Tip Regulations Under the Fair Labor Standards Act (FLSA)
| Published date | 30 December 2020 |
| Citation | 85 FR 86756 |
| Record Number | 2020-28555 |
| Section | Rules and Regulations |
| Court | Wage And Hour Division |
Federal Register, Volume 85 Issue 250 (Wednesday, December 30, 2020)
[Federal Register Volume 85, Number 250 (Wednesday, December 30, 2020)]
[Rules and Regulations]
[Pages 86756-86792]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28555]
[[Page 86755]]
Vol. 85
Wednesday,
No. 250
December 30, 2020
Part IIIDepartment of Labor-----------------------------------------------------------------------Office of the Secretary-----------------------------------------------------------------------29 CFR Part 10-----------------------------------------------------------------------Wage and Hour Division-----------------------------------------------------------------------
29 CFR Parts 516, 531, 578, et al.Tip Regulations Under the Fair Labor Standards Act (FLSA); Final Rule
Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 /
Rules and Regulations
[[Page 86756]]
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DEPARTMENT OF LABOR
Office of the Secretary
29 CFR Part 10
Wage and Hour Division
29 CFR Parts 516, 531, 578, 579, and 580
RIN 1235-AA21
Tip Regulations Under the Fair Labor Standards Act (FLSA)
AGENCY: Wage and Hour Division, Department of Labor.
ACTION: Final rule.
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SUMMARY: In the Consolidated Appropriations Act of 2018 (CAA), Congress
amended section 3(m) of the Fair Labor Standards Act (FLSA) to prohibit
employers from keeping tips received by their employees, regardless of
whether the employers take a tip credit under section 3(m). In this
final rule, the Department of Labor (Department) amends its tip
regulations to address these amendments. The final rule also codifies
the Department's guidance regarding the tip credit's application to
employees who perform tipped and non-tipped duties.
DATES: This final rule is effective March 1, 2021.
FOR FURTHER INFORMATION CONTACT: Amy DeBisschop, Director of the
Division of Regulations, Legislation, and Interpretation, Wage and Hour
Division, U.S. Department of Labor, Room S-3502, 200 Constitution
Avenue NW, Washington, DC 20210, telephone: (202) 693-0406 (this is not
a toll-free number). Copies of this final rule may be obtained in
alternative formats (Large Print, Braille, Audio Tape, or Disc), upon
request, by calling (202) 693-0675 (this is not a toll-free number).
TTY/TDD callers may dial toll-free (877) 889-5627 to obtain information
or request materials in alternative formats.
Questions of interpretation or enforcement of the agency's existing
regulations may be directed to the nearest WHD district office. Locate
the nearest office by calling the WHD's toll-free help line at (866)
4US-WAGE ((866) 487-9243) between 8 a.m. and 5 p.m. in your local time
zone, or log onto WHD's website at https://www.dol.gov/agencies/whd/contact/local-offices for a nationwide listing of WHD district and area
offices.
SUPPLEMENTARY INFORMATION:
I. Executive Summary
The FLSA generally requires covered employers to pay their
employees at least the Federal minimum wage, which is currently $7.25
per hour. See 29 U.S.C. 206(a)(1). As amended, section 3(m) of the FLSA
allows an employer that satisfies certain requirements to count a
limited amount of the tips received by its ``tipped employees'' as a
credit toward its Federal minimum wage obligation (known as a ``tip
credit''). See 29 U.S.C. 203(m)(2)(A). An employer may take a tip
credit only for ``tipped employees'' and only if, among other things,
its tipped employees retain all their tips. Id. This requirement does
not, however, preclude an employer that takes a tip credit from
implementing a tip pool in which tips are shared only among those
employees who ``customarily and regularly receive tips.'' Id.
In 2011, the Department revised its tip regulations to reflect its
view at the time that, regardless of whether their employer takes a tip
credit, the FLSA required that tipped employees retain all tips they
received, except tips distributed through a tip pool limited to
employees who customarily and regularly receive tips. (76 FR 18855)
See, e.g., 29 CFR 531.52. On December 5, 2017, the Department published
a notice of proposed rulemaking (NPRM), 82 FR 57395, which proposed to
rescind the parts of its tip regulations that applied to employers that
pay a direct cash wage of at least the full Federal minimum wage and do
not take a tip credit.
On March 23, 2018, Congress amended section 3(m) of the FLSA in the
CAA, Public Law 115-141, Div. S., Tit. XII, sec. 1201, 132 Stat. 348,
1148-49 (2018). Among other things, the CAA revised section 3(m) by
renumbering the existing tip credit language as section 3(m)(2)(A) and
adding a new section 3(m)(2)(B). That new section prohibits employers
from keeping their employees' tips ``for any purposes, including
allowing managers or supervisors to keep any portion of employees'
tips'' even if they do not claim a tip credit. In addition, the CAA
amended sections 16(b) and 16(c) of the FLSA to permit private parties
and the Department to recover any tips unlawfully kept by an employer
in violation of section 3(m)(2)(B), in addition to an equal amount of
liquidated damages. Finally, the CAA amended section 16(e) of the FLSA
to give the Department discretion to impose civil money penalties
(CMPs) up to $1,100 when employers unlawfully keep employees' tips. On
October 8, 2019, the Department issued a new NPRM proposing, among
other things, to update its tip regulations to incorporate the CAA
amendments (84 FR 53956).
Congress specified in the CAA that the portions of the 2011 final
rule that ``are not addressed by section 3(m) . . . (as such section
was in effect on April 5, 2011), shall have no further force or effect
until any future action taken by [the Department of Labor].'' CAA, Div.
S, Tit. XII, sec. 1201(c). As the Department explained in a Field
Assistance Bulletin (FAB) published shortly thereafter, that statement
applies to those portions of the Department's regulations--Sec. Sec.
531.52, 531.54, and 531.59--that restricted tip pooling by employers
that pay tipped employees at least the full minimum wage as a direct
cash wage and, therefore, do not claim a tip credit. See FAB No. 2018-3
(Apr. 6, 2018).\1\ In light of the CAA's amendments to the FLSA, the
Department's 2019 NPRM withdrew the 2017 NPRM, which addressed the same
topic as those amendments. 84 FR 53956.
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\1\ https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/fab2018_3.pdf.
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This final rule revises the Department's current tip pooling
regulations in light of the 2018 CAA amendments. The CAA did not change
the statutory requirements, now in section 3(m)(2)(A) of the FLSA, that
apply to employers that take a tip credit. Those employers may continue
to institute a mandatory ``traditional'' tip pool, that is, a tip pool
limited to employees who ``customarily and regularly'' receive tips. In
addition, the CAA removed the regulatory restrictions on an employer's
ability to require tip pooling when it does not take a tip credit;
those employers may now implement mandatory, ``nontraditional'' tip
pools, which include employees who do not customarily and regularly
receive tips, such as cooks and dishwashers.
The CAA also imposed a new prohibition, in section 3(m)(2)(B), that
applies to all employers regardless of whether they take a tip credit:
Employers may not keep employees' tips and may not allow managers or
supervisors to do so. Among other things, section 3(m)(2)(B) prohibits
employers, managers, and supervisors from receiving employees' tips as
part of any tip pooling arrangement. It also prohibits employers from
operating tip pools in any manner such that they ``keep'' tips.
This final rule updates the Department's tip regulations to
incorporate the CAA's amendments to the FLSA. As explained above, the
CAA renumbered the FLSA's existing tip
[[Page 86757]]
credit language as section 3(m)(2)(A), but made no substantive changes
to that language. As a result, this rule does not alter the
Department's existing regulations and guidance regarding section
3(m)(2)(A) for employers that claim a tip credit. Those regulations are
addressed only as necessary to clarify how they relate to the CAA's
amendments to the FLSA. In this rule, the Department makes the
following three substantive changes to regulations concerning tips.
