Tipped Wage Rule Withdrawn: What Employers Need to Know

The U.S. Department of Labor (DOL) recently announced the withdrawal of a tipped wage rule following a decision by the 5th U.S. Circuit Court of Appeals in August 2024. This marks the official end of the controversial “80/20/30 rule,” which had been in place since December 2021. Here’s what employers need to know about this development and how it affects tipped employees under the Fair Labor Standards Act (FLSA).

What Was the 80/20/30 Rule?

The now-withdrawn 80/20/30 rule introduced in 2021 created a framework for categorizing work performed by tipped employees into three distinct categories:

1. Tip-Producing Work
   Tasks that directly result in tips, such as serving customers, bartending, or other customer-facing activities. Employers could pay employees a tip-credit wage for this type of work.
2. Directly Supporting Work
   Tasks performed in preparation for or assistance with tip-producing work, such as setting tables, rolling silverware, or cleaning a bar. Under the rule, this work could also be paid at a tip-credit wage, but only under strict time limitations.
3. Non-Tipped Work
   Tasks unrelated to the tipped occupation, such as general cleaning or administrative duties. Employers were required to pay the full federal minimum wage for any time spent on these activities.

The rule defined “substantial time” spent on directly supporting work as either more than 30 consecutive minutes or more than 20% of the workweek. Any violation of these thresholds required employers to pay the full minimum wage for that time.

The Legal Challenge

Shortly after the Biden administration finalized the 80/20/30 rule, it faced legal pushback. Two trade groups, the Restaurant Law Center and the Texas Restaurant Association, filed a lawsuit claiming the rule imposed unnecessary burdens on employers and deviated from congressional intent under the FLSA.

In August 2024, the 5th Circuit Court of Appeals vacated the rule, stating that it relied on “impermissible considerations” and conflicted with the statutory framework set forth by Congress. Following the court’s decision, the DOL formally withdrew the rule on December 17, 2024.

Pre-2021 Tipped Wage Regulations Restored

With the withdrawal of the 2021 rule, the DOL has reverted to the pre-2021 “dual jobs” regulation. This longstanding standard, first established in 1988, allows employers to apply the tipped minimum wage (currently $2.13 per hour federally) if employees primarily perform tipped duties. Employers are no longer required to track tipped employees’ time spent on supporting or non-tipped tasks as meticulously as under the 80/20/30 rule.

This technical correction ensures consistency with the 5th Circuit’s ruling and eliminates the additional administrative burden the 2021 rule imposed on businesses in industries that rely heavily on tipped employees, such as restaurants, hospitality, and retail. By reverting to the pre-2021 tipped wage regulations, the DOL has simplified compliance for employers while maintaining protections for tipped workers.

Employer Recommendations

To adapt to this regulatory shift, employers should consider the following steps:

1. Review and Update Policies
   Revisit wage and hour policies to ensure they align with the restored pre-2021 tipped wage regulations. Confirm that tipped employees are being paid appropriately for their duties and that outdated procedures from the 80/20/30 rule are no longer being followed.
2. Train Management and Staff
   Provide training for managers, payroll staff, and HR professionals on the changes to tipped wage rules. Proper training will ensure consistent compliance and help avoid unintentional violations.
3. Audit Payroll Practices
   Conduct an internal audit of payroll practices to identify any discrepancies in tipped wage payments. Focus on ensuring that tipped employees are classified correctly and compensated in line with federal and state requirements.
4. Communicate with Employees
   Keep tipped employees informed about these changes and how they may affect their pay. Clear communication fosters trust and helps reduce confusion regarding compensation practices.
5. Monitor State and Local Regulations
   While federal rules have shifted, some states and municipalities have their own tipped wage regulations. Employers should verify compliance with state and local requirements, which may differ from federal regulations.
6. Stay Informed
   Regulatory landscapes can change rapidly. Subscribe to updates from trusted HR and legal sources and consult with employment law professionals to stay ahead of future developments.

Preparing for the Future of Tipped Wage Compliance

For employers, the withdrawal of the 80/20/30 rule eliminates a significant administrative burden, but it also signals the importance of staying vigilant. Understanding and implementing compliant payroll practices will remain essential as legal and regulatory shifts continue to evolve. By maintaining awareness of the latest tipped wage rules and ensuring your team is informed and prepared, your business can navigate these changes smoothly.

By taking these steps, employers can ensure compliance with the latest tipped wage regulations while maintaining fair and transparent pay practices.