The USDOL Withdraws 80/20/30 Tipped Wage Rule

by JPeters | February 12, 2025 12:03 pm

Fifth Circuit Court of Appeals called the rule “arbitrary and capricious”

On December 17, 2024, the United States Department of Labor[1] (DOL) officially withdrew its complicated and controversial 80/20/30 rule, which had been in effect since 2021. This final action[2] has been expected since last August when the Fifth Circuit Court of Appeals[3] vacated the rule — in Restaurant Law Center[4] v. United States Department of Labor — for two main reasons.

In its ruling, the appeals court rejected what it considered to be an arbitrary line drawn by the 80/20/30 rule between “tip-producing” and “tip-supporting” work, saying it was “contrary to the clear statutory text” of the Fair Labor Standards Act[5] (FLSA). The court also said the Administrative Procedure Act[6] required them to hold unlawful and set aside agency actions that are “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law.”

The Final Rule fails under the Administrative Procedure Act twice over. Because the Final Rule is contrary to the Fair Labor Standards Act’s clear statutory text, it is not in accordance with the law. And because it imposes a line-drawing regime that Congress did not countenance, it is arbitrary and capricious.

— United States Court of Appeals, Fifth Circuit, Docket No: No. 23-50562, Decided: August 23, 2024

 

The FLSA and Tipped Employees

The FLSA permits tipped employees to receive $2.13 per hour in a direct wage, so long as the combination of their direct wage and tips equals at least the $7.25 federal hourly minimum wage. Many states require a higher minimum hourly wage for tipped employees.

Some states require employers to pay tipped employees the full state minimum wage before tips. Other states require employers to pay tipped employees a minimum cash wage above the minimum cash wage required by federal law. The DOL provides a helpful table of minimum hourly wages[7] for tipped employees by state, including the definition of a “tipped employee” based on the minimum of tips received.

 

The 80/20/30 rule

The 80/20/30 rule, which has now been withdrawn, attempted to limit the time an employee spent on work that did not directly produce tips. Under the 80/20/30 rule, no more than 20 percent of an employee’s weekly hours could be spent doing “work that supports tip-producing work but does not directly generate tips” — such as setting or clearing tables. Such non-tip-producing work was to be distinguished from tip-producing work like taking a customer’s order or serving the customer the ordered food.

The rule also imposed a 30-minute restriction on the amount of continuous time during a shift that a tipped employee may spend performing tasks that are “directly supporting” tipped work. Any violation of these thresholds would have required the employer to pay at least the full minimum federal wage for that time.

 

Back to the future

With the withdrawal of the 80/20/30 rule, the DOL has reinstated the text of the pre-2021 “dual jobs” regulation. That regulation says that if an employee is working two separate jobs for an employer — such as server and cook — the tip credit is available only when the employee is working in the tipped occupation. It does not impose any time restrictions on the amount of nontipped work that tipped employees may perform.

The dual jobs regulation also allows employers to apply for a tip credit, up to 5.12 per hour, against the federal minimum wage of $7.25 per hour, provided the tipped employees receive at least $30 in monthly tips and are paid a direct cash wage of at least $2.13 per hour.

Under the reinstated pre-2021 rule[8]:

• Employers may only apply tip credit for hours worked in a tipped occupation.
• Time spent on duties that support tip-producing work, such as cleaning or setting tables, is still eligible for a tip credit, provided these tasks are related to the primary tipped role.
• Hours spent performing unrelated, non-tipped duties — maintenance tasks — must be paid at the full minimum wage.

 

New Hampshire laws

Many states have tipping and wage laws that differ from federal regulations. In New Hampshire, where Orr & Reno is located, employers may take a tip credit, but tipped employees must earn a base rate of at least 45 percent of the current minimum wage. Also, a tipped employee in New Hampshire is defined as an employee who earns at least $30 per week in tips.

In 2023, New Hampshire also updated its tip pooling rules (RSA 279:1 XII[9]). Under the new rules, employers may not establish mandatory tip pools, but employees can form them independently. Employers are now allowed to assist employees in creating a tip pooling agreement — a legal document — without fear of being accused of coercion. The tip pooling agreement establishes how the process works, who participates, and expresses the voluntary nature of the agreement. Also, if New Hampshire tipped employees make the independent decision to pool their tips, the employer may not participate.

 

What next?

Employers with employees who receive tips are encouraged to review and update job descriptions for tipped employees that will clearly define tipped duties and related tasks. Managers should also be trained about the specifics of the newly reinstated rule to ensure appropriate task assignments and compliance with wage laws. If you have any questions or concerns about these recent changes to the wage laws governing your tipped employees — or need guidance in updating your job descriptions or assistance in helping your employees in create a tip pooling agreement — don’t hesitate to contact Orr & Reno.

Steven L. Winer[10] and Meredith Farrell Goldstein[11]

Source URL: https://orr-reno.com/blog-usdol-withdraws-80-20-30-tipped-wage-rule-2/

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