Get the latest 2025 update on tipped wages, tip credits, and the 80/20 rule. Learn what restaurant operators need to know heading into 2026.
As the restaurant industry closes out 2025, employers are navigating continued updates to tipped wage regulations and tip credit eligibility under the Fair Labor Standards Act (FLSA).
These rules, especially the 80/20 rule, court decisions affecting its enforcement. Additionally, the introduction of the No Tax on Tips provision is also reshaping how restaurants classify, compensate, and schedule tipped employees in 2026.
In Fourth’s End-of-Year Restaurant Compliance Update webinar, Christopher Bentley, labor and employment attorney at Johnson Jackson PLLC, joined Fourth to explain how these changes are unfolding, what court rulings mean for operators, and where compliance priorities should focus next
The Fair Labor Standards Act (FLSA) allows employers to take a tip credit, reducing the required cash wage for tipped employees as long as their total earnings meet or exceed the federal minimum wage.
Currently:
However, Bentley reminded operators that state and local rules override federal law when more employee-friendly. For example:
Each location’s minimum wage and tip credit thresholds must be tracked and updated regularly.
The 80/20 rule defines how much time a tipped employee can spend on side work before losing eligibility for the tip credit.
Under the Department of Labor’s (DOL) most recent rule:
Only the first two categories qualify for the tip credit.
Bentley noted that while the rule aims to protect employees, it has created uncertainty for operators, especially multi-unit brands that must interpret and track these definitions across jurisdictions.
In 2025, the 80/20 rule continued to face legal challenges from the restaurant industry.
The Fifth Circuit Court of Appeals (covering Texas, Louisiana, and Mississippi) ruled that the DOL overstepped its authority, declaring the 80/20 rule invalid in those states. Employers there now follow the “dual jobs” regulation, which distinguishes between tipped and non-tipped occupations instead of tracking percentages of side work.
Elsewhere, courts have upheld the rule. A Nebraska federal court reaffirmed that the 80/20 framework remains enforceable in jurisdictions that previously recognized it, keeping it alive in most other states.
The result is a two-track compliance environment:
Bentley emphasized that operators should pay close attention to jurisdictional developments, since rulings in other circuits could shift the standard again in 2026.
Bentley outlined several proactive steps restaurant employers can take to stay aligned with both federal and state requirements:
Use timekeeping systems that clearly distinguish between tipped, directly related, and non-tipped duties. This is especially critical in states that still enforce the 80/20 rule.
Tip pooling is permitted, but managers and supervisors cannot share in tips if a tip credit is claimed.
Bentley noted that if a restaurant pays full minimum wage (with no tip credit), it can include back-of-house employees in a tip pool, but must follow specific record-keeping requirements.
Verify that each location’s tip credits, pay rates, and role classifications are up to date. Differences in local law can lead to compliance issues even for multi-unit operators using standardized practices.
When salaried or managerial employees occasionally perform tipped work (e.g., delivering catering orders), their exemption status can be affected. These cases should be reviewed carefully with HR or legal counsel.
A major development in 2025 came through the One Big Beautiful Bill (OBBB), which introduced the No Tax on Tips provision.
This measure allows workers in tipped occupations earning $150,000 or less annually to exclude up to $25,000 in cash tips from federal income tax.
The exemption will remain in effect through 2028.
Bentley clarified that this change does not alter employer reporting or withholding responsibilities. Instead, it benefits employees directly during tax filing. Restaurant managers can help staff stay informed about eligibility and proper documentation.
HotSchedules by Fourth helps restaurant operators stay compliant with tipped wage and scheduling laws through automation and real-time insights.
With HotSchedules, employers can:
By connecting scheduling, labor law updates, and payroll insights, HotSchedules ensures operators maintain visibility and consistency across their workforce, no matter how the regulations change.
While the 80/20 rule remains active in most jurisdictions, more legal challenges are expected in 2026. The DOL may seek to revise or clarify its guidance depending on how courts rule in ongoing cases.
