"Split Pay" The 20% Rule For Tipped Employees

Tip Credit is a federal law that allows employers to take a 'credit' against the minimum wage, and pay lower wages to employees who earn tips.
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PostPosted: Tue Sep 21, 2010 10:03 pm
The 20% Rule For Tipped Employees - Eighth Circuit Invited to Decide Whether To Adopt USDOL Position
Posted on March 17, 2010 by Noel Tripp

http://www.wageandhourlawupdate.com/201 ... -position/

In the food service industry, an employer can take a tip credit against the minimum wage for customarily tipped employees, such as servers, bus persons and bartenders. Under federal law, a restaurant can pay employees holding such positions $2.13 per hour, rather than $7.25 per hour, as long as the employees receive sufficient tips to make up the difference and the tips are only retained by customarily tipped employees. For years, an issue that has bedeviled industry employers is how to handle prep time and clean-up time as in most establishments there is a period of time pre and post-shift and potentially even during busy hours, in which customarily tipped employees perform prep work and maintenance work. Can a tip credit be taken for the entire shift?

The United States Department of Labor through its Field Operations Handbook has long taken the position that an employer may take a tip credit for time spent on prep and maintenance only if it consists of less than 20% of the employee’s shift. The United States District Court for the Western District of Missouri recently addressed this issue, and upheld the USDOL’s position. However, the court stayed the pending FLSA action (involving over 5,000 plaintiffs) and allowed an immediate appeal to the United States Court of Appeals for the Eighth Circuit. If the appeal is accepted, the Eighth Circuit will determine whether the USDOL’s position is consistent with the language and intent of the Fair Labor Standards Act.
The Circuit court would have to balance the conflicting positions of industry employers with that of employees and employee advocacy groups. Industry employers assert this prep and maintenance work is part and parcel of the job duties that result in tips and accordingly the key inquiries should be solely whether the non-tipped duties were part of the continuum of the tipped duties (i.e., the direct customer service duties) and whether the individual received sufficient tips to make up the tip credit. Employee advocates argue that the 20% rule provides employers with necessary leeway to assign non-tipped duties during a shift, but provides an inappropriate windfall by only having to pay a subminimum wage for non-tipped work that should be compensated at the standard minimum wage or higher. See Fast v. Applebee's Int'l, Inc., 2010 U.S. Dist. LEXIS 19571 (W.D. Mo. Mar. 4, 2010).

Of course, at all times, state law must be consulted. Some states do not allow any tip credit; other states allow a lesser tip credit than federal law and many states impose tangents on its application. For example, in some states the tip credit cannot be taken for any hour in which more than a de minimis amount of prep or maintenance work is performed.

Tags: 20 percent rule, 20% rule, Tips, applebee's, customarily, de minimis, eighth circuit, first impression, missouri, non-tipped, tip, tip credit
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PostPosted: Tue Sep 21, 2010 10:27 pm
Below is the text only version of a great PowerPoint Presentation. Click the link below to see that actual presentation:

http://www.slideshare.net/stephenbarth/ ... l-marchant

Hospitality Law Conference 2010 - The Federal Tip Credit Under Fire: How Do You Properly Pay Tipped Employees? - Daniel B. Boatright & Jill Marchant - Presentation Transcript

1. The Federal Tip Credit Under Fire: How Do You Properly Pay Tipped Employees? Daniel B. Boatright Jill Marchant

2. Speakers • Dan Boatright – Partner, Spencer Fane Britt & Browne, LLP – Lead defense counsel, Fast v. Applebee’s • Jill Marchant – Associate General Counsel, DineEquity, Inc. – Managing in-house counsel, Fast v. Applebee’s

3. Wage-and-Hour Climate

4. Wage-and-Hour Climate
• 2008 Study in Low Wage Industries
– 26% of workers paid less than minimum wage
– 76% of those who work overtime not properly paid
– 70% of those working outside regular shift not paid
– 30% of tipped workers not paid min. tipped wage
– 12% of tipped workers experience “tip stealing”
– 44% of workers had some pay violation in last year

