes. Employers that improperly take a tip credit could owe the difference between the tipped wage and the full minimum wage, damages, and other penalties. As with all matters of compensation, it’s best to seek the advice of an employment attorney who is well-versed in the 80/20 rule.

Kristina Wright is an associate at Messner Reeves, LLP, a law firm in Denver and other U.S. locations. She regularly assists employers with labor and employment law matters. If you’re a Colorado restaurant in need of assistance, reach out to kwright@messner.com. 

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