Bentley also noted that state legislatures could explore additional protections for tipped employees, including minimum tip thresholds and expanded transparency requirements around pooled gratuities.
For operators, staying informed and maintaining thorough, automated records will remain the best defense against risk.
Hear Christopher Bentley explain the current status of tipped wage laws, including how the 80/20 rule and “No Tax on Tips” provision affect restaurant operators, in our on-demand webinar.
With HotSchedules by Fourth, operators can automate scheduling compliance, track wage regulations by location, and maintain consistent documentation across every restaurant.
HotSchedules helps operators automate scheduling compliance, track labor laws by location, and alert managers to potential overtime or rest-break violations before they happen, all within an easy, centralized platform.
Talk to us to learn more about how HotSchedules supports smarter, compliant labor management across all your restaurant locations.
Introduction
Christina Lau (Host, Fourth):
Hey everyone, and welcome to today’s webinar. I’m Christina with the Fourth team and your host. Thanks for joining our end-of-year compliance update.
Before we get started, a few quick housekeeping items: this session is being recorded, and we’ll share the replay and slides after the webinar. If you’re joining us live, you can drop questions into the Q&A box on your screen — it should be toward the bottom. We’ll take as many as we can toward the end.
To kick things off, I’m thrilled to be joined by Christopher Bentley, a board-certified labor and employment attorney with Johnson Jackson PLLC.
For anyone who hasn’t joined one of these sessions before, Chris specializes in labor and employment law and works closely with hospitality businesses navigating wage-and-hour compliance and the ever-changing patchwork of state and local labor laws.
Chris, thank you for being here again. You’ve joined us before, and our audience always gets a ton out of these sessions. Could you start by sharing a bit about your background?
Speaker Introduction
Christopher Bentley:
Absolutely, and thank you, Christina. I’ve been practicing for about eighteen years. I’m currently with Johnson Jackson, where we exclusively represent employers in all types of labor and employment matters. Our clients range from hospitality and restaurant operators to public-sector employers.
Over the years we’ve become very familiar with the constant changes in employment laws — and that’s exactly what we’ll be talking about today.
Why Compliance Is Getting Harder
Christina Lau (Host, Fourth):
Perfect — thank you. Today we’ll cover several new and evolving labor laws that restaurant and hospitality operators should know about, from overtime rules and pay transparency to tipped wage enforcement and new local laws taking effect.
Let’s start with why compliance is getting harder in the first place.
We talk with restaurant operators every day, and the theme is clear: labor laws are changing fast — not only federally, but at the state and even city level. For multi-location brands, that means more complexity, more record-keeping, and definitely more risk.
Even if your specific city or state isn’t yet affected, it’s often a preview of what’s coming next. Cities like Chicago, Seattle, and Philadelphia tend to set the tone for the rest of the country. Staying aware gives you more time to adapt before those changes hit your market.
And what’s fueling all this change? A combination of rising wages, inflation, workforce burnout, and a growing focus on pay equity and transparency. We’re also seeing increased enforcement and higher penalties for violations.
With that backdrop, Chris, let’s jump into the specific regulations operators should be watching. Can you start with overtime?
Part 2 → Overtime Rules
Christopher Bentley:
Sure. Thanks again, Christina. We’re living in a highly political environment, and labor policy often swings depending on which administration is in charge. That’s why staying current on these changes is so critical.
Let’s start with overtime.
The Department of Labor publishes annual data on back-wage recoveries. Last year alone, it recovered about $34.7 million in back wages for the food-service industry — much of it tied to misclassification and overtime errors.
The main law here is the Fair Labor Standards Act (FLSA). Section 213 gives the Secretary of Labor authority to define and limit exemptions from overtime. Two primary exemptions apply most often in restaurants:
Historically, the Department focused on the “duties test,” but recently we’ve seen more emphasis on the “salary test.”
A common misconception is that paying someone a salary automatically makes them exempt from overtime — that’s not true. Employers must also evaluate what duties the employee actually performs.
