Minimum Wage rules for tipped workers are entering a new enforcement phase after the U.S. Department of Labor withdrew three long-standing opinion letters and confirmed that its former 80/20 guidance no longer reflects Wage and Hour Division policy.
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Minimum Wage Update
The change was announced October 19, 2026, in Field Assistance Bulletin No. 2026-1 from the Department of Labor’s Wage and Hour Division.
The bulletin concerns how employers evaluate whether workers qualify as tipped employees and how they apply federal tip-credit rules when employees perform duties related to their tipped occupations.
The action does not raise or lower the federal minimum wage by itself.
Instead, it removes specific administrative guidance that employers, workers and investigators may previously have consulted when analyzing tipped work and related duties under the Fair Labor Standards Act.
What the Department of Labor withdrew
Field Assistance Bulletin No. 2026-1 withdraws Wage and Hour Division Opinion Letter FLSA-895, issued August 8, 1979.
It also withdraws Opinion Letter WH-502, issued March 28, 1980, and Opinion Letter FLSA-854, issued December 20, 1985.
The three letters addressed whether employees qualified as tipped employees under the Fair Labor Standards Act and the Department of Labor’s dual-jobs regulation.
The bulletin states that the withdrawn letters should no longer be relied upon as Wage and Hour Division enforcement guidance.
The agency also addressed the former 80/20 guidance concerning related duties.
That guidance appeared in a version of Field Operations Handbook section 30d06(e) and concerned the amount of time a tipped employee could spend performing duties related to a tipped occupation while an employer claimed a tip credit.
The Department of Labor says that version of the handbook was withdrawn on January 14, 2025, through Wage and Hour Division Field Operations Handbook Revision 785.
The new bulletin confirms that the withdrawn handbook language no longer represents the division’s policy or interpretation of the Fair Labor Standards Act.
Why the 80/20 guidance mattered
The 80/20 approach became a practical reference point in disputes involving workers who performed both tip-producing tasks and related non-tip-producing duties.
Examples can include servers who prepare dining areas, stock supplies, clean equipment or complete other work connected to serving customers.
The central issue was whether an employer could continue taking a tip credit while a tipped employee spent part of the workday on those related duties.
Withdrawal of the guidance means employers should not treat the former 80/20 language as a current Wage and Hour Division enforcement rule.
It does not mean that every task assigned to a tipped worker automatically qualifies for a tip credit.
Employers must still comply with the Fair Labor Standards Act, the applicable tipped-employee regulations and any more protective state or local wage law.
The bulletin also does not create a new numerical limit that replaces the former 80/20 framework.
Instead, it removes the withdrawn materials as controlling or persuasive enforcement guidance from the Wage and Hour Division.
Federal tip-credit rules remain in place
The Fair Labor Standards Act generally requires covered employers to pay eligible nonexempt employees at least the federal minimum wage for all hours worked.
The federal minimum wage remains $7.25 per hour for covered nonexempt employees.
For tipped employees, the law allows an employer to count qualifying tips toward part of the minimum wage obligation if specific conditions are met.
An employer using the federal tip credit must pay at least $2.13 per hour in direct cash wages.
The direct wage and the tips actually received must equal at least $7.25 per hour for each workweek.
If the employee’s direct wages and tips do not reach the federal minimum wage, the employer must pay the difference.
| Federal tipped-worker rule | Current amount or requirement |
|---|---|
| Federal minimum wage | $7.25 per hour |
| Minimum direct cash wage when using a tip credit | $2.13 per hour |
| Maximum federal tip credit | $5.12 per hour |
| Tip threshold for the federal tipped-employee definition | More than $30 per month |
| Employer responsibility when wages and tips fall short | Pay the difference |
The federal tip credit is not automatic.
Employers must provide required information to tipped employees before taking the credit.
That information generally includes the cash wage being paid, the amount of the tip credit, the rule that the credit cannot exceed tips actually received and the employee’s rights regarding tips and valid tip pools.
An employer that fails to provide the required notice may lose the ability to claim the federal tip credit.
What the bulletin means for employers
Restaurants, hotels, bars and other businesses that employ tipped workers should review policies that cite the withdrawn opinion letters or the former 80/20 language.
Those materials should not be presented as current Wage and Hour Division enforcement guidance.
Employers should also examine how they classify employees who perform a mix of customer-facing work, preparation work, cleaning, stocking and other operational duties.
