If you work in the food and hospitality industry, you know the 80/20 Rule has been controversial since its introduction. The Fair Labor Standards Act (FLSA) allows employers to pay tipped workers a lower minimum wage (a “tip credit”) as long as the worker’s tips bring their total pay up to the federal minimum wage or the state or local minimum wage, whichever is higher. However, the 80/20 Rule puts a limit of 20 percent on the non-tipped work a tipped employee can perform while still receiving the lower minimum wage.

The rule has been subject to debate for several years, with some arguing that it creates confusion and unfairly penalizes workers, while others applaud the rule as necessary to protect tipped employees from being exploited.

What Is the 80/20 Rule?

The 80/20 Rule applies to tipped employees who perform both tipped and non-tipped work, but specifies that no more than 20 percent of an employee’s time should be spent on non-tipped work. For example, an employee who works as both a bartender and a server, but spends more than 20 percent of their time performing non-tipped duties, may no longer be eligible for the tip credit, and thus, must be paid the federal minimum wage.

Making It Difficult to Earn a Living

Currently, courts are examining two central issues regarding the 80/20 Rule,  namely, whether the rule makes it difficult for tipped employees to earn a living wage, and also whether the rule  sets unrealistic expectations for tracking an employee’s time.

In 2021, the U.S. Department of Labor (DOL) published a final rule that resurrected the 80/20 Rule, stating that a tip credit is not available when a tipped worker devotes over 20 percent of their time to non-tipped work. The Restaurant Law Center (RLC) and the Texas Restaurant Association (TRA) challenged the validity of this rule, claiming that it exceeds DOL’s rulemaking authority and creates unintended consequences and compliance issues.

In February 2022, a judge denied the motion for a preliminary injunction on the grounds that the RLC and TRA suit had not shown the rule would cause irreparable harm. The RLC and TRA appealed to the 5th Circuit, arguing the final rule imposes significant costs on both workers and employers. In April 2023, the 5th Circuit ruled the lower court incorrectly disregarded evidence of irreparable harm.

Subject to Debate

Critics of the 80/20 Rule claim that recording the exact amount of time that tipped workers spend on different tasks is unrealistic and difficult, especially in the fast-paced restaurant industry. They also argue the rule makes it difficult for employers to staff their businesses, as they must ensure that each tipped worker is performing the correct percentage of tipped work.

However, advocates for the 80/20 Rule contend the rule protects workers from exploitation, ensuring employees receive the full minimum wage for all of their work. They claim the rule is necessary to prevent employers from using tipped work to avoid paying fair wages.

Sommers Schwartz Fights for Tipped Workers

Ultimately, the 80/20 Rule remains a contentious issue. Advocates and critics fiercely oppose each other, and it remains to be seen how the rule will be impacted as it meanders through the court system. If your employer unfairly pays you, contact us today to discuss your case confidentially and learn how we can help.