Executive Exemption
Christopher Bentley:
To qualify under the Executive Exemption, an employee’s primary duty must be management of the enterprise or a recognized department or subdivision.
They must regularly direct the work of at least two or more employees, and they must have authority to hire or fire — or their recommendations must carry significant weight.
Typical qualifying duties include interviewing and training employees, setting pay and schedules, handling grievances or discipline, and managing budgets.
In restaurants, managers can still jump on the line or run food occasionally, but their primary duty must remain management-related to meet the exemption.
Administrative Exemption
Christopher Bentley:
The Administrative Exemption applies when the employee’s primary duty is office or non-manual work directly related to management or general business operations — and they must exercise discretion and independent judgment on significant matters.
If someone simply follows preset policies or routines without independent decision-making, they likely do not meet this test.
Common administrative roles include HR, accounting, budgeting, and marketing. Again, purely clerical or routine work doesn’t qualify.
Why does this matter? Because if the Department of Labor audits you for misclassification, the burden of proof falls entirely on the employer to show why an employee meets an exemption.
The Salary Threshold and Legal Challenges
Christopher Bentley:
Over the past decade, administrations have repeatedly changed the salary-basis threshold. Under the prior rule, the minimum salary was $35,568 per year.
In 2024, the Biden administration proposed a new rule that would raise that threshold to $43,888 on July 1, 2024, and then to $58,656 on January 1, 2025**.** It also included an automatic escalator to increase the threshold every three years.
However, this rule faced immediate legal challenges, most notably from the Plano Chamber of Commerce, arguing that the Department of Labor exceeded its authority. The court agreed, ruling that the increase displaced the duties test and was inconsistent with the FLSA. As a result, the nationwide implementation was struck down.
What Employers Should Do Now
Christopher Bentley:
Employers have asked, “What now? Should we roll back salaries we already increased?” You technically can, but do it carefully. Reducing pay after employees have adjusted can hurt morale and retention — many see it as a demotion.
Most employers are keeping current rates and waiting for further clarification.
With the current administration, most legal experts expect no further action to raise thresholds soon, but the salary test hasn’t been updated in years, so keep monitoring developments.
In the meantime, focus on your duties tests. Conduct audits to ensure job descriptions match actual work performed. I often see job descriptions written for exempt roles where, in practice, the employees don’t meet the criteria.
Periodic reviews are your best protection against misclassification claims.
Recent Court Case: EMD Sales v. Carrera (2025)
Christopher Bentley:
A recent case, EMD Sales Inc. v. Carrera (January 2025), involved three sales representatives challenging their exempt classification.
The district court initially required employers to prove exemptions by “clear and convincing” evidence, which is a high bar. The Supreme Court later clarified that the correct standard is “preponderance of the evidence” — meaning more likely than not (about 51%).
This ruling was a win for employers and brings consistency across jurisdictions.
Part 3 → Pay Transparency and Predictive Scheduling
Christopher Bentley:
Another major trend is pay transparency and predictive scheduling. More states and cities are adopting these laws, so it’s important to understand what applies where your restaurants operate.
These laws aim to give employees more predictability and protection from unfair scheduling practices — but they add complexity for operators.
Oregon is currently the only state with a fully implemented statewide predictive-scheduling law. It applies to hospitality and retail employers with 500 or more employees worldwide.
Under Oregon’s law, employers must:
Failure to comply can result in premium pay for affected employees.
Other states — like Alabama, Florida, and Georgia — have explicitly banned local governments from enacting predictive-scheduling laws, while large cities such as Chicago, Seattle, and New York City have their own versions.
Christopher Bentley:
These rules also require detailed record-keeping, so make sure your scheduling software tracks and stores changes accurately.
Now, let’s turn to another critical area — minimum wage and tipped-wage enforcement.
