DOL withdraws the 80/20 tip credit rule: Price the Side-Work Make-Up by Location Before You Stop Tracking It

The Department of Labor withdrew the 80/20 tip credit rule on October 19, 2026, so federal enforcement no longer caps a tipped server's side work at the $2.13 cash wage. Before you stop tracking side-work hours, price what the make-up was costing each location, because state rules and your own labor cost model still need that number.

Why this matters now

On 2026-10-19 the Wage and Hour Division issued Field Assistance Bulletin 2026-1, titled Withdrawal of Opinion Letters FLSA-895 (Aug. 8, 1979), WH-502 (Mar. 28, 1980), FLSA-854 (Dec. 20, 1985), and 80/20 Guidance on Related Duties. Those three letters were where the 80/20 idea came from. Once a server's related but non-tip-producing duties, such as rolling silverware, brewing coffee, or restocking a station, passed 20% of the workweek, the Department's position was that the employer could no longer take the tip credit for that time. The bulletin tells field staff the letters no longer reflect Department policy and in some respects do not accurately state the law, and that guidance setting specific time limits on duties performed within a tipped occupation no longer reflects Department policy. It also says a proposed rule on tipped employees is coming and that the Department will take comments when it publishes.

The bulletin closes a sequence that began two years ago. On August 23, 2024 the Fifth Circuit, in Restaurant Law Center v. U.S. Department of Labor, vacated the 2021 regulation that had written the 20% limit and a 30-continuous-minute limit into 29 CFR 531.56(e), finding no basis for either in the statute. On December 17, 2024 the Department published a final rule restoring the pre-2021 regulatory text, as Jackson Lewis summarized on 2024-12-18. What survived was the trio of opinion letters, which the 2021 rule had cited and which a court outside the Fifth Circuit could still read as the agency's view. As Littler put it on 2026-10-20, the Department has now confirmed there is no percentage-based limit on the time a tipped employee may spend performing related, non-tip-producing duties. The only federal question left is whether the duties belong to the tipped occupation at all.

Employment law coverage of the bulletin ends with the same advice: review your practices, watch for the proposed rule, mind state law. That is correct and not very useful on a Monday. An operator with locations in more than one state has three concrete questions. What was the side-work make-up costing each location? Which locations keep paying it because a state rule still requires it? And which time tracking has to stay no matter what Washington does next? This article answers those three.

What changed, what did not, and where it depends on the state

The tip credit itself is unchanged. Under section 3(m) of the Fair Labor Standards Act an employer may pay a tipped employee a cash wage of $2.13 an hour and count up to $5.12 an hour of tips toward the $7.25 federal minimum, provided the employee has been told about the credit and keeps all tips except through a valid pool. If cash wage plus tips fall short of $7.25 in any workweek, the employer makes up the difference. None of that moved on October 19. What moved is the second, separate question of whether a server's hours spent on side work count as hours in the tipped occupation.

The dual jobs regulation that remains is the 1967 text of 29 CFR 531.56(e). It distinguishes an employee working two occupations for one employer, such as a maintenance worker who also serves, from a tipped employee who performs related duties that do not themselves produce tips. The first case has never qualified for the tip credit during the non-tipped hours. The second case now qualifies without a stopwatch, at the federal level. So the time-clock job code for a server who closes as a dishwasher two nights a week stays exactly as it is. The job code that measured side-work minutes is the one whose purpose has changed.

State law is where the answer splits. Seven states, Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington, allow no tip credit at all, so tipped staff there already earn the full state minimum in cash and nothing in the bulletin touches their payroll. Colorado allows a tip credit but keeps its own version of the old federal test. As the Rocky Mountain Employer blog noted on 2026-10-22, Colorado's wage order still requires that side work directly support serving customers, take up no more than 20% of the employee's weekly hours, and never last more than 30 minutes at a stretch, with work that fails either test paid at the full minimum wage. For 2026 that means $15.16 an hour instead of the $12.14 tipped cash wage, a $3.02 make-up per hour. Elsewhere, the bulletin binds Department investigators, not state agencies and not private plaintiffs, and a court outside the Fifth Circuit may still look at pre-2021 case law. That is a question for counsel, location by location.