First, the rule incorporates the new statutory language, section
3(m)(2)(B)--which applies whether or not the employer takes a tip
credit--into the Department's regulations and incorporates a new
recordkeeping requirement to help it administer the new statutory
language. Second, this rule, consistent with the CAA's amendments,
removes the portions of the Department's regulations that prohibited
certain employers--those that pay their tipped employees a direct cash
wage of at least the full Federal minimum wage and do not take a tip
credit against their minimum wage obligations--from including employees
who do not customarily and regularly receive tips, such as cooks and
dishwashers, in mandatory tip pooling arrangements. Third, this rule
amends the Department's regulations to reflect recent guidance
explaining that an employer may take a tip credit for time that an
employee in a tipped occupation spends performing related, non-tipped
duties contemporaneously with tipped duties, or for a reasonable time
immediately before or after performing the tipped duties. These amended
regulations also address which non-tipped duties are related to a tip-
producing occupation.
Additionally, the Department incorporates the CAA's new language
regarding CMPs into its regulations. The Department also takes this
opportunity to revise portions of its CMP regulations on willful
violations (specifically, 29 CFR 578.3 and 579.2). It does so to make
the regulatory language consistent with the way the Department actually
litigates willfulness issues and to address the appellate courts that
have, for example, ``urge[d]'' it to reconsider those regulations to
ensure their consistency with the Supreme Court's interpretation of the
meaning of ``willful'' in the FLSA.
Finally, the Department amends the portions of its regulations that
address the payment of tipped employees under Executive Order 13658,
Establishing a Minimum Wage for Contractors, to reflect rescissions in
the FLSA regulations for tipped employees, incorporate the Department's
explanation of when an employee performing non-tipped work is a tipped
employee, and otherwise align those regulations with the Executive
order.
The Department estimates this final rule could result in a
potential transfer of $109 million, as tip pools are expanded from
front-of-the-house employees alone to include back-of-the-house
employees. A directly observable transfer would occur only among
employees because section 3(m)(2)(B) prohibits employers from
participating in these tip pools or otherwise keeping employees' tips.
However, assuming the shared tips are large enough to maintain wage
levels for all workers in the tip pool, the Department acknowledges
that some employers could potentially offset some of the increase in
total compensation received by back-of-the-house workers by reducing
the direct wage that they pay those workers (as long as they do not
reduce their wage below the applicable minimum wage), and such an
outcome is what is modeled to produce the $109 million estimate of
transfers from employees to employers. The rule may also result in
transfers to workers as employers who adopt tip pools containing back-
of-the-house workers may not take a tip credit for their front-of-the-
house staff. The Department also acknowledges the possibility that some
transfers could occur as a result of the changes to the regulations
involving when an employer may take a tip credit, but the Department is
unable to estimate the likelihood or magnitude of these transfers. The
Department estimates that regulatory familiarization costs associated
with this final rule would be $3.86 million in the first year.
This rule is considered an E.O. 13771 deregulatory action. Details
on the estimated cost savings of this rule can be found in the rule's
economic analysis. The Office of Information and Regulatory Affairs
designated this rule as a `major rule,' as defined by 5 U.S.C. 804(2),
under the Congressional Review Act (5 U.S.C. 801 et seq.).
II. Background
A. Section 3(m)
Section 6(a) of the FLSA requires covered employers to pay their
nonexempt employees a minimum wage of at least $7.25 per hour. 29
U.S.C. 206(a). Section 3(m)(2)(A) allows an employer to satisfy a
portion of its minimum wage obligation to any ``tipped employee'' by
taking a partial credit toward the minimum wage based on tips an
employee receives. Id. 203(m)(2)(A). Section 3(t) defines ``tipped
employee'' as ``any employee engaged in an occupation in which he
customarily and regularly receives more than $30 a month in tips.'' Id.
203(t). An employer that elects to take a tip credit must pay the
tipped employee a direct cash wage of at least $2.13 per hour. The
employer may then take a credit against its wage obligation for the
difference--up to $5.12 per hour--in tips received by the employee if
the cash wage plus the employee's tips equal at least the minimum wage.
If the employee does not earn sufficient tips to bring his or her
hourly earnings to the minimum wage, the employer must pay any
additional wages required to make up the difference. If the employee's
cash wage plus tips exceeds the minimum wage, the employer must still
pay a cash wage of at least $2.13 per hour. An employer may take a tip
credit only if, among other things, the tipped employees retain all the
tips they receive. An employer taking a tip credit is also allowed to
implement a mandatory tip pool in which tips are shared only among
employees who ``customarily and regularly receive tips.''
Under section 3(m)(2)(B) of the FLSA, added by the CAA, ``an
employer may not keep tips received by its employees for any purposes,
including allowing managers or supervisors to keep any portion of
employees' tips.'' See Div. S., Tit. XII, sec.1201. Section 3(m)(2)(B)
applies regardless of whether an employer takes a tip credit.
B. Statutory and Regulatory History
i. 1966 and 1974 Amendments to the FLSA \2\
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\2\ Congress also amended section 3(m)'s tip credit language in
1977, 1989, and 1996. These amendments changed only the amount of
tips received by employees that could be credited toward an
employer's minimum wage obligations. See Public Law 95-151, sec.
3(b), 91 Stat. 1245 (1977); Public Law 101-157, sec. 5, 103 Stat.
938 (1989); Public Law 104-188, sec. 2105(b), 110 Stat. 1755 (1996).
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Congress created the FLSA's tip credit in 1966 by amending the
definition of ``wage'' in section 3(m). See Public Law 89-601, sec.
101(a), 80 Stat. 830 (1966). The Department promulgated its initial tip
regulations the following year. See 32 FR 13575 (Sep. 28, 1967). In
1974, Congress amended section 3(m) to prohibit an employer from taking
a tip credit unless, among other things, ``all tips received by [an]
employee have been retained by the employee, except that this
subsection shall not be construed to prohibit the pooling of tips among
employees who customarily and regularly receive tips.'' Public Law 93-
259, sec. 13(e), 88 Stat. 55 (1974). As a result, an employer that
takes a tip
[[Page 86758]]
credit may require a tipped employee to share tips with other employees
engaged in occupations that customarily and regularly receive tips, but
it cannot use employees' tips for any other purpose or require tipped
employees to share them with employees who do not customarily and
regularly receive tips. By setting conditions under which an employer
may take a tip credit, the statute makes plain that Congress intended
these conditions to apply only to employers who take such a credit.
Section 3(m)(2)(A) contains no indication that Congress intended for
these restrictions to apply to employers that do not take a tip credit
and that use tip pools for other purposes, such as by sharing tips with
``back-of-the-house'' employees like cooks and dishwashers.
The Ninth Circuit reached this same conclusion in 2010, observing
that ``nothing in the text of the FLSA purports to restrict employee
tip-pooling arrangements when no tip credit is taken.'' Cumbie v. Woody
Woo, Inc., 596 F.3d 577, 583 (9th Cir. 2010). It reasoned that section
3(m)'s ``plain text'' merely ``imposes conditions on taking a tip
credit and does not state freestanding requirements pertaining to all
tipped employees.'' Id. at 580-81. The contrary position, the court
concluded, would render section 3(m)'s ``reference to the tip credit,
as well as its conditional language and structure, superfluous.'' Id.
at 581. It accordingly held that the employer, which did not take a tip
credit, did not violate section 3(m) by requiring its tipped employees
to contribute to a tip pool that included employees who were not
customarily and regularly tipped. See id.
ii. 2011 Regulations
The Department did not promulgate regulations addressing the 1974
amendments to the FLSA's tip credit language until 37 years later. See
76 FR 18832, 18854-56 (Apr. 5, 2011). Though issued after the Cumbie
decision, the 2011 regulations prohibited employers from, among other
things, establishing mandatory tip pools that include employees who are
not customarily and regularly tipped--whether the employers took a tip
credit or not. See 29 CFR 531.52 (2011) (``The employer is prohibited
from using an employee's tips, whether or not it has taken a tip
credit, for any reason other than that which is statutorily permitted
in section 3(m): As a credit against its minimum wage obligations to
the employee, or in furtherance of a valid tip pool.''). See also 29
CFR 531.54 (``an employer . . . may not retain any of the employees'
tips''); 531.59 (``With the exception of tips contributed to a valid
tip pool as described in Sec. 531.54, the tip credit provisions of
section 3(m) also require employers to permit employees to retain all
tips received by the employee.''). The Department acknowledged that
section 3(m) did not expressly address the use of an employee's tips
when an employer does not take a tip credit and pays a direct cash wage
equal to or greater than the minimum wage, but stated that the
regulation would fill a ``gap'' that the Department then believed to
exist in the statutory scheme. 76 FR 18841-42.