Part 4 → Minimum Wage and Tipped Wage Regulations
Christopher Bentley:
Minimum wages vary widely and change frequently. For instance:
Always check your state’s current rates, especially for tipped employees.
Under the FLSA, the federal minimum wage is $7.25/hour, and employers may take a tip credit of up to $5.12, meaning they can pay tipped employees $2.13/hour if tips make up the difference.
States can impose stricter standards — for example, in Florida the tip credit is capped at $3.02/hour.
A “tipped employee” is defined as someone who customarily and regularly receives more than $30 per month in tips.
The 80/20 Rule and Recent Challenges
Christopher Bentley:
You’ve probably heard of the 80/20 Rule — it limits how much time a tipped employee can spend on non-tipped duties while still receiving the tip credit.
If more than 20% of their time is spent on non-tipped work (like side duties), or if they perform non-tipped tasks for more than 30 continuous minutes, you must pay them full minimum wage.
The rule classifies duties into three “buckets”:
When President Biden reinstated the 80/20 Rule in 2021, it faced immediate legal challenges. The Fifth Circuit Court (covering Texas, Louisiana, Mississippi) struck it down as unconstitutional, and the Department of Labor later withdrew its enforcement guidance.
However, some courts — like those in Nebraska — continue to uphold the rule, citing existing judicial precedents.
So while the 80/20 Rule is effectively dead in Texas, Louisiana, and Mississippi, it still applies in many other jurisdictions.
Best practice: check your circuit’s stance and document all tipped and non-tipped duties clearly.
Part 5 → State and Local Labor Laws
Christopher Bentley:
Now let’s shift to state and local labor laws that operators should pay attention to. Each market has its own rules — and they’re changing fast.
For example, in Philadelphia, there’s the Power Enforcement Act, which gives the city’s labor department more resources to investigate pay-practice violations. They’ve even created a “Bad Actors List” of employers who’ve violated the law. Those on the list are publicly identified, and the city prohibits retaliation against any employees who report issues.
In Chicago, the Fair Workweek Ordinance requires at least 14 days’ notice for schedule changes. It applies to hotels and restaurants with more than 100 employees. Employers must pay premiums for last-minute adjustments.
And in Minnesota, starting January 2026, the state will roll out a Paid Family and Medical Leave program. Operators there will need to update policies to ensure qualifying employees receive paid time off when taking leave under FMLA or related circumstances.
Meal and Rest Breaks
Christopher Bentley:
Let’s also touch on meal and rest breaks.
Federal law under the Department of Labor doesn’t require meal or coffee breaks — but many state laws do. If an employee works through a meal break, the time must be counted as compensable.
We’ve seen recent cases where employers had written policies stating employees couldn’t work during lunch, but in practice, employees did — and the employer knew it. Courts held those employers liable for the unpaid time.
So make sure managers are enforcing break policies consistently and documenting compliance.
The “One Big Beautiful Bill” and No Tax on Tips
Christopher Bentley:
Before we wrap, I want to mention one notable provision from the federal “One Big Beautiful Bill.”
It includes a No Tax on Tips measure — not something employers need to manage directly, but it matters to employees.
Under this rule, workers in tipped occupations earning $150,000 or less annually can exclude up to $25,000 in cash tips from federal income tax. This exemption runs through 2028.
It’s a meaningful change for your tipped staff, so it’s worth helping them understand it when reviewing payroll or communication materials.
Part 6 → Summary and Key Takeaways
Christopher Bentley:
Let me summarize the main points we covered today.
Overtime Rules:
Pay Transparency & Predictive Scheduling:
Tipped Wages (80/20 Rule):
Final Thought:
Stay proactive with compliance audits and periodic policy reviews. The best defense is documentation and consistent training.
Christina Lau (Host, Fourth):
Thank you, Chris — that was a ton of valuable information and a great breakdown of what’s changing.
Before we move into audience questions, I want to leave everyone with a few practical steps for staying compliant across all your restaurant locations.
