DOL withdraws guidance behind 80/20 tipped-worker rule

The U.S. Department of Labor has withdrawn three opinion letters that formed the basis of the 80/20 rule for tipped employees. The retired guidance generally barred employers from claiming a tip credit for time workers spent on related, non-tip-producing duties beyond 20% of their workweek.

The withdrawal applies now to federal enforcement. Field Assistance Bulletin No. 2026-1 confirms that DOL no longer enforces percentage-based limits on duties within a tipped occupation; it does not announce a replacement percentage or restore the invalidated guidance.

What changed, and when?

The reversal unfolded in three steps. A federal appeals court struck down the rule in August 2024, DOL removed the related guidance from its handbook in January 2025, and the bulletin now retires the three letters that remained on the books.

This sequence matters because the withdrawal finishes DOL's retreat from the old interpretation; it does not revive the percentage limit or supply a new eligibility test. For employers, the federal percentage test is no longer an operating rule.

What can employers claim now?

DOL's current position gives employers greater flexibility within a tipped occupation. Payroll teams can no longer treat 20% as a federal threshold for deciding which related, non-tip-producing hours may support a tip credit because the department does not enforce percentage-based limits on those duties.

The change is narrower than a free pass for all compensation. Employers still cannot claim a tip credit for hours worked in a separate, non-tipped job. The bulletin therefore preserves a categorical distinction between work within the tipped occupation and work in a separate job.

The distinction will require employers to assess job duties and payroll systems against the bulletin. The announcement does not resolve every mixed-duty arrangement, and it should not be read as permission to claim credits indiscriminately. The 20% limit no longer controls federal treatment, but the separate-job restriction still does.

How do state rules change the answer?

The withdrawal governs DOL's federal enforcement position; it does not replace state wage-law requirements. Employers must continue following applicable state rules, which may be stricter than the former federal approach or prohibit tip credits outright.

For a multistate employer, that means testing tipped-pay treatment in each relevant jurisdiction rather than applying one nationwide assumption. A tip credit permitted under the current federal position may still be unavailable or restricted under state law.

This is the clearest immediate compliance exposure identified in the bulletin. State-specific review should precede any payroll change based on the withdrawal, particularly where one employer operates across several legal regimes. Federal flexibility does not cancel state restrictions.

What should employers do now?

The bulletin points to four practical steps for payroll and HR teams:

• Remove the former 20% test from federal tip-credit workflows while retaining any stricter state-specific treatment.
• Map duties to determine whether work falls within a tipped occupation or a separate, non-tipped job; do not claim a tip credit for the latter.
• Review operations in every state where tipped employees work and identify the stricter applicable requirement.
• Monitor DOL's proposed rule and assess any new standard before changing policies beyond the current federal position.

None of these steps requires waiting for the pending proposal to correct the present mismatch. Employers should align current payroll practices with DOL's enforcement position and state law now rather than treating the bulletin as a temporary procedural notice.

What remains unresolved?

DOL is developing a proposed rule on tipped employees, but the announcement provides no timetable, proposed text or replacement percentage. Employers therefore have a clearer present rule and an uncertain federal future.

The caveat is important: withdrawal removes old enforcement guidance, while the promised proposal could establish a different framework. Until rulemaking develops, employers cannot assume the current position will remain the final federal standard.

Even so, two obligations are already clear: employers must keep tip credits out of separate, non-tipped work and apply any stricter state requirements. Employers should watch the proposal for whether DOL restores percentage-based limits or takes another approach. Employers should act under current federal and state rules now while preparing for a proposed framework that may reset tipped-worker pay treatment.