A worked example: one brand, three locations, three different answers

Harbor Street Grill runs full-service locations in Texas, Colorado, and Nevada and closes its books on four-week periods. Since 2022 every location has tracked side work under a separate time-clock job code and paid the full minimum wage for side-work hours beyond 20% of a server's weekly hours and for any side-work block over 30 minutes. Management kept doing that after the 2024 vacatur because the opinion letters were still on the books. Period 10 ended on October 18, 2026, the day before the bulletin. The numbers below are illustrative; the method is the point.

Texas: the make-up stops, the measurement stays for a quarter

The Texas location has 12 servers averaging 32 hours a week, paid the federal $2.13 cash wage with a $5.12 tip credit. In Period 10 the side-work job code showed an average of 4.0 hours per server per week paid at $7.25. The make-up was therefore 12 servers times 4.0 hours times $5.12, or $245.76 a week and $983.04 for the period. Employer FICA at 7.65% on the make-up adds $75.20, so the all-in cost was about $1,058 for the period. Against period sales of $152,000, that is 0.7% of sales. Labor cost ran 32.1% of sales; without the make-up it would have been 31.4%. Prime cost, at 61.2%, would have been 60.5%.

Texas sits inside the Fifth Circuit, where the vacatur is binding, and the Department has now withdrawn the last guidance a plaintiff could cite as the agency's contrary view. The owner, after a call with employment counsel, decides to stop the federal make-up with the first full pay period after an updated tip credit notice goes to staff. The controller does not delete the side-work job code. It stays live through the end of Period 13 so the before-and-after labor number is observable in the ledger rather than inferred, and so the data is there if the proposed rule reintroduces a time test.

Colorado: nothing changes except the label

The Colorado location has 10 servers averaging 30 hours a week at the $12.14 tipped cash wage with a $3.02 tip credit. Side work beyond the state's 20% weekly cap or the 30-minute block limit averaged 3.5 hours per server per week in Period 10, paid at $15.16. The make-up is 10 times 3.5 times $3.02, or $105.70 a week and $422.80 for the period, plus employer taxes. The bulletin changes none of it. The job code, the 30-minute test in the time clock, and the make-up all continue, because the rule that requires them is Colorado's, not the Department's. The only change is the memo in the payroll file: the make-up is now booked under the state wage order rather than under federal guidance that no longer exists.

Nevada: there was never a make-up to remove

Nevada servers earn the full $12.00 state minimum in cash, and tips sit on top. There is no tip credit, so there was never a side-work make-up. The location still tracks hours by occupation for overtime and still collects tip reports for payroll tax, and the bulletin does not touch either.

The entry, and what not to book

At most restaurants the make-up never had its own account; it was folded into front-of-house wages. For the Texas change, post the Period 10 make-up to a sub-account, tip credit make-up wages, and keep posting there until it reaches zero. That turns the decrease into a labor line visibly going to zero rather than a drop in server wages that someone has to explain at the period review. The make-up is wage expense, a flow item, and stopping it lowers expense in future periods. It is not income, there is no gain to recognize, and there is nothing to restate. If counsel advises holding a reserve for a location outside the Fifth Circuit where older case law might still be applied, that reserve is an accrued liability on the balance sheet, a point-in-time amount, booked with a debit to wages and released when the exposure lapses. Keep it out of the labor forecast; the forecast shows the decision, the reserve shows the risk.

Accounting controls for the side-work make-up

Source data: time-clock punches by job code and location, including server, side work, and any separate occupation such as cook or maintenance; the payroll register by employee with cash wage rate, tip credit taken, reported tips, and hours paid at full minimum wage; the wage order or statute for each location's state; the signed tip credit notice on file for each tipped employee; and period sales by location from the POS so the make-up can be stated as a percentage of sales.

Calculation: make-up hours times the tip credit for that location, where the tip credit is the full minimum wage minus the cash wage, gives the weekly make-up; add employer payroll tax to get the all-in cost; divide by period sales for the labor and prime cost effect. For Colorado, side-work minutes divided by weekly hours tests the 20% cap, and the longest continuous side-work block per shift tests the 30-minute limit. For every tipped employee in every location, cash wage plus tips divided by hours must reach the full minimum wage each workweek; that is the tip credit's own test, and it did not change.

Review: a second person agrees the make-up hours on the payroll register to the side-work job code in the time clock, confirms the rule applied to each location matches that location's state, checks the weekly cash-plus-tips test for every tipped employee, confirms that hours in a separate occupation were paid at the full wage regardless of the bulletin, and verifies that the new sub-account did not move hours or dollars between locations. Where the make-up was stopped, the review also confirms the updated tip credit notice went out before the first affected pay period.

