Employers that take a tip credit received some good news last week from the Department of Labor when the agency withdrew three opinion letters from the 1970s and 1980s. These letters offered guidance on how to apply the tip credit when tipped workers also perform non-tipped side work. The agency said the old letters could be misread to mean employers should focus on whether individual duties are tip-producing or to limit employees from performing duties within a tipped occupation under the rescinded “80/20 rule.” Here’s what changed, why the DOL withdrew the old opinion letters on October 19, and what hospitality employers should do now.
A Quick Refresher on the Tip Credit and Dual Jobs
Taking a Tip Credit: Under the federal Fair Labor Standards Act (FLSA), employers may pay tipped employees, such as servers and bartenders, a reduced cash wage of $2.13 per hour, as long as tips bring the employee’s total pay up to at least the $7.25 federal minimum wage. That practice is known as taking the “tip credit.”
When Employees Perform Non-Tip Producing Work: The DOL’s longstanding “dual jobs” rule essentially says an employer can’t take the tip credit for an employee’s work in a nontipped role. So, if an employee works both as a maintenance person and a server for a hotel (and earns at least $30 in tips per month), they’re only a “tipped employee” during the time they work in the server position. This means the employer may not take the tip credit (and must directly pay the full minimum wage) for the hours the employee spends working in maintenance.
The Historic Gray Area: Many tipped employees, however, perform supporting work on the side that doesn’t directly generate tips, such as making coffee, rolling silverware, or setting tables, but it is still part of the tipped occupation. This is different than performing a completely separate job like maintenance work. Historically, some courts and states have incorporated guidance from the old DOL opinion letters and other sub-regulatory guidance stating that a worker who spends more than 20% of their time in a week performing non-tip-producing work must be paid the full minimum wage for that time. This became known as the 80/20 rule.
80/20 Rule Withdrawn: The Biden administration later finalized a version of the 80/20 rule that was even more onerous for employers, but the 5th US Circuit Court of Appeals struck it down in 2024, and the DOL formally rescinded it shortly thereafter. You can read more about that history here, here, and here. Notably, however, some courts continue to apply the 80/20 rule. Be sure to check how the applicable federal and state courts are applying the rule, as well as any federal, state, or local nuances that may apply.
Why the DOL Just Withdrew the Opinion Letters
Despite withdrawing the 80/20 rule, the three opinion letters from the 1970s and 1980s were still on the books. They addressed whether employers could take the tip credit for time servers spent on tasks like preparing the salad bar, cleaning and setting tables, and restocking the server station. The 1985 letter built on the earlier two and said a tip credit generally couldn’t be taken when a server spent a “substantial” portion of the workday (in that case, 30% to 40% of their time) on such work. Those letters were the foundation for the 80/20 rule that followed.
The DOL said in its October 19 Field Assistance Bulletin, however, that the Wage and Hour Division “is concerned that these letters may be misread as focusing on whether individual duties are tip producing, or limiting an employee from performing duties within a tipped occupation.” The letters, it said, “no longer reflect Division policy and, in some respects, do not accurately state the law.” Citing the 5th Circuit’s analysis, which the DOL found “persuasive,” the agency observed that the proper inquiry is whether “the employee performs tasks unrelated to his or her tipped occupation.”
🔑 Key Takeaway: The DOL noted that an employer’s ability to take a tip credit is based on whether an employee is engaged in a tipped occupation, not how much time the employee spends performing certain kinds of duties or tasks within the tipped occupation. The DOL doesn’t require that every duty, or even a certain number of duties, be “directed towards producing tips.”
5 Things Employers Should Consider Doing Now
1. Ensure Tip Credit Compliance: You can lose the tip credit entirely if you don’t follow certain rules, like providing employees with proper notice. Although not required, it is a best practice to provide this notice to your tipped employees in writing and have them acknowledge receipt.
2. Evaluate Your Business Practices: For those employers who rely heavily on the tip credit, management of the process is key to avoiding compliance issues. Evaluate your business and consider the best practices and potential problem areas. Put a process in place to manage those issues.
3. Check State and Local Rules: Before relying on the DOL guidance, confirm what the law requires in each place you operate. Some courts continue to defer to older circuit court decisions applying the 80/20 rule. Additionally, many states set higher minimum wages, impose their own version of the 80/20 rule, or restrict or ban the tip credit altogether.
4. Train Your Managers: Make sure your employees who create schedules and assign duties understand the current rules and your company’s policy and apply them consistently.
5. Keep Monitoring for Updates: The rules for tipped employees have evolved at the federal, state, and local level in recent years, and the DOL has said it’s developing a new proposed rule that could shift the framework again. Be sure to stay updated on the latest developments.
Conclusion
We will continue to monitor developments affecting tipped employees and the tip credit, including the DOL’s anticipated rulemaking, and provide updates as warranted, so make sure you are subscribed to Fisher Phillips’ Insight System to get the most up-to-date information. If you have questions, please contact your Fisher Phillips attorney, the authors of this Insight, or any attorney in our Wage and Hour Practice Group or on our Hospitality Industry Team.
About the authors:
Ted Boehm is a partner in the firm’s Atlanta office and the force behind his clients’ labor and employment legal successes. He has litigated hundreds of cases, representing management in state and federal courts as well as before state and federal agencies including the Equal Employment Opportunity Commission and the United States Department of Labor. Ted is a core member of the Firm’s Wage & Hour Practice Group and a member of the Compensation Audit and Counseling Services team.
An experienced litigator and wage and hour guru, Marty Heller is a partner in the firm’s Atlanta office and is a core member of the firm’s Wage and Hour Practice Group. Marty brings together a combination of litigation abilities and detailed compliance knowledge to try to solve your wage and hour problems before they hit the media and your company’s bottom-line.
Courtney Leyes is an attorney in the firm’s Memphis, Nashville, and Gulfport offices. She represents employers nationwide, with a particular focus on employers of all sizes in North Mississippi and throughout Tennessee.
Courtney prefers to consider herself as a problem solver first and a lawyer second. In doing so, she values creating synergistic partnerships with each of her clients. She approaches problems based on the client’s needs and with the passion and care as if it were her own organization. In doing so, Courtney works with clients on a number of preventive measures, including policy reviews and implementation, trainings on a variety of issues, including sensitivity training for your LGBTQIA employees, and various HR audits. Unfortunately, not all problems can be resolved on the front end, and sometimes an employee (or former employee) goes outside of the organization to a government agency or the court system to have the dispute resolved. During these times, employers can count on Courtney’s experience in representing employers in litigation related to discrimination and harassment in the workplace and wage and hour issues.
Emily Litzinger is a trusted advisor and tenacious advocate for employers navigating complex workplace challenges. With two decades of experience, she counsels and defends employers across the country, helping clients understand legal risk, evaluate practical options, and make informed decisions that advance their business goals.
Emily focuses her practice on wage and hour compliance and litigation, employment discrimination claims, and other high-stakes workplace disputes. She represents employers in matters involving discrimination, harassment and retaliation, FMLA and ADA issues, restrictive covenants, and breach of contract.