Multiple lawsuits challenged the Department's authority under
section 3(m) to regulate employers that pay a direct cash wage of at
least the Federal minimum wage. The parties challenging the validity of
the 2011 regulations argued, and several courts ruling in favor of
those parties recognized, that section 3(m)'s text reflected Congress'
intent to impose conditions only on employers that take a tip credit.
See, e.g., Malivuk v. Ameripark, LLC, No. 15-2570, 2016 WL 3999878, at
*4 (N.D. Ga. July 26, 2016) (agreeing that ``Section 203(m) only
imposed a condition on employers who take a tip credit, rather than a
blanket requirement on all employers regardless of whether they take a
tip credit.''); Trinidad v. Pret A Manger (USA) Ltd., 962 F. Supp. 2d
545, 562 (S.D.N.Y. 2013) (``Although the Court need not resolve this
issue definitively . . . [it] finds Pret's argument more persuasive:
The DOL regulations are contrary to the plain language of Sec.
203(m).'').
In 2016, a divided Ninth Circuit panel upheld the validity of the
2011 regulations. See Oregon Rest. & Lodging Ass'n (ORLA) v. Perez, 816
F.3d 1080, 1090 (9th Cir. 2016). Although the Ninth Circuit declined en
banc review of the decision, ten judges dissented on the ground that
the FLSA authorized the Department to address tip pooling and tip
retention only when an employer takes a tip credit. 843 F.3d 355, 356
(9th Cir. 2016) (O'Scannlain, J., dissenting from denial of reh'g en
banc). The dissent noted that the Ninth Circuit itself had decided in
Cumbie that the FLSA ``clearly and unambiguously permits employers who
forgo a tip credit to arrange their tip-pooling affairs however they
see fit.'' Id. at 358 (citing Cumbie, 596 F.3d at 579 n.6, 581-83). The
dissent therefore concluded that ``because the Department [had] not
been delegated authority to ban tip pooling by employers who forgo the
tip credit, the Department's assertion of regulatory jurisdiction [was]
manifestly contrary to the statute and exceed[ed] its statutory
authority.'' Id. at 363 (internal quotation marks omitted). The
National Restaurant Association, on behalf of itself and other ORLA
plaintiffs, sought U.S. Supreme Court review. See Pet. for Writ of
Cert., Nat'l Rest. Ass'n v. U.S. Dep't of Labor, No. 16-920, 2017 WL
360483, (U.S. Jan. 19, 2017).
While the National Restaurant Association's petition was pending,
the Tenth Circuit issued a conflicting decision, ruling that the 2011
tip regulations were invalid to the extent they barred an employer from
using or sharing tips with employees who do not customarily and
regularly receive tips when the employer pays a direct cash wage of at
least the Federal minimum wage and does not take a section 3(m) tip
credit. See Marlow v. New Food Guy, Inc., 861 F.3d 1157, 1159 (10th
Cir. 2017). The Tenth Circuit held that the text of the FLSA limits an
employer's use of tips only when the employer takes a tip credit,
``leaving [the Department] without authority to regulate to the
contrary.'' See Marlow, 861 F.3d at 1163-64.
In light of the conflicting decisions from the Federal courts of
appeals, the Department adopted a nationwide ``nonenforcement policy''
under which it would ``not enforce'' the 2011 regulations in any
context in which an employer pays its employees a direct cash wage of
at least the Federal minimum wage. See 82 FR 57395, 57399 (Dec. 5,
2017).
In its 2018 response to the petition for a writ of certiorari in
the ORLA case, the Government explained that the Department had
reconsidered its defense of the 2011 regulations in light of the Ninth
Circuit's ten-judge dissent from denial of rehearing in ORLA and the
Tenth Circuit's decision in Marlow. That reconsideration had led the
Department to conclude that it had exceeded its statutory authority in
promulgating those regulations to the extent they apply to employers
that do not take a tip credit against their Federal minimum wage
obligations: ``[U]ntil the 2018 [congressional] amendments, Section
203(m) placed limits only on employers that took a tip credit,'' and
``[n]either Section 203(m) nor any other provision of the FLSA prevents
an employer that pays at least the minimum wage from instituting a
nontraditional tip pool [that includes back-of-the-house employees like
cooks and janitors] for employees' tips.'' Br. for Resps. at 26-27,
Nat'l Rest. Ass'n. (May 22, 2018). The government also noted that the
Department had published in December 2017 an NPRM that proposed to
rescind the challenged portions of the regulations. Id. at 10. Shortly
thereafter, the Supreme Court denied the petition. 138 S. Ct. 2697
(2018).
[[Page 86759]]
iii. 2017 Notice of Proposed Rulemaking
On December 5, 2017, the Department published an NPRM proposing to
rescind the portions of its 2011 tip regulations that imposed
restrictions on employers that pay a direct cash wage of at least the
full Federal minimum wage and do not take a tip credit against their
minimum wage obligations. See 82 FR 57395 (Dec. 5, 2017). It did so in
part because of its concerns at the time, in light of Marlow and the
dissent from the denial of rehearing in ORLA, that it had misconstrued
the statute when it promulgated the 2011 regulations. See 82 FR 57399.
The Department stated that where ``an employer has paid a direct cash
wage of at least the full federal minimum wage and does not take the
employee tips directly, a strong argument exists that the statutory
protections of section 3(m) do not apply.'' 82 FR 57402. The Department
also proposed allowing these employers to establish tip pools that
include employees who contribute to the customers' experience but do
not customarily and regularly receive tips, such as dishwashers or
cooks. See, e.g., 82 FR 57399.
A number of commenters on the 2017 NPRM supported allowing
employers to establish these tip pools. Several commenters pointed out
that these workers contribute to each customer's overall service, which
directly affects the size of the customer's tip. Many commenters,
however, expressed concern that employers would take tips received by
employees for its own purposes.
During a hearing on March 6, 2018, before the Subcommittee on
Labor, Health and Human Services, and Education of the U.S. House of
Representatives Committee on Appropriations, Secretary of Labor R.
Alexander Acosta was asked about the proposed rulemaking. The Secretary
explained that the Tenth Circuit had made clear in Marlow, in reasoning
the Secretary found persuasive, that the Department lacked statutory
authority for its 2011 regulations at issue. He noted that Congress had
the authority to implement a solution, and he suggested that Congress
enact legislation stating that establishments, whether or not they take
a tip credit, may not keep any portion of employees' tips.\3\
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\3\ A recording of the testimony is available at https://www.congress.gov/committees/video/house-appropriations/hsap00/6Weo1vfNM1k.
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C. The CAA's Amendments to the FLSA
Later that month, Congress enacted the CAA, amending the FLSA to
address employers' practices with respect to their employees' tips.
Public Law 115-141, Div. S., Tit. XII, sec. 1201. Shortly thereafter,
the Department issued a FAB concerning the Wage and Hour Division's
(WHD) enforcement of the CAA amendments. See FAB No. 2018-3 (Apr. 6,
2018).
i. Amendments to Section 3(m) of the FLSA
The CAA left unchanged section 3(m)'s then-existing text,
renumbered as section 3(m)(2)(A), preserving the longstanding
requirements that apply to employers that take a tip credit. It also
added a new section 3(m)(2)(B) to the FLSA, which states that ``[a]n
employer may not keep tips received by its employees for any purposes,
including allowing managers or supervisors to keep any portion of
employees' tips, regardless of whether or not the employer takes a tip
credit.'' CAA, Div. S, Tit. XII, sec. 1201(a) (codified at 29 U.S.C.
