Here’s a tip: If you have tipped employees whose job duties involve non-tipped work, check how much of their time they spend doing those non-tipped job duties. If it’s more than 20%, you may owe them minimum wage for the time they spend doing non-tipped work according to an Eighth Circuit decision that the Supreme Court of the United States recently declined to review.
The Fair Labor Standards Act allows for a "tip credit" for "tipped employees," defined as employees who work in an occupation where they customarily and regularly receive more than $30 a month in tips. The tip credit allows employers to pay less than minimum wage to tipped employees as long as (1) the tip credit is not greater than 50% of the minimum wage, and (2) the wage plus the tip credit add up to minimum wage.
In Fast v. Applebee’s International (pdf), a class of Applebee’s bartenders and servers who received a tip credit argued that they were owed the full minimum wage for the time they spent doing non-tip-producing work, like cleaning, taking inventory, and rolling silverware. According to a DOL handbook interpreting the DOL’s dual job regulations, if tipped employees spend more than 20% of their time doing non-tipped "general preparation and maintenance" work, then the employer owes the employees minimum wage for that non-tip-producing time and cannot take the tip credit. Applebee’s took a tip credit for the workers’ entire shift and did not pay minimum wage for the time servers and bartenders performed non-tipped work (although with the tip credit, the employees still received at least minimum wage for all time worked).
The Eighth Circuit held that the DOL’s interpretation in its handbook was entitled to deference and that the case hinged on whether the servers’ and bartenders’ non-tipped "general preparation and maintenance" work added up to 20% of their time. The court, however, declined to delineate which job duties of the servers and bartenders were "general preparation and maintenance" which, according to the DOL, counts against the 20%, and "related duties" to the tipped occupation, which do not count toward the 20%. So, it’s possible this case may resurface again if the district court weighs in on that delineation and the parties appeal.
The Supreme Court’s refusal to review the Eighth Circuit’s Fast decision leaves in place some uncertainty for restaurant employers in the Sixth Circuit (which includes Ohio, Michigan, Kentucky and Tennessee) that have relied on a 1998 decision regarding non-tipped duties performed by restaurant hosts. In Kilgore v. Outback Steakhouse of Florida, Outback took a tip credit for its hosts even though hosts were forbidden from taking tips by Outback’s company policy. Holding that the host occupation was a traditionally tipped job, the court held that the hosts were "tipped employees" under the FLSA because the hosts received greater than $30 a month via an Outback-mandated "tip-out" from servers. Although the hosts’ entire shift was spent performing non-tipped work in the sense that the employees were not allowed to take tips (and it’s entirely possible that they did the general cleaning, silverware rolling, and similar duties as the Fast servers and bartenders), the Kilgore court held that the tip credit was appropriate because they were in an occupation that customarily receives tips and they in fact received tips through the required tip-out.
Because the Supreme Court has left the Fast decision in place, the DOL can be expected to continue to enforce the tip credit regulations according to its Handbook interpretation. That’s too bad for employers in the Sixth Circuit, but Kilgore at least gives those employers something to rely on if they wish to challenge the DOL’s position.