Key Takeaways
Christina Lau (Host, Fourth):
To wrap everything up, here are the three main takeaways from today’s session:
If you’d like help reviewing your restaurant’s compliance readiness, our team offers a free consultation to assess your locations, identify risks, and share recommendations before 2026.
If you’re joining us live, you can select “Yes” on the survey on your screen.
If you’re watching the recording later, feel free to email me at christina.lau@fourth.com, and I’ll help get that set up.
Part 7 → Q&A Session
Christina Lau (Host, Fourth):
All right — now let’s move into the Q&A. Feel free to keep submitting questions; we’ll answer as many as we can.
Question 1: Regarding the salary-basis test — since part of it was overruled, what’s still in effect?
Christopher Bentley:
Good question. The salary-basis test is still a component of the exemption. What’s no longer in effect are the substantial increases proposed by the Biden rule. The threshold remains $35,568 per year, and the duties test remains critical for determining exemption.
Question 2: How can we get notifications about minimum wage changes?
Christopher Bentley:
The Department of Labor’s website is the best resource. They publish a comprehensive chart that’s updated regularly. Checking it periodically will show when your state’s rates change and what your obligations are.
Question 3: How does the 80/20 rule work for overtime if an employee has two positions — one tipped and one not?
Christopher Bentley:
In that case, use a blended rate to calculate overtime across both roles. The Department of Labor provides Q&A examples on this — they walk through sample calculations. Just make sure you’re applying the blended average, not the lower of the two rates. If you need help, reach out to your legal counsel or my office.
Question 4: Is the 80/20 rule still active in North Carolina?
Christopher Bentley:
Yes — at least for now. The Fifth Circuit ruling only applied to Texas, Louisiana, and Mississippi. Other circuits, including those covering North Carolina and Florida, still recognize the rule through prior judicial opinions. I do expect future challenges, but for now, assume it’s still active.
Question 5: Is the minimum salary threshold now $58,656 or the 2020 level?
Christopher Bentley:
It’s still the 2020 level — $35,568. The planned jump to $58,656 was struck down with the rule. That higher number never took effect.
Question 6: Do we expect the Trump administration to raise the salary threshold again?
Christopher Bentley:
There’s no official indication yet. Some discussion, yes, but no confirmed plan or publication. If it does happen, it’ll likely be a smaller increase than what the Biden rule proposed.
Question 7: Can carryout tips placed in a jar be shared with the whole staff working that day?
Christopher Bentley:
That’s about tip pooling, and it’s allowed under certain conditions. Tips can be shared among employees who regularly receive them — like servers, bartenders, and bussers — but not with managers or supervisors. If a manager participates, you lose the tip-credit eligibility. Make sure any tip pool is clearly documented and communicated.
Question 8: In Florida, the tipped minimum wage has been tough. Could the state increase the $3.02 tip credit to help operators?
Christopher Bentley:
I certainly hope legislators consider it. The jump to a $15 minimum wage has been hard on restaurants. The Florida Restaurant Association is actively advocating to adjust the tip credit upward. For now, though, it remains $3.02.
Question 9: If a salaried manager earns above minimum wage, can they also earn tips — for example, when delivering catering orders?
Christopher Bentley:
They can perform dual roles, but be cautious. If their management duties qualify them as exempt, receiving tips could create confusion about their classification. That’s a situation I’d review carefully to avoid any compliance issues — feel free to reach out for case-specific guidance.
Christina Lau (Host, Fourth):
Great — thank you, Chris. Those were excellent answers. We are just about out of time, so we’ll wrap up here.
For any unanswered questions, we’ll follow up directly via email after the session.
Chris, thank you so much again for sharing your expertise and time today, and thanks to everyone in the audience for joining. We’ll send out the recording and slide deck shortly.
We host webinars every month here at Fourth, so we hope to see you at the next one.
Christopher Bentley:
Thank you, Christina. Always a pleasure.
Christina Lau (Host, Fourth):
Thanks, everyone — have a great rest of your day, afternoon, or evening!
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