5. Wage-and-Hour Climate
• General Rule:
– Minimum wage (currently $7.25)
– Overtime 1 ½ times regular rate over 40 hours/week

6. Wage-and-Hour Climate
• Tipped employees
– Minimum wage of $2.13 per hour, plus tips

7. Wage-and-Hour Climate
• FLSA Collective Actions
– One person sues
– Seeks conditional class certification
– Unbelievably lenient “Similarly Situated” standard
– Court approves notice to class members

8. Wage-and-Hour Climate
– Invitation to opt-in
– Response rate varies
- usually 10-25%
– Discovery on entire class
– Company moves to decertify class
– Trial – Elapsed time: 3 Years +

9. Tipped Employee Scenario

10. Tipped Employee Scenario
• 200 servers and bartenders
• Average 30 hours per week
• Paid $2.13 per hour, with $5.12 per hour tip credit
• Error causes loss of tip credit

11. Tipped Employee Scenario
• 30 hours per week = 1,560 hours per year
• 1,560 x $5.12 = $7,987.20 per employee per year

12. Tipped Employee Scenario
• 200 employees x $7,987.20 x 3 years = $4,792,320 PLUS Liquidated Damages 4,792,320 Employees’ Attorneys’ Fees 500,000 Your Attorneys’ Fees 400,000 $10,484,640

13. Fast v. Applebee’s Timeline

14. Fast v. Applebee’s Timeline May 2005
– Applebee’s acquires 12 stores from franchisee June 2005
– DOL investigation at former franchisee store

15. Fast v. Applebee’s Timeline March 2006
– Payment to associates to end DOL action April 2006
– Bartender Gerald Fast asks HR why he did not get check

16. Fast v. Applebee’s Timeline July 2006
– Fast files suit September 2006
– “Blitz” interviews of co-workers December 2006
– Motion for summary judgment filed

17. Fast v. Applebee’s Timeline February 2007
– Motion to certify class May 2007
– Court denies motion for summary judgment, announces new legal standard for tipped employee analysis

18. Fast v. Applebee’s Timeline June 2007
– Court conditionally certifies class July 2007
– Applebee’s seeks interlocutory appeal
– Applebee’s visits Wage & Hour Administrator in D.C.

19. Fast v. Applebee’s Timeline August 2007
– Court denies interlocutory appeal September 2007
– Notices sent to 43,000 putative class members December 2007
– Applebee’s begins expert time-and- motion study

20. Fast v. Applebee’s Timeline February 2008
– 5,550 opt-ins join (13%) August 2008
– Plaintiffs’ experts opine tipped employees spend 47.8% of their time on “non-tipped” work
– Claim lost wages of $6.1 to $6.7 million

21. Fast v. Applebee’s Timeline January 2009
– Motion to decertify class March 2009
– DOL issues, then withdraws, clarifying opinion letter

22. Fast v. Applebee’s Timeline August 2009
– Court denies motion to decertify class
– Court allows parties to seek interlocutory appeal, vacates summary judgment ruling October 2009 – Parties complete briefing on legal issues, await trial court’s revised summary judgment ruling

23. Realities of Class Litigation
• Cost
– Attorneys
– Experts
• Business disruption
• Dealing with employee/plaintiffs
• Communication with franchisees, others
• Education of and advice to client
– Changes in operations?
– Settlement?

24. Requirements for Tip Credit

25. Requirements for Tip Credit
• At least $30 a month in tips
• Cash wage of at least $2.13 per hour
• Tips make up difference between cash wage and minimum wage
• Tips not used to satisfy overtime premium
• Employer informs employees of tip credit
• Employees retain all tips, except valid tip pool
• Employee engaged in tipped occupation

26. Tipped Occupation
– Statute “Tipped employee” is employee “engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.”

27. Tipped Occupation
– Regs.
• Record keeping regulation requires record of hours worked in “occupation in which the employee receives tips”
• Other regulations emphasize “occupation”

28. Tipped Occupation
– Dual Jobs Reg.
If employee works in “dual jobs” (such as server and maintenance person), no tip credit for time in non-tipped occupation. BUT related duties in a tipped occupation (such as making coffee and occasionally washing dishes) need not themselves be directed toward producing tips.

