Restaurants’ reliance on food delivery apps has exploded during the pandemic, as they offer customers a convenient way to order from local restaurants and a simple solution for processing restaurant payments and finding third-party drivers to pick up meals and deliver them to customers. According MarketWatch, the top four food delivery app companies made approximately $5.5 billion in combined revenue from April to September 2020, more than double their combined revenue of $2.5 billion during the same period in 2019. By partnering with these food delivery apps, restaurants were able to reach their customers during the shutdown and subsequent reopening. However, restaurants are charged around 30% per order, which means that using these apps can significantly reduce a restaurant’s already razor-thin profit margins. With these profits diluted, restaurants may be tempted to assign a myriad of tasks to tipped and untipped workers, including picking orders for food app customers. However, if you assign such tasks to tipping employees, you’ll want to read on to learn more about your obligations under the “new” 80/20 rule, if picking orders for food app customers may be considered tipping work, and gather five tips to avoid legal trouble.
The “new” 80/20 rule
The Department of Labor (DOL) Wage and Hour Division reinstated the infamous “80/20” rule in December 2021, changing the tipping provisions of the Fair Labor Standards Act (FLSA) regarding when restaurants with tipping employees can take tip credit and changing the definition of work considered part of an occupation to tip.
The FLSA allows employers to take a so-called “tip credit” and pay employees who traditionally receive tips – such as servers and bartenders – less than the federal minimum wage, as long as the employees make up the difference in tips and that the employer respects certain criteria. other requirements. Under the 80/20 rule, employers forfeit tip credit for the workweek if an employee has spent more than 20% of their time doing side jobs without tipping, such as rolling silverware in napkins, cleaning and setting tables and making coffee.
If you’re unfamiliar with the original 80/20 rule, the Trump administration’s attempt to eliminate it, and the new administration’s final rule, you can learn more in our detailed overview. here.
Is preparing takeout orders specifically for food delivery app customers production work?
As restaurants increasingly depend on the business of food delivery apps to generate revenue, should restaurants be cautious about using tipped employees to serve food delivery app customers? ? Under the 80/20 rule, an employer loses tip credit when a tip employee spends more than 20% of their weekly hours performing work that directly supports the tip-earning work while receiving tip credit. tip. Similarly, tip credit is forfeited when a tip employee performs “direct support” work for a continuous period of more than 30 minutes. Tipping work is defined as “any work performed by a tipping employee who provides a service to customers for which the tipping employee receives tips”. Tip credit can be taken for all time spent performing tipping work. Work that directly supports tipping work is defined as “work that helps a tipped employee perform the work for which the employee receives tips.”
This is work performed by the employee that directly supports tip-earning activities, but does not generate tips themselves. The 20% limit applies to hours for which tip credit is charged. Hours paid at minimum wage (or higher) are excluded when determining 20%.
The final rule specifically pertains to servers taking takeout orders, but only in the context of the COVID-19 pandemic. He provides that “if during the COVID-19 pandemic, a server receives tips from customers who serve customers by taking their orders over the phone and providing them with take-out meals, employers can correctly classify these tasks as tip-producing. However, the final rule does not clarify whether these activities are properly classified as tip-producing work outside of the context of the pandemic or whether untipped takeout orders – including orders placed through delivery apps – are correctly classified. as directly supporting tips. produce work.
However, it seems likely that the current DOL will take the position that if tipped employees do not receive any tips for preparing orders for food delivery app customers, the time spent performing this activity will not be counted as tipping work and may not even be considered to directly support tipping work.
Surprisingly, the Department of Labor’s opinion letters and field assistance bulletins say nothing about whether assistance with take-out orders in general is considered tipping. There are only a few cases that have dealt with this specific issue.
- A court in Ohio allowed a waiter’s wage claim to proceed in 2019 based on allegations that she “spent a significant amount of time preparing delivery orders for Uber Eats, Grub Hub and Door Dash” and was paid a credit rate for time spent on these tasks. The court’s reasoning was based on the fact that preparing delivery service orders was not on the O*Net task list, which is no longer used under the new final rule.
- A federal appeals court allowed a case in Florida to sue a national restaurant chain in 2021 based on allegations that a worker managed and fulfilled orders from food delivery apps unrelated to her job as a server in violation of the 80/20 rule.
- Another federal court in Ohio ruled in 2020 that the case of a server should continue for similar reasons, concluding that a reasonable investigator might conclude that at least a few tasks cited by the waiter were unrelated to their occupation tipping.
However, the courts in these cases did not rule on the merits of their individual claims. Instead, the courts declined to review the Trump administration’s guidelines and only addressed the old 80/20 rule that the Biden administration has since reinstated.
Despite the lack of authority, logic suggests that time spent preparing take-out orders would be considered tip-earning work if employees actually receive tips on these takeout orders and would not count towards the 20% limit. Conversely, time spent by an employee preparing take-out orders for food delivery applications may not be considered tipping since the employee does not receive advices customers of delivery applications. Consequently, the time devoted to the performance of these activities could prove to be taken into account in the limit of 20% or could be considered as work outside the profession concerned.
5 options to limit potential tip credit errors
- Consider paying the full minimum wage. If most of your income comes from take-out and take-out orders, you might consider paying your tip employees full minimum wage for all time spent preparing take-out orders and supplementing their wages with tips received from to – take-out orders, especially since customers are less likely to tip on take-out orders than on restaurant meals. However, this can be difficult if the time spent by employees waiting for customers in the restaurant intersects with the time spent getting ready to leave and delivering app orders, as is often the case.
- Designate a tip-free employee to handle orders. You can designate your hosts or hosts as food delivery app preparers as they are paid at least minimum wage. Ideally, you should stop receiving orders from food delivery apps when that designated employee goes out to prevent your tipping employees from fulfilling the orders.
- Assign the task to a specific hourly employee each shift. You should consider designating a specific hourly paid employee (who is paid at least minimum wage) to handle the preparation of all takeout and food delivery app orders. This relieves the burden of keeping track of the accurate time tipping employees spend preparing takeout orders and delivering food versus performing tipping or direct work support tasks.
- Perform a job evaluation. If you’re unsure how to proceed or which of the above approaches would work best for your restaurant, an assessment of how your employees spend their time could be instructive. Consider how much time each employee spends doing tipping and direct support work and how much time is spent preparing take-out and drop-off orders each shift on average. If tipping accounts for a significant portion of your tipping employees’ time or is often mixed up with tipping and direct support work, it may be best to appoint either a host or another hourly-paid employee to take care of everything that needs to be taken out and food delivery app orders for the shift.
- Consider adding a service fee as an alternative. Consider paying your employees a regular rate over one and a half times the federal minimum wage ($10.89), adding a mandatory service fee to all orders, and distributing the service fee proceeds to your employees . If the service fee received by employees is more than half of their total compensation for a defined representative period (not less than one month), you may be eligible to take advantage of the overtime exemption in Section 7 ( i) of the FLSA, as indicated in our previous Insight.