203(m)(2)(B)); see FAB No. 2018-3 (Apr. 6, 2018).
ii. Effect on Regulations
Section 1201(c) of the CAA expressly addressed the portions of the
Department's 2011 regulations that restricted tip pooling when
employers pay tipped employees a direct cash wage of at least the full
FLSA minimum wage and do not take a tip credit. CAA, Div. S, Tit. XII,
sec. 1201(c). Under that section, the portions of the regulations at 29
CFR 531.52, 531.54, and 531.59 that were ``not addressed by section
3(m) . . . (as such section was in effect on April 5, 2011), shall have
no further force or effect until any future action taken by [the
Department of Labor].'' The Department explained in FAB No. 2018-3 that
this language effectively suspended the Department's existing
regulations prohibiting employers that pay tipped employees the full
Federal minimum wage from including back-of-the-house workers, such as
cooks and dishwashers, in a tip pool.
iii. Amendments to Section 16 of the FLSA
Section 16(b) of the FLSA allows employees to sue for unpaid
minimum wages or overtime compensation. The CAA amended that section to
add that ``[a]ny employer who violates section 3(m)(2)(B) shall be
liable to the employee or employees affected in the amount of the sum
of any tip credit taken by the employer and all such tips unlawfully
kept by the employer, and in an additional equal amount as liquidated
damages.'' CAA, Div. S, Tit. XII, sec. 1201(b)(1).
Section 16(c) of the FLSA authorizes the Department to enforce the
payment of unpaid minimum wages and unpaid overtime compensation. The
CAA amended that section to add to the Department's enforcement
authority: ``The authority and requirements described in this
subsection shall apply with respect to a violation of section
3(m)(2)(B), as appropriate, and the employer shall be liable for the
amount of the sum of any tip credit taken by the employer and all such
tips unlawfully kept by the employer, and an additional equal amount as
liquidated damages.'' CAA, Div. S, Tit. XII, sec. 1201(b)(2).
Under section 16(e)(2), repeated or willful violators of the FLSA's
minimum wage and overtime requirements are subject to a CMP not to
exceed $1,100 for each such violation.\4\ The CAA amended this section
to add a CMP for violations of section 3(m)(2)(B): ``Any person who
violates section 3(m)(2)(B) shall be subject to a civil penalty not to
exceed $1,100 for each such violation, as the Secretary determines
appropriate, in addition to being liable to the employee or employees
affected for all tips unlawfully kept, and an additional equal amount
as liquidated damages[.]''
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\4\ The Federal Civil Penalties Inflation Adjustment Act of 1990
(Pub. L. 101-410), as amended by the Debt Collection Improvement Act
of 1996 (Pub. L. 104-134, sec. 31001(s)) and the Federal Civil
Penalties Inflation Adjustment Act Improvements Act of 2015 (Pub. L.
114-74, sec. 701), requires that inflationary adjustments be made
annually in these civil money penalties according to a specified
formula.
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D. The Dual Jobs Regulation
The CAA's changes to the FLSA, in conjunction with subregulatory
guidance the Department issued in 2018, have illuminated the need to
harmonize and update the Department's ``dual jobs'' regulation,
codified at 29 CFR 531.56(e). The dual jobs regulation addresses when
an employer can take a tip credit for time that an employee in a tipped
occupation spends performing duties that do not directly result in tips
for that employee.\5\
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\5\ As explained further below, there are a number of duties
that may contribute to the tipped worker's tips, but which are
performed by other employees who do not directly receive tips for
their work (e.g., the cook at a restaurant makes the food which the
server delivers to a table, but only the server receives a tip for
that work).
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The dual jobs regulation, Sec. 531.56(e), was introduced in 1967
as part of the Department's first final rule addressing tipped
employment. 32 FR 13575; see 29 CFR 531.50 through 531.60. The ``dual
jobs'' regulation was not contemplated in the notice proposing that
rule, see 32 FR 222-227 (Jan. 10, 1967), but was added as part of the
final rule. Under the regulation, an employee who works for the same
employer in
[[Page 86760]]
both a tipped occupation and a non-tipped occupation is a ``tipped
employee'' for purposes of section 3(t) of the FLSA only while employed
in the tipped occupation. Therefore, an employer may take a tip credit
against its minimum wage obligations only for the hours the employee
spends in the tipped occupation. It may not take a tip credit for the
time spent in a non-tipped occupation.
Section 531.56(e) also distinguishes between employees who have
dual jobs and tipped employees who perform ``related duties'' that are
not themselves directed toward producing tips. It uses the example of a
server who ``spends part of her time'' performing non-tipped duties,
such as ``cleaning and setting tables, toasting bread, making coffee,
and occasionally washing dishes or glasses.'' In that example, the
employee is still engaged in the tipped occupation of a server, for
which the employer may take a tip credit, rather than working part of
the time in a non-tipped occupation. 29 CFR 531.56(e). But that is as
far as the regulation goes. It does not set forth or explain criteria
for determining whether particular non-tipped duties are related to a
tipped occupation. It does not set forth or explain criteria for
determining when an employee is performing duties unrelated to his or
her tipped occupation and therefore engaged in a dual job. Nor does it
explain whether or when an employee who performs related non-tipped
duties more than ``part of the time'' or ``occasionally'' might cease
being employed in a tipped occupation and instead be engaged in a non-
tipped occupation. Nor does it even give examples illustrating
activities that would be considered (or not considered) related duties
for workers other than those in restaurants.
Section 531.56(e) did not define ``related duties,'' ``part of the
time,'' or ``occasionally,'' and this lack of precision creates a need
for clarification. WHD over the years attempted to clarify this rule
through subregulatory guidance, but this piecemeal approach was
insufficient. Cf. Perez v. Mortg. Bankers Ass'n, 575 U.S. 92, 112-13
(2015) (Scalia, J., concurring) (``There are weighty reasons to deny a
lawgiver the power to write ambiguous laws and then be the judge of
what the ambiguity means.''). For example, following the 1974 statutory
amendments to section 3(m) of the FLSA, WHD issued three opinion
letters that address this issue. In 1977, WHD addressed whether workers
employed as ``salad preparation persons'' could participate in a tip
pooling arrangement. WHD concluded that salad-preparation personnel
could not participate in a tip pool as they ``are essentially chefs''
who ``prepare food in the kitchen as any chef ordinarily would[,]'' and
rather than serving food to customers, ``their basic duty outside the
kitchen is to keep the buffet tables clean and replenish food as
needed.'' WHD Opinion Letter FLSA-623 (June 3, 1977).\6\
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\6\ The letter cited legislative history to support its
conclusion that chefs were among the ``employees who have not
customarily and regularly participated in tip pools.'' Id. (citing
S. Rep. 93-690 (1974) at 43).
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In 1979, WHD addressed servers who ``report to work two hours
before the doors are opened to the public to prepare the vegetables for
the salad bar.'' WHD Opinion Letter FLSA-895 (Aug. 8, 1979). WHD opined
that the employer could not claim a tip credit for those two hours
because ``salad preparation activities are essentially . . . [those]
performed by chefs.'' Id. (citing WHD Opinion Letter FLSA-623 (June 3,
1977)).
In 1980, WHD addressed whether the tip credit applied to servers in
a restaurant who, as part of their closing duties, cleaned the salad
bar, placed condiment crocks in the cooler, cleaned and stocked the
server station, cleaned and reset the tables (including filling cheese,
salt, and pepper shakers), and vacuumed the dining room carpet. See WHD
Opinion Letter (Mar. 28, 1980). WHD opined that the employees would be
considered tipped employees for this period because they were not
engaged in a dual occupation. WHD noted that the after-hours cleanup
duties were ``assigned generally to the [server] staff'' at the
establishment. Id. WHD did not explain why it concluded that tearing
down and cleaning the salad bar was a tipped server's duty but
preparing vegetables for that same salad bar was a non-tipped chef's
duty. The letter suggested that if ``specific employees were routinely
assigned, for example, maintenance-type work such as floor vacuuming,''
the employer would have been precluded from claiming a tip credit for
the time the specific employees spent performing those maintenance
activities. Id.