29. Tipped Occupation
– DOL Handbook
If tipped employees spend a substantial amount of time (in excess of 20%) performing preparation work or maintenance, no tip credit may be taken for such time.

30. Tipped Occupation
– Fast v. Applebee’s Ruling
A jury must sort duties into three categories:
1. Tip producing duties (tip credit available)
2. Duties incidental to tip producing duties (tip credit only if <20% of overall duties)
3. Duties unrelated to tip producing duties (no tip credit)

31. Tipped Occupation
– Fast v. Applebee’s Ruling
• Unworkable result
– Requires perpetual surveillance
– Requires hundreds of time entries each day
– No assurance of compliance because jury decides on case-by-case basis

32. Where Do We Go From Here?

33. Where Do We Go From Here?
• If Court of Appeals accepts appeal, briefing and argument (with amicus support) in 2010, decision in early 2011
• If rejects appeal, bench trial in mid-2010

34. Where Do We Go From Here?
• Applebee’s is not alone!
• What can you do?
– Support trade group efforts
– Monitor extent of work on ancillary tasks
– Consider full minimum wage for pre-open and post-close

35. Questions?
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PostPosted: Tue Sep 21, 2010 10:31 pm
So is the takeaway from this that if we get flat-rate tip credit pay (and not split pay like Papa John's does), then they can only make us answer phones and do prep and clean the store for 20% of our time there for each shift?
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PostPosted: Tue Sep 21, 2010 10:53 pm
Thursday, May 20, 2010
Tipped Employees: Dual Employment

http://robertfitzpatrick.blogspot.com/2 ... yment.html

A recent decision by Judge Laughrey of the Western District of Missouri in Fast v. Applebee’s Int’l, Inc., 2009 U.S. Dist. LEXIS 67564 (W.D. Mo. Mar. 4, 2010), on appeal, Appeal No. 10-1725 (8th Cir.), underscores the complexity regarding the proper calculation of compensation for tipped employees. The Fast decision involves an aspect of wage and hour law where an employee is employed concurrently in both a tipped and a non-tipped occupation. Some background is necessary in order to understand the issues presented by the Fast case and the court’s resolution of them. 2007 WL 1309680 (W.D. Mo. May 3, 2007) (denying employer’s summary judgment motion).

Generally, the FLSA requires employers to pay a minimum wage of $7.25 per hour. 29 U.S.C. § 206(A)(i)(c). The FLSA permits employers to pay a so-called “direct wage” of $2.13 per hour to employees worked in a “tipped occupation” (29 U.S.C. § 203(m)), so long as they then take a “tip credit” to meet the $7.25 per hour minimum wage requirement. Where tips do not make up the difference, the employer must supplement so the employee receives no less than the full minimum wage for all hours worked.

A “tip credit” is the amount of the employee’s tips that the employer can use to make up the difference between $2.13 per hour and the $7.25 minimum wage. 29 U.S.C. § 203(m).

A “tipped employee” is “any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.” 29 U.S.C. § 203(t). In determining whether the employee is a “tipped employee,” the courts have focused on the level of customer interaction involved in the particular occupation. Customer service positions in which the employee has more than de minimus interaction with customers have been found to be a tipped occupation even where the employees are prohibited from accepting tips directly from customers. See, e.g., Kilgore v. Outback Steakhouse of Florida, Inc., 160 F.3d 294, 301 (6th Cir. 1998) (finding restaurant hosts to be tipped employees); Dole v. Continental Cuisine, Inc., 751 F. Supp. 799 (E.D. Ark. 1990) (finding maitre d’ to be a tipped employee). In contrast, employees who do not have any customer contact have been found not to be tipped employees. See, e.g., Elkins v. Showcase, Inc., 704 P.2d 977, 989 (Kan. 1985); Myers v. The Copper Cellar Corp., 192 F.3d 546 (6th Cir. 1999).

Under the “tip credit” provisions, an employer is only required to pay $2.13 in direct wages so long as that amount, combined with the employee’s tips, equals the hourly minimum wage, currently $7.25.

