The U.S. Department of Labor (DOL) has withdrawn a rule relating to the payment of tipped employees under the Fair Labor Standards Act (FLSA). The U.S. Court of Appeals for the Fifth Circuit vacated the 2021 DOL rule in an August 2024 court decision.
The now vacated and withdrawn rule, which was known as the "80/20/30," "80/20," or "20%" rule, identified three categories of work:
- Tip-producing work serving customers for which employees receive tips;
- Directly supporting work that prepares for or otherwise assists tip-producing customer service work; and
- Work that is neither tip-producing nor directly supporting.
Employers had to pay employees the full minimum wage for any time that employees spent on work in the third category or that was neither producing nor directly supporting. Employers could pay employees for work done in the second category at a tip-credit rate, but only if the employees did not perform the work for a substantial amount of time. The rule defined "substantial time" as more than 30 continuous minutes or more than 20% of the hours in the workweek for which the employer had taken a tip credit.
The rule, enacted in December 2021, replaced a Trump administration rule stating that employers could pay workers the tipped minimum wage if they primarily performed tipped duties. Soon after the Biden administration adopted the rule, and it went into effect, the Restaurant Law Center and the Texas Restaurant Association sued to block the rule. A federal district court initially upheld the rule. Still, the Fifth Circuit invalidated the rule on appeal, finding that it arbitrarily drew a line between "tipped work" and "directly supporting work" inconsistent with the text of FLSA as Congress enacted it.
By withdrawing the rule, the DOL acknowledged the Fifth Circuit's ruling and restored the pre-2021 language of a provision of FLSA that applies to tipped employees. Under FLSA, employers may pay tipped employees $2.13 per hour in direct wages, so long as they earn at least the $7.25 hourly minimum wage based on the combination of their direct wages and tips. Furthermore, if an employee works in two separate roles for an employer, such as server and cook, the employer can pay the tipped rate only when the employee is working in the tipped role, i.e. as a server.
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