Finally, in 1985, WHD addressed whether a server who, during a 5-
hour shift, performed 1.5 to 2 hours of preparatory work before the
restaurant opened, could be paid the tip-credit rate for the time spent
performing those preparatory activities. WHD Opinion Letter (Dec. 20,
1985). The preparatory work included a variety of tasks such as setting
tables, preparing coffee, and salad preparation. WHD repeated, but did
not elaborate upon or explain, its earlier statements that ``salad
preparation activities are essentially the activities performed by
chefs'' for which the employer could not take a tip credit. WHD then
concluded that because only one employee was assigned to the non-salad
preparatory work, the employee was responsible for preparing the entire
restaurant, not just his or her area. The employee spent 30 percent to
40 percent of the entire shift on those duties. Such a ``substantial
portion'' of the workday spent ``performing general preparation or
maintenance'' work was too extensive to be considered part of the same
occupation, and the employer could not take a tip credit for the hours
spent on those tasks. Id. This was the first time WHD employed a
proportion-of-time analysis to the ``dual jobs'' regulation.
In 1988, WHD amended its Field Operations Handbook (FOH) to include
section 30d00(e), regarding time spent in duties related to a tipped
occupation. WHD FOH Revision 563 (Dec. 12, 1988). According to the
handbook entry, Sec. 531.56(e) ``permits the taking of the tip credit
for time spent in duties related to the tipped occupation, even though
those duties are not by themselves directed toward producing tips
(i.e., maintenance and preparatory or closing activities),'' if those
duties are ``incidental'' and ``generally assigned'' to tipped
employees. To illustrate the types of related, non-tip producing duties
for which employers could take a tip credit, the FOH listed ``a waiter/
waitress . . . who spends some time cleaning and setting tables, making
coffee, and occasionally washing dishes or glasses,'' the same examples
included in Sec. 531.56(e). But ``where the facts indicate that
specific employees are routinely assigned to maintenance, or that
tipped employees spend a substantial amount of time performing general
preparation work or maintenance, no tip credit may be taken for the
time spent in such duties.'' For the first time, the FOH noted a
``substantial'' amount of time spent performing general preparation or
maintenance work as being in excess of 20 percent.
The FOH does not establish a binding legal standard on the public
and is not a device for establishing interpretive policy.\7\ Rather,
the FOH is an ``operations manual'' that makes available to WHD
investigators and staff policies already ``established through changes
in legislations, regulations, significant court decisions, and the
decisions and opinions of the WHD
[[Page 86761]]
Administrator.'' Id.; see also WHD Opinion Letter FLSA2020-12 (Aug. 31,
2020); Probert v. Family Centered Servs. of Alaska, Inc., 651 F.3d
1007, 1012 (9th Cir. 2011). But, by furnishing these instructions to
WHD investigators and staff in the field, the FOH in practice
prohibited an employer from claiming a tip credit for ``related-
duties'' time if that time exceeded 20 percent of the employee's
workweek. The handbook entry stated no rationale for a hard percentage
cap in general or the 20 percent figure in particular, and the
Department did not issue any guidance rationalizing a hard cap. The
standard in the FOH became known as the ``80/20 rule,'' even though it
was not promulgated as a regulation.
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\7\ Field Operations Handbook, U.S. Dep't of Labor (last
accessed Aug. 18, 2020), available at https://www.dol.gov/agencies/whd/field-operations-handbook.
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In 2009, WHD issued an opinion letter expressly rescinding the 80/
20 approach prescribed in the FOH, concluding that 20 years of
experience had shown it to be confusing and unworkable. WHD Opinion
Letter FLSA2009-23 (Jan. 16, 2009). WHD explained that, consistent with
the text of the FLSA and its regulations, so long as the duties
performed by the employees are part of their tipped occupation, those
employees are not engaged in ``dual jobs.'' Thus, the Department would
interpret the dual jobs regulation such that ``no limitation shall be
placed on the amount of these [related] duties that may be performed,
whether or not they involve direct customer service, as long as they
are performed contemporaneously with the duties involving direct
service to customers or for a reasonable time immediately before or
after performing such direct-service duties.'' Id. Following a change
in the administration, however, in 2009 WHD withdrew that opinion
letter ``for further consideration'' and stated it would ``provide a
further response in the near future.''
In 2012, WHD revised FOH 30d00(e), replacing it with language
currently located at section 30d00(f). The prior 1988 language had
stated that tipped employees could spend up to 20 percent of their
working time engaged in ``maintenance and preparatory or closing
activities'' such as cleaning and setting tables, making coffee, and
occasionally washing dishes or glasses.'' The 2012 revision, on the
other hand, stated categorically that ``maintenance work,'' such as
``cleaning bathrooms and washing windows,'' is not related to the
occupation of a server. Rather, ``such jobs are non-tipped
occupations'' subject to the full minimum wage, regardless of the time
spent. As with the 1988 entry, this language was not promulgated as a
rule and was not supported by guidance from WHD or the Department. As
the Department explained in the 2019 NPRM, this dual jobs policy set
forth in the FOH has proven difficult to enforce and resulted in
widespread compliance issues; it has also generated extensive, costly
litigation. See 84 FR 53972.
Due in large part to those concerns, the Department in November
2018 reinstated the January 16, 2009, opinion letter and later released
an accompanying FAB. See WHD Opinion Letter FLSA 2018-27; see also FAB
No. 2019-2 (Feb. 15, 2019). In these documents, the Department
explained that it would no longer prohibit an employer from taking a
tip credit for the time an employee performed related, non-tipped
duties as long as those duties were performed contemporaneously with,
or for a reasonable time immediately before or after, tipped duties.
See id. The Department also explained that, in addition to the examples
listed in Sec. 531.56(e), it would use the Occupational Information
Network (O*NET), a comprehensive database of worker attributes and job
characteristics, to determine whether a tipped employee's non-tipped
duties were related to his or her tipped occupation. The 2019 NPRM
proposed to revise Sec. 531.56(e) to reflect this 2018 guidance.
E. The Department's Proposal
On October 8, 2019, the Department issued a new NPRM, proposing to
amend its tip regulations under the FLSA to address the CAA's
amendments to the statute and to codify policy on how the tip credit
applies to employees who perform both tipped and non-tipped duties. The
Department proposed to incorporate the new statutory prohibition
against keeping employee tips--section 3(m)(2)(B), which applies
whether or not the employer takes a tip credit--into its existing
regulations and to enact new recordkeeping requirements to assist it in
administering the new language. The Department proposed, consistent
with the CAA's depriving of further force or effect those portions of
the Department's 2011 regulations that restricted tip pooling by
employers that do not take a tip credit, to remove the portions of its
regulations that prohibited those employers from including in mandatory
tip-pooling arrangements those employees who do not customarily and
regularly receive tips. Since the CAA merely renumbered the FLSA's
existing tip credit language, now section 3(m)(2)(A), the Department
did not propose revising the existing tip retention, tip pooling, and
notice regulations.
The Department proposed to incorporate into its CMP regulations the
new statutory language giving it authority to seek CMPs for violations
of section 3(m)(2)(B). To harmonize the regulations with Supreme Court
authority and the manner in which the Department actually litigates
willfulness, it also proposed to revise portions of its CMP regulations
(specifically, 29 CFR 578.3 and 579.2) that address how the Department
determines whether an FLSA violation is willful. Additionally, the
Department proposed to amend its tip regulations to reflect recent
guidance stating that an employer may take a tip credit for time that
an employee in a tipped occupation performs related, non-tipped duties
contemporaneously with or for a reasonable time immediately before or
after performing the tipped duties. Finally, the Department proposed to
amend its regulations that address the payment of tipped employees
under Executive Order 13658 (Establishing a Minimum Wage for
Contractors) to reflect the rescissions proposed in the FLSA
regulations for tipped employees, to incorporate the Department's
guidance on when an employee performing non-tipped work is a tipped
employee and to otherwise align those regulations with the Executive
order.
