District Court Upholds DOL’s Dual Jobs Final Rule for Tip Credit

A U.S. district court ruled the U.S. Department of Labor’s (DOL) dual jobs final rule under the Fair Labor Standards Act (FLSA) is valid [Restaurant Law Center v. U.S. Department of Labor, No. 1:21-cv-1106, 2023 U.S. Dist. LEXIS 115630 (W.D. Texas, 7-6-23)].

The court concluded the “DOL’s decision was a permissible construction of the FLSA and is not arbitrary and capricious,” so it upheld the final rule defining when an employer may claim a tip credit for an employee who is engaged in dual jobs. The court also denied the Restaurant Law Center’s request for a preliminary injunction.

The Dual Jobs Final Rule

The final rule went into effect on December 28, 2021, and created a functional test to measure whether a tipped employee is engaged in their tipped occupation under the FLSA (86 F.R. 60114, 10-29-21). The final rule permits an employer to take a tip credit for an employee’s tip-producing work and also for other work that “directly supports tip-producing work, provided that the employee does not perform that work for a substantial amount of time.”

Under the final rule, an employee has performed directly supporting work for a substantial amount of time if the tipped employee’s directly supporting work either (1) exceeds 20% of the hours worked during the employee’s workweek or (2) is performed for a continuous period of time exceeding 30 minutes. The “20% of the hours worked during the employee’s workweek rule” essentially codified the informal 80/20 guidance that had appeared in DOL documents for nearly 35 years. The “30 minutes of continuous time” is an entirely new condition.

Compliance Considerations

The final rule remains in effect, so employers should continue to follow it. Employers should also watch for further developments in the case because the Restaurant Law Center is expected to appeal the court’s decision. PayrollOrg will report on any significant developments. In addition, some states do not allow employers to take tip credits, so employers should check laws in their individual states.

To learn more about federal and state laws, regulations, and information to keep your company's payroll operations in compliance, check out Payroll Source Plus!

Jyme Mariani, Esq., is Managing Editor of Payroll Currently and Senior Manager of Payroll Information Resources for PayrollOrg.