The DOL Formally Withdraws the 80/20 Rule for Tipped Employees, But Colorado Continues to Apply that Rule

John Agbonika, Associate

            On October 19, 2026, the U.S. Department of Labor (“DOL”) issued a Field Assistance Bulletin (the “Bulletin”)[1] formally withdrawing the guidance behind the “80/20 rule,” which limited how much non-tipped side work a tipped employee could do while the employer paid a reduced cash wage. Colorado employers should not change their practices because the Colorado Division of Labor Standards and Statistics (the “Division”) will keep enforcing the 80/20 rule under state law.[2]

Background of the Federal 80/20 Rule

            The Fair Labor Standards Act (“FLSA”) requires employers to pay employees at least the federal minimum wage for all hours worked.[3] However, employers may pay tipped workers, such as servers and bartenders, a cash wage below the minimum wage and count part of their tips towards the rest of the minimum wage. This is called the “tip credit.” Specifically, the FLSA allows a cash wage as low as $2.13 an hour, as long as tips bring the employee up to the $7.25 federal minimum wage.[4]

            The tip credit applies only while the employee is doing a tipped job, like serving and bartending at a restaurant.[5] But in addition to waiting tables, servers may also set tables, roll silverware, refill condiments, and clean up at closing. These related duties or side work are treated as part of the tipped job.[6]

            For decades, the DOL’s position was that if side work took up more than 20% of an employee’s time, the employer could not use the tip credit for that time. This became known as the “80/20 rule.”[7] By 2021, the DOL put that rule into a formal regulation (“2021 Regulation”) and added a 30-minute limit on any single stretch of side work.[8] In 2024, the Fifth Circuit Court of Appeals struck down the 2021 Regulation in Restaurant Law Center v. U.S. Department of Labor, reasoning that federal law asks whether the employee is working a tipped job, not how many minutes go to each task.[9] DOL then removed the 80/20 rule from its internal enforcement manual.

DOL Formally Withdraws its 80/20 Guidance

            The Bulletin formally withdrew three opinion letters from 1979, 1980, and 1985 that were the basis for the 80/20 rule, and it states that any guidance setting such limits no longer reflects DOL policy.[10] The DOL also says it is preparing a new proposed rule on tipped employees and will take public comment once it is published.[11]

Colorado Continues to Apply the 80/20 Rule

            Regardless of federal law, the Division continues to apply the 80/20 rule in Colorado because the minimum wage reduction for tipped work is an exception to the full minimum wage, and all exceptions to wage rights are construed narrowly.[12] The Division states that it will continue to apply the 80/20 rule “to preserve an employee’s right to earn a minimum wage for performing non-tipped work.”[13]

            In Colorado, an employer may take the $3.02 state tip credit for side work only if the work (1) directly supports serving customers, such as refilling condiments or setting tables, but not cleaning restrooms or the kitchen; and (2) takes up no more than 20% of the employee’s weekly hours and never lasts more than 30 minutes at a stretch.[14] Side work that fails either test must be paid at the full minimum wage.[15] The Division is in the process of updating its wage regulations this fall, with a public hearing on November 2, 2026.[16]

Employer Considerations

            Colorado employers that take the tip credit should continue to limit side work to tasks that directly support serving customers, keeping such work under 20% of each employee’s weekly hours and under 30 minutes at a time; and pay the full minimum wage for work that does not support serving customers. Opening and closing shifts deserve a close look, since one long stretch of setup or cleanup can exceed the 30-minute side-work limit. Employers should continue to keep daily records of hours worked and tip credits claimed.[17] Lastly, employers operating in several states should keep track of applicable state law, because the FLSA does not override a state’s minimum wage that is higher than the federal minimum wage.[18]

            Campbell Litigation will continue to monitor DOL’s forthcoming proposed rule on tipped employees and the Division’s fall 2026 rulemaking process.

[1] Wage & Hour Div., U.S. Dep’t of Lab., Field Assistance Bulletin No. 2026-1, at 1, 5–6 (Oct. 19, 2026), https://www.dol.gov/sites/dolgov/files/WHD/fab/fab2026-1.pdf. A Field Assistance Bulletin is guidance DOL issues to its investigators on how the agency will enforce the law.

[2] Div. of Lab. Standards & Stat., Colo. Dep’t of Lab. & Emp., INFO #3C: Tips (Gratuities) and Tipped Employees Under Colorado Wage Law 3 n.15 (Dec. 18, 2025), https://cdle.colorado.gov/sites/cdle/files/info_%233c_tips_gratuities%29_and_tipped_employees_under_colorado_wage_law_12.18.25.pdf

[3] 29 U.S.C. § 206(a)(1)(C)

[4] 29 U.S.C. §§ 203(m)(2)(A), 206(a)(1)(C)

[5] A “tipped employee” is one engaged in an occupation in which the employee customarily and regularly receives more than $30 a month in tips. 29 U.S.C. § 203(t); see 29 C.F.R. § 531.56(a)

[6] 29 C.F.R. § 531.56(e). This provision is known as the “dual jobs” regulation.

[7] Field Assistance Bulletin No. 2026-1, supra note 1, at 3–4.

[8] Tip Regulations Under the Fair Labor Standards Act (FLSA), 86 Fed. Reg. 60,114, 60,157–58 (Oct. 29, 2021)

[9] Rest. L. Ctr. v. U.S. Dep’t of Lab., 120 F.4th 163, 173–74 (5th Cir. 2024).

[10] Field Assistance Bulletin No. 2026-1, supra note 1, at 1, 5–6. The withdrawn letters are Opinion Letters FLSA-895 (Aug. 8, 1979), WH-502 (Mar. 28, 1980), and FLSA-854 (Dec. 20, 1985).

[11] Id. at 6.

[12] INFO #3C, supra note 2, at 3 n.15

[13] Id.

[14] Id. at 4-5.

[15] Id.

[16] On September 30, 2026, the Division proposed COMPS Order #41, which would amend the COMPS Order #40, 7 Colo. Code Regs. § 1103-1, Colorado’s principal wage-and-hour rule. See Colo. Dep’t of Lab. & Emp., Labor Rules, Proposed and Adopted, https://cdle.colorado.gov/dlss/labor-laws-rules-resources/labor-rules-proposed-and-adopted.

[17] 7 Colo. Code Regs. § 1103-1:7.1(C)–(D).

[18] 29 U.S.C. § 218(a)