Decision: the owner decides, with employment counsel, whether to stop the federal make-up at each location and signs the updated notice. The controller owns the sub-account, the reserve if there is one, and the period explanation. The general manager owns the job codes and the daily punch review. The payroll provider computes what it is told; it does not decide which rule applies.

Limits and common mistakes

This is a workflow for the books, not legal advice on wage and hour compliance. The bulletin governs how Department investigators enforce the FLSA. It does not bind state agencies, and courts outside the Fifth Circuit are not required to follow it. A location in, say, Pennsylvania or Illinois should get counsel's read on circuit precedent before the make-up stops.

The proposed rule is coming, and nobody outside the Department knows what it says. If it reintroduces a time test, an operator who deleted the side-work job code in November will rebuild it from nothing. Keeping the code live through the comment period costs almost nothing.

Removing the 80/20 tracking is not the same as removing the tip credit make-up test. The weekly check that cash wage plus tips reaches the minimum wage continues for every tipped employee, and it is the test that actually produces make-up pay at most locations in a slow week. The Florida minimum wage post walks through that weekly test and what a state wage step does to it.

A server who closes as a dishwasher is working a second occupation, and those hours never qualified for the tip credit. Collapsing the side-work code is fine; collapsing the dishwasher code is a wage violation waiting to be found.

Tip reporting does not change. Employer FICA on reported tips, Form 8027 for large food and beverage establishments, the section 45B credit, and the tipped employee's own tax treatment of qualified tips all still depend on accurate tip reports, and the time clock and POS feed both. If daily POS totals do not tie to the books, the tip figures that feed the make-up test are suspect too; the POS reconciliation guide covers that tie-out.

Finally, do not compare locations as if they were under one rule. A labor-cost-by-location report that shows Texas improving by 0.7 points and Colorado flat is showing a regulatory difference, not a management one. Label which locations carry a state make-up so the comparison reads correctly; the multi-location prime cost post shows how to set that report up so the locations are comparable.

Frequently Asked Questions

What is the 80/20 tip credit rule?

The 80/20 tip credit rule was the Department of Labor position, first stated in opinion letters from 1979, 1980, and 1985, that an employer could not take the FLSA tip credit for a tipped employee's time once related, non-tip-producing duties such as rolling silverware or restocking exceeded 20% of the workweek. A 2021 regulation added a 30-continuous-minute limit. The Fifth Circuit vacated that regulation in 2024, and Field Assistance Bulletin 2026-1 withdrew the opinion letters on October 19, 2026.

Does Field Assistance Bulletin 2026-1 mean restaurants can stop tracking side work?

At the federal level there is no longer a percentage or time limit on related side work, so the federal reason to track side-work minutes is gone. Tracking still matters where state law sets its own limit, such as Colorado's 20% and 30-minute tests, where courts outside the Fifth Circuit may still apply older case law, and for separating hours worked in a genuinely different occupation, which never qualify for the tip credit.

How do I calculate what the side-work make-up was costing a location?

Multiply the side-work hours that were paid at full minimum wage by the tip credit for that location, which is the full minimum wage minus the cash wage. At the federal rates that is $7.25 minus $2.13, or $5.12 per hour. Add employer payroll taxes on the make-up, then divide by the location's sales for the same period to see the effect on labor cost and prime cost percentage.

How should the change be recorded in the books?

The make-up was wage expense, so stopping it simply lowers front-of-house wages in future periods. It is not income and it is not a prior-period adjustment. Post the make-up to its own sub-account for at least one quarter so the decrease is visible as a line going to zero rather than an unexplained drop in server wages. If counsel advises keeping a reserve for exposure under state law or older case law, record that as an accrued liability and release it when the exposure lapses.

Does the withdrawal change the tip credit's basic test or tip reporting?

No. An employer taking the tip credit must still pay at least the $2.13 federal cash wage, or the higher state cash wage, and must still make up the difference in any workweek where cash wage plus tips fall below the full minimum wage. Tip reporting, employer FICA on reported tips, and the tipped employee's own tax reporting are unaffected by the bulletin.

The make-up is one line, but it is the kind of line that hides inside front-of-house wages until someone goes looking. FinBoard reads each location's QuickBooks Online ledger into one reporting view, so the tip credit make-up sub-account, labor cost, and prime cost can be compared across locations and drilled to the payroll entries behind them. See how FinBoard reports prime cost by location for restaurant groups.