The relevant question is not simply whether a task is performed by a tipped worker.
Employers must determine whether their pay practices comply with the Fair Labor Standards Act and whether the employee receives all required wages for all hours worked.
Timekeeping records, tip records, payroll calculations and employee notices may become especially important when a worker performs duties outside direct tip-producing activity.
Employers claiming a tip credit must be able to show that the employee’s direct wage and qualifying tips satisfy the applicable minimum wage obligation.
They must also account for overtime when an employee works more than 40 hours in a workweek.
The Fair Labor Standards Act generally requires overtime at one and one-half times the employee’s regular rate for hours over 40.
The withdrawal of guidance does not eliminate those recordkeeping, minimum-wage or overtime responsibilities.
What tipped employees should know
Tipped employees should not assume that the bulletin automatically changes the amount shown on their paychecks.
The announcement is primarily a change in Wage and Hour Division guidance and enforcement references.
Workers who receive a direct wage below the federal minimum wage should track their hours, tips and pay by workweek.
When direct wages and tips combined do not reach the federal minimum wage, the employer generally must make up the shortfall under federal law.
Workers should also review whether they received information about the employer’s tip credit before the employer began relying on it.
Employers generally may not keep employees’ tips for themselves.
Valid tip-pooling rules can apply in certain circumstances, but the Fair Labor Standards Act places limits on who may participate and how tips may be handled.
A manager or supervisor generally may not take an employee’s tips, even when the employer pays the full federal minimum wage and does not claim a tip credit.
State laws may provide greater protection
Federal wage rules are only one part of the analysis for tipped workers.
Many states require employers to pay a higher direct cash wage than the federal $2.13 rate.
Some states require employers to pay the full state minimum wage before tips.
State and local laws may also impose different requirements for tip pools, wage notices, overtime, recordkeeping and related duties.
When federal and state law both apply, employers generally must follow the standard that provides greater protection to employees.
A business operating in multiple states may therefore need separate pay policies rather than one nationwide approach based on federal guidance.
Workers seeking to evaluate their pay should check the labor rules in the state where they work.
What changes now and what does not
The immediate change is that the three identified opinion letters are withdrawn and the former 80/20 guidance is confirmed as no longer representing current Wage and Hour Division policy.
The withdrawal is effective with the bulletin’s October 19, 2026 issuance.
The action does not repeal the Fair Labor Standards Act.
It does not eliminate the federal tip credit.
It does not change the statutory federal minimum wage of $7.25 per hour or the federal direct cash wage of $2.13 per hour for an employer that properly uses the tip credit.
It also does not establish a new federal percentage test for related duties.
Instead, the Department of Labor is telling the public and its enforcement personnel that the withdrawn documents should no longer be used as current division guidance.
Employers should rely on the statute, current regulations and current Department of Labor materials when reviewing tipped-worker pay practices.
Employees who believe they have not received the required minimum wage or overtime may seek information from the Wage and Hour Division or their state labor agency.
Frequently Asked Questions
Did the Department of Labor change the federal minimum wage for tipped employees?
No. The bulletin does not change the federal minimum wage, which remains $7.25 per hour, or the $2.13 direct cash wage that may apply when an employer properly uses the federal tip credit.
What happened to the 80/20 guidance for tipped workers?
The Department of Labor confirmed that the version of its Field Operations Handbook containing the 80/20 guidance was withdrawn on January 14, 2025, and no longer reflects Wage and Hour Division policy or interpretation.
What opinion letters were withdrawn?
The Wage and Hour Division withdrew Opinion Letters FLSA-895 from August 8, 1979, WH-502 from March 28, 1980, and FLSA-854 from December 20, 1985.
Can employers still take a tip credit?
Yes, if they satisfy the Fair Labor Standards Act requirements. The employer must meet notice, wage, tip-retention and recordkeeping requirements and ensure that direct wages plus qualifying tips reach at least the applicable minimum wage.
Do state tipped-wage laws still apply?
Yes. State and local laws may require higher direct wages or may prohibit or limit tip credits. Employers generally must follow the rule that provides greater protection to workers when multiple wage laws apply.
Fact-Checked: Facts were checked against U.S. Department of Labor Field Assistance Bulletin No. 2026-1 and current Wage and Hour Division materials on tipped employees and tip credits.
Disclaimer: This article provides general information and is not legal advice. Wage rules may vary by state, locality and worker classification.
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