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DOL Rescinds 80/20 Rule

Picture of Heather Palermo Heather Palermo · March 06, 2019

payroll + hr compliance small business accounting business & tax strategy

The U.s. department of labor recently issued an update bulletin rescinding prior guidance known as the "80/20 rule".

Since 2009, this rule stopped employers from using the subminimum wage to assign excessive amounts of non-tipped side work to tipped-wage employees.

The February 15th formal update to the DOL field handbook followed the Labor Department's November announcement that it was essentially eliminating the rule. The Obama era 80/20 rule said tipped employees who spent more than 20 percent of working hours on non-tipped duties--such as setting tables, rolling silverware or restocking condiments -- could not be paid the subminimum wage for that time.

The handbook update said Department of Labor’s Wage and Hour Division “will no longer prohibit an employer from taking a tip credit based on the amount of time an employee spends performing duties related to a tip-producing occupation that are performed contemporaneously with direct customer-service duties or for a reasonable time immediately before or after performing such direct-service duties.”

Some employers will still be subject to 80/20 rules if their state has its own 80/20 rule. Before any operator takes a tip credit, they should check with a labor attorney, especially regarding state or local laws that might provide something similar to the 80/20 rule.

In case you are wondering about our part of the country, Chicago and the rest of Illinois do not have an equivalent to the 80/20 rule. Wisconsin, however, does have a rule similar to the federal 80/20 rule. Here is what the Wisconsin Department of Workforce Development told us about side work assigned to tipped employees:

“For enforcement purposes, an employee is allowed to spend up to 1/3 of their time in non-tip producing activities in order to still be considered a “tipped employee.” If the employee is spending more than that amount of time in non-tip producing activities, then the employer should be paying the employee at least $7.25 per hour.

The change in the federal rule will not change how we (Wisconsin) apply our code provision. If an employer is subject to both state and federal laws, the employer must comply with both, which is usually accomplished by meeting the more stringent requirement (Wisconsin’s rule).”

The Federal 80/20 rule update could change with subsequent administrations. If there is a new administration after the 2020 elections, they could just switch it back.

If you have any questions about the proper way to pay tipped employees where your business is located, please consult a labor attorney.

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The information in this article is provided for general educational purposes and reflects conditions as of the publication date. It is not legal, tax, accounting, payroll, HR, or compliance advice. Every business is different, so talk with a qualified professional about your specific situation.