If an employee is engaged in both a tipped occupation and a non-tipped occupation, so-called dual employment, then the tip credit can only be taken for the time worked in the tipped occupation. Employers are required to keep separate records for tipped and non-tipped occupations. 29 C.F.R. § 516.28. A DOL regulation addresses the circumstance of dual occupations. 29 C.F.R. § 531.56(e). The regulation provides that so long as a tipped employee is doing related work in the tipped occupation, a tip credit is permitted. Thus, the regulation, by way of example, references a waitress who spends part of her time cleaning and setting tables, toasting bread, making coffee and occasionally washing dishes or glasses, as an example of someone in a tipped occupation performing duties related to that occupation for whom the employer may take a tip credit.

DOL’s Field Operations Handbook contains guidelines for determining how much non-tipped work can be assigned to an employee before the employee has become a dual employee, that is, an employee working in a tipped and a non-tipped occupation. The Handbook (Section 30d00e) indicates that employees who spend more than 20% of their time on general preparation and maintenance work cannot be considered tipped employees for the time spent doing general preparation and maintenance.

In a 1985 opinion letter (Dep’t of Labor, Wage & Hour Div., Op. Letter FLSA-854 (Dec. 20, 1985)), the Department addressed the issue further and stated that the tip credit could be taken for “preparation work or after hours clean-up if such duties are incidental to the waiter or waitress’s regular duties and are assigned generally to the waiter/waitress staff. However, where the facts indicate that specific employees are routinely assigned to maintenance work or that tipped employees spend a substantial amount of time performing general preparation work or maintenance, we would not approve a tip credit for hours spent in such activities.” Several years later, in 1988, DOL’s Handbook contained the 20% rule, which defined when general preparation or maintenance work had become substantial.

With this background, the principal contention in Fast is Applebee’s argument that the district court used a task-based analysis rather than an occupation-based analysis. In its opening brief to the Eighth Circuit, Applebee’s argues that the FLSA’s tip credit requires an occupation-based analysis. Applebee’s relies upon the language of the statute (§ 203(t)), which refers to “an occupation” as well as the record-keeping regulation (29 C.F.R. §516.28(a)(4) and (5)), which also uses the terminology “occupation.”

Like all tipped employee issues, these issues are complicated and of enormous importance to the restaurant industry and those employed therein. The National Council of Chain Restaurants is scheduled to file an amicus brief in Fast on June 18th. We will post further about the arguments in Fast in the coming days.
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PostPosted: Tue Sep 21, 2010 11:03 pm
Applebees Class Action

http://applebeesclassaction.com/
Much more available at the above link.

Summary of the Case

What is this case about?
Applebee’s usually pays its servers and bartenders a base hourly rate below minimum wage (usually in the neighborhood of $2.13 per hour). It is allowed to do this because servers and bartenders make tips. However, in addition to tip-producing duties, we believe Applebee’s also assigns many general maintenance and preparatory duties (i.e., side work) to its servers and bartenders. Examples of some of these side duties are: rolling silverware, doing dishes, vacuuming, filling condiments, and portioning salad dressings. When over 20% of a server’s or bartender’s shift is spent doing general maintenance and/or preparatory duties (including time spent on those duties in between serving tables), that employee should lawfully be paid full minimum wage for that time. For example, if a server or bartender spends over 1 hour and 36 minutes of an 8 hour shift doing general maintenance and/or preparatory duties, that employee should be paid full minimum wage for the time spent conducting those duties. This case provides servers and bartenders the opportunity to join together and seek back wages owed to them for the time spent doing general maintenance and/or preparatory work which they performed for less than minimum wage.

This case is supported by some additional theories and arguments, but this description is a general summary of the basis of this case. For a more detailed explanation of the legal theories of the case you may access the Judge’s Order Denying Applebee’s Request for Summary Judgment in the Court Documents section of this website. If you have additional questions, please contact Plaintiffs’ counsel.


The actual court documents are available at the site:
http://applebeesclassaction.com/Documen ... %20cir.pdf
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PostPosted: Tue Sep 21, 2010 11:08 pm
Rambo ECP wrote:So is the takeaway from this that if we get flat-rate tip credit pay (and not split pay like Papa John's does), then they can only make us answer phones and do prep and clean the store for 20% of our time there for each shift?