The Department received 466 timely comments on the NPRM during the
64-day comment period that ended on December 11, 2019.\8\ The comments
were from a broad array of constituencies, including small business
owners, restaurant companies, employer and industry associations,
worker advocacy groups, trade unions, non-profit organizations, social
scientists, law firms, Members of Congress, state attorneys general, a
state department of labor, and other interested members of the public.
All timely received comments may be viewed on the regulations.gov
website, docket ID WHD-2019-0004. Some of the comments the Department
received were general statements of support or opposition, and the
Department also received approximately 340 identical or nearly
identical ``campaign'' comments sent in response to an organized
initiative. Commenters expressed a wide variety of views on the merits
of particular aspects of the Department's proposal; however, most
commenters favored some, if not all, of the changes proposed in the
NPRM. Some commenters, including numerous
[[Page 86762]]
worker advocacy groups that submitted comments with substantially
similar language, requested that the Department reject proposed
revisions to its regulations that reflected recent guidance addressing
the extent to which an employer can take a tip credit for the time a
tipped employee spends performing related, non-tipped duties. The
Department has considered the timely submitted comments addressing the
proposed changes.
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\8\ The Department extended the end of the comment period from
December 9 to December 11, 2019, due to an outage that temporarily
caused most web browsers to refuse access to Regulations.gov.
---------------------------------------------------------------------------
The Department also received a small number of comments that are
beyond the scope of this rulemaking. These include, for example,
requests that the Department reconsider its regulation on compulsory
service charges, Sec. 531.55, and a request that the Department
reconsider the notice requirements in Sec. 531.59. The Department does
not address those issues in this final rule.
Significant issues raised in the comments are discussed below,
along with the Department's responses to those comments.
III. Final Regulatory Revisions
The Department finalizes its proposals to amend its tip regulations
to implement the CAA amendments and address other issues. The sections
below address these regulatory revisions as adopted in the final rule.
The sections of this rule are separate and severable and operate
independently from one another. If any section is held to be invalid or
unenforceable by its terms, or as applied to any person or
circumstance, or stayed pending further agency action, the Department
intends that the remaining sections continue in effect.
A. General Restrictions on an Employer's Use of Its Employees' Tips--
Section 531.52
i. An Employer May Not Keep Tips, Regardless of Whether It Takes a Tip
Credit
Section 3(m)(2)(B) of the FLSA prohibits an employer from
``keeping'' tips received by its employees ``for any purposes.'' The
prohibition on employers keeping tips applies regardless of whether the
employer takes a tip credit. The Department proposed to amend Sec.
531.52 to include the new statutory language prohibiting an employer
from keeping employees' tips and to clarify the extent to which an
employer may exert control over employees' tips without ``keep[ing]''
them in violation of 3(m)(2)(B). The Department proposed that an
employer may exert control over tips only to (1) promptly distribute
tips to the employee or employees who received them; (2) require
employees to share tips with other eligible employees; or (3) where the
employer facilitates tip pooling by collecting and redistributing
employees' tips, promptly distribute tips to eligible employees in a
tip pool. In these circumstances, the Department explained, employees,
not the employer, ``keep'' the tips.
Commenters--representing both employers and employees--supported
the Department's proposal to implement section 3(m)(2)(B)'s prohibition
on employers' keeping tips. See, e.g., Center for Workplace Compliance;
National Employment Lawyers Association (NELA); National Restaurant
Association; Oxfam. The Center for Workplace Compliance, for example,
commented that the proposal aligns with the language of the amendment.
The Department agrees, and adopts the changes to Sec. 531.52 as
proposed.
In addition to comments on the Department's proposal, several
commenters requested that the Department address whether, under the new
section 3(m)(2)(B), employers may deduct a portion of the transactional
fee charged by the credit card company from employees' credit card
tips. Historically, the Department has consistently taken the position
that, when a tip is charged to a credit card, an employer may reduce
the amount of tips paid to the employee by the percentage charged by
the credit card company as a transactional fee. For example, where a
credit card company charges an employer 3 percent on all sales charged
to its credit service, the employer may pay the employee 97 percent of
the charged tips without violating FLSA. The Department has long
permitted employers to do so, finding this consistent with the
statutory requirement that employees retain their tips. See WHD Opinion
Letter FLSA-214 (Mar. 28, 1977); WHD Opinion Letter FLSA 2006-1 (Jan.
13, 2006); 29 U.S.C. 203(m)(1) (1974); 32 FR 13580 (adopting 29 CFR
531.52 (1967)). The NPRM did not specifically address this issue;
however, as the Department explained shortly after Congress passed the
CAA amendments, the Department has continued to apply its previous
guidance concerning tips charged on credit cards. See FAB No. 2018-3
(Apr. 6, 2018). In response to the NPRM, some commenters urged the
Department to clarify that employers cannot reduce the amount of tips
by the amount of credit card transactional fees. These commenters
stated that it is the employer's choice to incur the costs associated
with taking credit cards, and section 3(m)(2)(B) should be interpreted
to prohibit them from using a portion of employee tips to subsidize
those costs. See NELP, NWLC, and the Pennsylvania Department of Labor
and Industry. In contrast, another commenter requested that the
Department affirm that an employer may continue to deduct those fees
under whatever final rule is implemented based on the NPRM. See Littler
Mendelson. The commenter noted the Department's longstanding position
allowing employers to do this and that courts have allowed the
practice. See, e.g., Myers v. Copper Cellar, 192 F.3d 546, 554 (6th
Cir. 1999) (employer may deduct the cost of ``converting the credited
tip to cash'').
After considering these comments, the Department affirms its
longstanding guidance authorizing employers to deduct the actual cost
of credit card processing charges from employees' tips. By deducting
transactional fees, the employer exerts only the amount of control
necessary to liquidate the tips to cash and distribute them to
employees. This is consistent with the Department's proposal, adopted
in this final rule, that an employer may exert control over employees'
tips without ``keep[ing]'' them in violation of 3(m)(2)(B) only to
distribute them to employees or to facilitate tip pooling. Credit-card
processing fees are not an imposition by the employer on the employee;
they are the price of converting credit obligations to cash. The same
fees would be imposed upon servers themselves if they collected their
tips through credit payments separate from the customer's payment to
the establishment. The Department reiterates that an employer may not
deduct more than the actual transactional fee charged by the credit
card company attributable to liquidating the credit card tip, nor may
the employer reduce the amount of tips paid to the employee to cover
other costs incurred by the employer related to credit card use, such
as the cost of installing a Point of Sale system. See WHD Opinion
Letter FLSA2006-1 (Jan. 13, 2006). An employer that uses tips to cover
those operating expenses would violate section 3(m)(2)(B).
ii. Managers and Supervisors May Not Keep Tips
a. Summary of the Final Rule
Section 3(m)(2)(B) prohibits employers, regardless of whether they
take a tip credit, from keeping tips, ``including allowing managers or
supervisors to keep any portion of employees' tips.'' 29 U.S.C.
203(m)(2)(B). The prohibition applies to managers or supervisors
obtaining employees' tips directly or indirectly,
[[Page 86763]]
such as via a tip pool. To clarify which employees qualify as managers
or supervisors for purposes of section 3(m)(2)(B), the 2019 NPRM
proposed Sec. 531.52(b)(2), which would codify the Department's
current enforcement policy under FAB No. 2018-3 (Apr. 6, 2018).
The Department is finalizing the language as proposed.
Specifically, the final rule uses the duties test, but not the salary
tests, from the FLSA's executive employee exemption to determine which
individuals are managers or supervisors who may not keep tips under
section 3(m)(2)(B).\9\ As the 2019 NPRM explained, this exclusion
ensures that the terms ``manager'' and ``supervisor'' encompass more
individuals than the term ``executive'' as used in section 13(a)(1) of
the FLSA.
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\9\ An employee is an executive exempt from the FLSA's minimum
wage and overtime requirements if the employee performs certain
duties, is paid on a salary basis, and is paid a minimum salary
level. 29 U.S.C. 213(a)(1), 29 CFR 541.100(a)(2)-(4).
