Pay Servers $2.13 an Hour Plus Tips? The Labor Department Has Formally Retired the 80/20 Side-Work Limit

In 1985, a restaurant asked the Labor Department about one waiter or waitress assigned to set tables and keep supplies stocked, work that took “30% to 40% of the employee’s workday.” The department’s answer was no tip credit for that time ^[1]. On Oct. 19, the department withdrew that letter, along with two older ones, and said time limits on side work inside a tipped job are no longer its policy ^[1]. If you run a restaurant, bar or diner that pays servers less than the full minimum wage and counts their tips toward the rest, this is about you.

What changed on Oct. 19

The Wage and Hour Division, the part of the Labor Department that enforces federal minimum wage and overtime law, issued Field Assistance Bulletin 2026-1 ^[1]. A field assistance bulletin is a memo to the division’s own investigators, telling them how to enforce the law.

It does two things ^[1]:

• It withdraws three opinion letters: FLSA-895 (Aug. 8, 1979), on a waitress preparing salad bar vegetables; WH-502 (Mar. 28, 1980), on servers cleaning stations, resetting tables and vacuuming; and FLSA-854 (Dec. 20, 1985), the letter above.
• It confirms that the old 80/20 language in the division’s Field Operations Handbook, which was taken out on Jan. 14, 2025, no longer reflects the division’s view of the law.

The bulletin’s key line: it “confirms that any guidance that contemplates specific time limits on duties performed within a tipped occupation no longer reflects WHD policy” ^[1]. Here’s the short version: federal investigators are not supposed to count minutes of side work anymore.

How the tip credit got here

Some background, because this rule has changed several times.

Since 1966, federal law has let employers count part of a tipped employee’s tips toward the minimum wage. That’s the “tip credit.” The employer must still pay a cash wage of at least $2.13 an hour and can count up to $5.12 an hour in tips, as long as the employee actually ends up with at least $7.25 ^{[1, 2]}. A “tipped employee” is someone in a job where they customarily and regularly get more than $30 a month in tips ^[1].

A 1967 regulation, 29 CFR 531.56(e), handles workers with two jobs. The department’s example is a hotel worker who is both a waiter and a maintenance worker: the tip credit applies only to the waiter hours ^{[1, 2]}. The same regulation says a server who spends part of her time “cleaning and setting tables, toasting bread, making coffee and occasionally washing dishes or glasses” is still in the tipped job during that time ^{[1, 2]}.

In 1988, the division turned its opinion letters into handbook guidance: if tipped employees spent more than 20% of their time on general preparation or maintenance, no tip credit for that time ^[1]. That became the 80/20 rule. A 2021 final rule wrote it into the regulation, requiring full minimum wage whenever support work went past 20% of the workweek or ran longer than 30 straight minutes ^{[1, 2]}.

The Restaurant Law Center and the Texas Restaurant Association sued. On Aug. 23, 2024, the Fifth Circuit vacated the 2021 rule ^[3]. “If a core duty of a server is bussing and setting up tables, the server is undoubtedly engaged in his occupation,” the court wrote. “It does not matter whether he is tipped or not for those duties” ^[3]. The department then restored the 1967 wording, effective Dec. 17, 2024 ^[2]. Old opinion letters stayed public, though, and the bulletin says the division was concerned they could still be misread ^[1].

Does this apply to you?

You’re in the picture if you take the federal tip credit. If you already pay every tipped worker at least the full minimum wage before tips, the tip credit question doesn’t arise.

Hypothetical one. Say you run a hypothetical breakfast diner with six servers paid $2.13 an hour plus tips. Each server rolls silverware, refills coffee stations and wipes down booths before and after the rush. Under the 80/20 guidance, you’d have had to watch whether that work crept past a fifth of their time. Under the bulletin, federal investigators look at whether those tasks are part of the server job, and the regulation’s own examples (setting tables, making coffee) say they are ^{[1, 2]}. You still owe the difference if a week’s tips don’t get each server to $7.25 an hour ^[1].

Hypothetical two. Now a hypothetical brewpub assigns one server to work two closing shifts a week as the dishwasher, start to finish, while another employee covers the floor. That looks much more like the hotel waiter who also does maintenance: a separate, non-tipped job ^{[1, 2]}. For those hours, the federal rule is the full minimum wage, with no tip credit ^[1]. The bulletin removes the stopwatch, not the line between two jobs. The Fifth Circuit drew the same distinction, saying the 1967 regulation focuses on whether the employee performs tasks unrelated to the tipped occupation, not how long the untipped tasks take ^{[1, 3]}.

What the bulletin doesn’t settle

Three limits are worth knowing before you change anything.

State law. Whiteford, Taylor & Preston, a law firm, notes that many state and local laws impose stricter tip credit rules or ban the credit altogether, and the bulletin doesn’t touch them ^[5]. If your state has its own side-work test or a higher tipped cash wage, that still governs.

Courts and private suits. The bulletin is enforcement policy. Whiteford points out that it doesn’t bind courts or private plaintiffs ^[5], and J. J. Keller, a compliance publisher, says some courts may rely on older case law instead of the division’s current reading ^[4].

A rule is still coming. The department says it is developing a proposed rule to amend the tipped-employee provisions in Subpart D of Part 531, and will take comments once it’s published ^[1]. J. J. Keller reports that it was first scheduled for August and slipped ^[4].

This is a wage rule. The federal income tax deduction for tips, and the new tip codes on this year’s W-2s, run on separate law.

What to do now

Start with a job list. Write down the tasks that belong to each tipped position and any assignments that amount to a different job ^{[1, 2]}. Keep paying at least $2.13 in cash and topping up any week where tips fall short ^{[1, 2]}. Then check your state and city rules before you drop any time tracking you set up for 80/20, because those may still require it ^[5]. If a worker has raised a side-work complaint or you’ve been sued over it, that’s a question for an employment lawyer, since the bulletin doesn’t decide private cases ^[5].

What I’m keeping an eye on

The Labor Department’s proposed tipped-employee rule. No date yet ^{[1, 4]}. When it appears, I’ll walk through the comment deadline and what it would change in Part 531.

Whether the federal shift prompts changes in state side-work rules. Nothing announced as of this column; state rules remain separate ^[5].

— Sally