That's right. It might actually be per pay period though, not per shift.
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PostPosted: Fri Sep 24, 2010 1:00 am
In the pizza delivery world, this mostly applies to Domino's, right? Aren't they the ones paying flat rate tip credit as opposed to split pay?

If this took hold, it might actually make tip credit a feature rather than a bug, for those like me who hate doing inside work more than we hate making less money. But from what I read there, it looks like it's being litigated and probably hasn't been introduced at the store level yet. And if it were, I have a feeling split pay would replace flat rate pay everywhere, with the sub-min rate dropping so that the store doesn't lose money. No way a store is going to let drivers just drive, and no way they are going to the trouble of tracking how much time drivers spend on non-delivery duties.
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PostPosted: Fri Sep 24, 2010 2:53 pm
Most PJ's that pay tip credit use 'split pay'. Most other stores including Dominos and indy's use straight tip credit. Pizza Hut is tip credit for waitresses but full min wage for drivers. It is suspected that Pizza Hut will be the next to go tip credit.
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PostPosted: Wed Nov 02, 2011 11:34 pm
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National restaurant chain seeks guidance from U.S. Supreme Court on tip credit

http://www.lexology.com/library/detail. ... d3c89e384d

Epstein Becker Green
Ana S. Salper
USA
October 26 2011


Ana S. Salper »

With the recent surge in class action wage and hour lawsuits, hospitality employers have developed a heightened sensitivity to tip pooling arrangements, distributions of service charges to employees, and application of the “tip credit.” A case before the U.S. Supreme Court this month, Applebee’s International Inc. v. Gerald A. Fast et al., is likely to add further fuel to the fiery “tip credit” world, as the high court will have to decide whether tipped employees should be paid minimum wage for nontipped tasks employees perform.

Under the Fair Labor Standards Act (“FLSA”), tipped employees can be paid below minimum wage – as low as $2.13 per hour – so long as employees earn enough tips to reach the minimum wage (which is $7.25 under federal law, although state minimum wages may be higher). In the case pending before the high court, Applebee’s is asking the Court to decide whether employers can use the tip credit to pay tipped employees -- namely, waiters and bartenders -- below minimum wage even if they spend more than 20 percent of their time performing nontipped tasks. Applebee’s is challenging a U.S. Department of Labor (“DOL”) rule that requires an employer to pay a tipped employee the regular minimum wage if they spend more than 20% of their work time in a given week performing non-tipped duties.


In April 2011, siding with the DOL’s 20% rule, the United States Court of Appeals for the Eighth Circuit affirmed a lower court ruling that Applebee’s had violated the FLSA by paying its service staff below minimum wage even when the waiters and bartenders had spent more than 20% of their time on setup, maintenance, and general preparation -- tasks for which they could not be tipped. The case originated from a class action initiated by approximately 43,000 current and former Applebee’s servers and bartenders. Notably, the Eighth Circuit’s decision is a sharp departure from the decisions of two other federal appeals courts, the Sixth and Eleventh Circuits, which have already rejected the DOL’s 20% requirement.

Applebee’s is arguing that it is entitled to take a tip credit for all the work the waiters and bartenders are performing, even if some of it involves nontipped duties. The argument suggests that the question of whether the tip credit can be applied should depend not on how much of the employees’ time is spent on nontipped tasks, but rather on whether the employees are considered tipped employees under the FLSA.

For hospitality employers, the tip credit is a useful cost-saving tool, allowing employers to pay a lower cash wage to employees who rely upon tips received from customers and guests to bring their total hourly compensation up to the minimum wage. If the Supreme Court decides to depart from the DOL’s 20% rule, the decision will have a significant impact on employers’ tip credit arrangements, and could ultimately change the entire landscape of work allocation, assignment of duties, and distribution of pay for tipped employees in the hospitality industry.
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PostPosted: Thu Nov 03, 2011 12:30 am
Pizza Hut has been tip credit, at least the one I work at. Min wage here in Santa Fe NM is $9.85 an hour, we get $7.50 as drivers.
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