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In effect, the final rule defines a manager or supervisor for
purposes of section 3(m)(2)(B) as any employee (1) whose primary duty
is managing the enterprise or a customarily recognized department or
subdivision of the enterprise; (2) who customarily and regularly
directs the work of at least two or more other full-time employees or
their equivalent; and (3) who has the authority to hire or fire other
employees, or whose suggestions and recommendations as to the hiring or
firing are given particular weight. The definition also includes as
managers or supervisors any individuals who own at least a bona fide 20
percent equity interest in the enterprise in which they are employed
and who are actively engaged in its management.
The final rule also revises Sec. 531.52 to state that FLSA section
3(m)(2)(B) ``prohibits employers from requiring employees to share tips
with managers and supervisors,'' and revises Sec. 531.54 to state that
employers who do not take a tip credit ``may not include supervisors
and managers'' in a tip pool.
b. Comments Regarding the Definition of Managers and Supervisors
The Department received several comments addressing the issue of
who should be included as managers or supervisors under section
3(m)(2)(B). The majority of commenters expressed general support for
the proposal and one commenter noted that the proposed approach would
be familiar and therefore less likely to have unintended consequences.
Many commenters recommended modifications to the Department's proposal.
The Pennsylvania Department of Labor & Industry supported using the
executive exemption duties test, but recommended that every employee
who satisfies any of the three elements of the duties test be deemed a
``manager'' or ``supervisor'' under section 3(m)(2)(B). For example, an
employee who customarily and regularly directs the work of two or more
other employees, but does not have the authority to hire or fire other
employees, would be counted as a ``manager'' or ``supervisor'' under
this definition, and prohibited from sharing employee's tips.
Other commenters, including Littler Mendelson and Fisher Phillips,
recommended that the Department adopt the entire executive exemption,
including the salary basis and salary level tests, rather than
incorporating only the duties test. Littler asserted that this would
state ``an easy, bright-line rule'' and would save ``time and effort
necessary to determine whether lower-paid employees qualify for the
exemption.''
Other commenters, including the National Employment Law Project
(NELP), Restaurant Opportunities Center United (ROC), and A Better
Balance recommended incorporating a salary level into the definition,
such as the median wage for supervisors of food preparation and serving
workers based on the National Occupational Employment and Wage
Estimates from the Bureau of Labor Statistics' Occupational Employment
Statistics (OES). They proposed in the alternative that the definition
include the executive exemption's salary level test, 29 CFR
541.100(a)(1), but allow an hourly equivalent. This, they urged, would
allow more low-level managerial employees to participate in tip pools.
Finally, Senator Patty Murray and Representative Rosa DeLauro
stated that the executive exemption duties test ``is not appropriate
for accurately identifying all employees who are managers and
supervisors.'' Senator Murray and Representative DeLauro asserted that
the Department's proposal allows employees who engage in some
managerial work to participate in tip pools, while section 3(m)(2)(B)
prohibits that group from keeping employees' tips. They instead
recommended importing the definition of ``supervisor'' from section
2(11) of the National Labor Relations Act or using ``as a starting
point'' the definition of ``management'' from 29 CFR 541.102.
After considering all comments, the Department finalizes this
portion of Sec. 531.52 as proposed. Using the duties test
disjunctively or using the definition of ``management'' set forth in 29
CFR 541.102 would prevent employees who perform some lower-level
managerial responsibilities from participating in tip pools, even if
they are not bona fide managers or supervisors of the employer. On the
other hand, adopting the full executive exemption test (including the
salary basis and salary threshold tests) would, as Senator Murray and
Representative DeLauro noted, conflict with Congress's use of the terms
``managers'' and ``supervisors''--terms not used elsewhere in the
FLSA--rather than ``executives'' or a reference to section 13(a)(1).
This counsels against fully adopting the test used for the executive
exemption.
Relatedly, Senator Murray and Representative DeLauro asserted that
the Department's proposed definition of ``managers'' and
``supervisors'' as used in section 3(m)(2)(B) violates Congress's
intent because that section does not refer to the executive exemption.
However, the section 13(a)(1) executive exemption requires each of the
three tests--salary basis, salary threshold, and duties--to be met. The
proposed definition of ``manager'' and ``supervisor'' uses just one of
those criteria--the duties test. As the NPRM noted, this definition
therefore encompasses a different, broader group of employees than the
term ``executive'' as used in section 13(a)(1).
As for other commenters' suggestion to establish two different
salary levels, one for the executive exemption and one for managers and
supervisors excluded from tip pools, the Department concludes that this
would likely cause undue confusion in the regulated community.
Additionally, setting a separate compensation level, as suggested by
some commenters, could require periodic updates to Sec. 531.52 to
reflect inflation. Finally, there is no basis for applying a salary
level based on the restaurant industry to tipped employees in all
industries. For instance, the Department has not studied or received
comments on an appropriate salary level at which to exclude managers
and supervisors from tip pools in the cosmetology, casino, or cleaning-
service industries and therefore cannot reasonably predict the effects
imposing such a requirement would have in those industries. The
Department therefore declines to adopt these proposals and finalizes
this portion of Sec. 531.52 as proposed.
In sum, the Department concludes that the criteria in Sec. 531.52
effectively identify the managers and supervisors whom Congress sought
to prevent from
[[Page 86764]]
keeping other employees' tips. The Department believes that employers
can readily use these criteria to determine whether an employee is a
manager or supervisor because employers are generally familiar with the
longstanding regulations from which those criteria are drawn.
c. Comments Regarding Managerial Participation in Tip Pools
The Department also received several comments supporting the
language in Sec. 531.52 prohibiting employers ``from requiring
employees to share tips with managers and supervisors'' and the
language in Sec. 531.54 specifying that employers that do not take a
section 3(m)(2)(A) tip credit ``may not include supervisors and
managers'' in a tip pool.
Some commenters raised concerns, however, that the Department's
proposed regulations neither expressly prohibit nor expressly allow
managers or supervisors to retain tips they receive directly from
customers. For example, the National Restaurant Association and the
Bowling Proprietors' Association of America suggested that the
regulations clarify that the law does not prohibit supervisors or
managers from retaining tips they themselves receive directly from
customers. These commenters also requested that the Department allow
managers or supervisors who receive tips directly from customers to
share or pool tips with other managers or other nontipped employees.
The National Restaurant Association proposed that the prohibition
against managers and supervisors participating in a tip pool ``extend
only to those individuals receiving money from the pool or share, but
not to individuals who only contribute money into the pool or share.''
The Department agrees that section 3(m)(2)(B) permits a manager or
supervisor to keep a tip that he or she receives directly from a
customer for the service only he or she provides. The statute states
only that an ``employer may not keep tips received by its employees for
any purposes, including allowing managers or supervisors to keep any
portion of employees' tips'' and is implicitly stating that managers
and supervisors may not keep tips received by employees other than
themselves. A salon manager, for example, may keep tips left by
customers whose hair she personally styles. In response to commenters'
suggestions, the Department added language in finalized Sec.
531.52(b)(2) to make this clear: ``A manager or supervisor may keep
tips that he or she receives directly from customers based on the
service that he or she directly provides.''
With regard to tip pools, the Department notes that the
requirements of Sec. 531.54 only apply to those tip pools mandated by
employers. When a manager or supervisor who receives tips directly from
customers wishes to voluntarily ``tip out'' a portion of his or her
tips to other employees, that is not considered to be participation in
a tip pool and is not prohibited by the FLSA or the proposed
regulations. Voluntarily ``tipping out'' is different from an employer-
mandated tip pool. The Department believes that allowing managers and
supervisors to participate in tip pools for one purpose (contributing
tips) and not for another (receiving tips) would create confusion among
employers and employees. Furthermore, such a proposal could lead to
situations where it is difficult for employers to demonstrate
compliance with the prohibition on employees sharing tips with managers
and supervisors. Therefore, the Department declines to make such
changes in the final rule.
Finally, upon review, the Department realizes that it may have
unintentionally created confusion by not including language expressly
forbidding manager and supervisor participation in tip pools in
proposed Sec. 531.54(c), which applies to employers that take a
section 3(m)(2) tip credit. As the statutory text and proposed Sec.
531.52(b) make clear, no employer may require employees to share tips
with managers and supervisors--there is no distinction between
employers who do or do not take a tip credit. Therefore, the Department
will add a new Sec. 531.54(c)(3) that mirrors the language in proposed
Sec. 531.54(d): ``An employer may not participate in such a tip pool
and may not include managers and supervisors in the pool.'' The
Department otherwise finalizes as proposed the language in Sec. Sec.
531.52(b) and 531.54(d).
B. Tip Pooling--Section 531.54
The Department proposed to amend Sec. 531.54, which generally
addresses tip pooling, to reflect the CAA amendments. The Department
proposed to incorporate section 3(m)(2)(B)'s prohibition on employers
keeping tips, which applies regardless of whether the employer takes a
tip credit, into Sec. 531.54. The Department also proposed to amend
Sec. 531.54 to include the specific requirements that apply to
employers that establish mandatory tip pools, depending on whether the
employer does or does not take a tip credit, and depending on whether
the mandatory tip pool is a traditional pool limited to customarily and
regularly tipped employees or a nontraditional tip pool, which may
include employees who do not customarily and regularly receive tips.
i. Requirements When an Employer Collects and Redistributes Tips--
Section 531.54(b)
In its proposed rule, the Department took the position that section
3(m)(2)(B) does not prohibit an employer from collecting tips received
by employees to facilitate a mandatory tip pool if the employer fully
redistributes the tips it collects no less often than when it pays
wages. In those circumstances, the employees' tips are only temporarily
within the employer's possession, and the employer does not ``keep''
the tips within the meaning of section 3(m)(2)(B). However, the
Department proposed that employers ``keep'' tips in violation of
section 3(m)(2)(B) when they collect tips but do not redistribute them
within this time period.
As proposed, Sec. 531.54(b)(1) covered employers that collect tips
to administer a tip pool and required those employers to fully
distribute any collected tips at the regular payday for the workweek,
or, for pay periods of more than one workweek, at the regular payday
for the period in which the particular workweek ends. Proposed Sec.
531.54(b) also required that, to the extent an employer could not
ascertain the amount of tips received or how tips should be distributed
before processing payroll, those tips be distributed to employees as
soon as practicable after the regular payday. As the Department
observed in the 2019 NPRM, these requirements align with current
guidance on how soon an employer must distribute to tipped employees
tips that were charged on credit cards. See WHD Opinion Letter
FLSA2006-1 (Jan. 13, 2006). Because proposed Sec. 531.54(b)(1) defined
``keep'' within the confines of section 3(m)(2)(B), the requirement
that an employer fully and promptly distribute any tips it collects
would have applied regardless of whether the employer took a tip credit
and regardless of the type of tip pool the employer administered.
The Pennsylvania Department of Labor and Industry expressed support
for proposed Sec. 531.54(b)(1). Restaurant owners who submitted
comments as part of a comment campaign also expressed general support
for ``the proposed changes regarding tip pooling,'' noting that they
``closely track the new statutory language.'' Accordingly, the
Department adopts
[[Page 86765]]
Sec. 531.54(b)(1) as proposed, but separates it into two paragraphs,
(b)(1) and (2).
ii. Additional Requirements for Mandatory Tip Pools When an Employer
Takes a Tip Credit--Section 531.54(c)
Proposed Sec. 531.54(c) sets forth the tip pooling requirements
for employers that take a tip credit. As explained in the 2019 NPRM,
the Department's approach to those employers remains unchanged because
the CAA did not amend the substance of what is now section 3(m)(2)(A),
which applies to those employers. Accordingly, proposed Sec. 531.54(c)
would retain the Department's existing requirements in Sec. 531.54 but
would clarify that these requirements apply only to employers that take
a tip credit. Those existing requirements state that those employers
that take a tip credit can require tipped employees to contribute tips
to a tip pool only if the pool's membership is limited to employees who
customarily and regularly receive tips.
Proposed Sec. 531.54(c)'s requirements are drawn directly from
section 3(m)(2)(A) of the FLSA--formerly numbered section 3(m)--which
has imposed the same tip pooling, notice, and tip retention
requirements on employers that take a tip credit since 1974. The
Department thus adopts Sec. 531.54(c) as proposed.
iii. Nontraditional Tip Pools When an Employer Does Not Take a Tip
Credit--Sections 531.52, 531.54, and 531.59
In 2011, the Department revised its tip regulations to require that
tipped employees retain the tips that they receive, except those
distributed through a tip pool comprising solely employees who
customarily and regularly receive tips. The Department applied this
interpretation to all employers of tipped employees, regardless of
whether they took a tip credit. See 29 CFR 531.52, 531.54, and 531.59
(2011).
Through the CAA, Congress suspended portions of Sec. Sec. 531.52,
531.54, and 531.59 that restricted employers that do not take a tip
credit from instituting nontraditional tip pools. See CAA, Div. S, Tit.
XII, sec. 1201(c). As a result, since the CAA's effective date,
employers that do not claim a tip credit have been permitted to
implement mandatory nontraditional tip pools that include both tipped
and nontipped employees. See FAB No. 2018-3 (Apr. 6. 2018).
Consistent with these amendments, the Department proposed to revise
its regulations to remove certain restrictions on employers that do not
claim a tip credit (and therefore pay workers a direct cash wage of at
least the minimum wage), including those prohibiting them from
instituting mandatory nontraditional tip pools. These restrictions were
based on what is now section 3(m)(2)(A) of the FLSA, which the
Department previously concluded neither limits employers that do not
take a tip credit nor grants authority to the Department to do so. See
Resps.' Br. at 13, Nat'l Rest. Ass'n v. Dept. of Labor, No. 16-920
(U.S.), cert. denied, 138 S. Ct. 2697 (2018); see also 82 FR 57399. In
particular, the Department proposed to rescind the congressionally-
suspended language in Sec. 531.52 that bars employers from
establishing mandatory nontraditional tip pools, ``whether or not it
takes a tip credit,'' and to make additional clarifying edits; to
revise Sec. 531.54 to clarify that the restrictions and notice
requirements for tip pools apply only to employers that take a tip
credit; and to revise Sec. 531.59 to state that the bar on mandatory
nontraditional tip pools applies only to employers that take a tip
credit. See 84 FR 53976-77. The Department also proposed to make
explicit in Sec. 531.54 that an employer that pays its tipped
employees the full minimum wage and does not take a tip credit may
impose a mandatory tip pooling arrangement that includes dishwashers,
cooks, or other employees who are not employed in an occupation in
which employees customarily and regularly receive tips, as long as that
arrangement does not include any employer, supervisor, or manager. See
84 FR 53976.
A number of commenters addressed the Department's proposal to allow
employers that do not take a tip credit to mandate nontraditional tip
pools. Commenters including the NFIB, Bloomin' Brands, Littler, and
several individuals, supported the proposal, noting that it reflects
the realities of tipped workplaces and is fairer to nontipped
employees. As Bloomin' Brands stated, ``it takes an entire team,''
including employees in occupations that do not customarily and
regularly receive tips, to give customers ``the total quality
experience necessary to earn a tip.'' Littler stated that
nontraditional tip pools are especially helpful where state law
precludes employers from taking a tip credit, and tipped employees who
continue to earn tips on top of their wages would otherwise ``earn far
more than their nontipped coworkers.''
In contrast, Texas RioGrande Legal Aid and some individual
commenters opposed allowing employers that do not take a tip credit to
institute mandatory nontraditional tip pools, arguing that this
arrangement is contrary to what customers intend when they leave a tip
and unfair to tipped employees. At least one of these commenters,
however, appears to have misunderstood that the Department's proposal
requires an employer to pay a tipped employee the full Federal minimum
wage before the employer can require the employee to participate in a
mandatory tip pool or other similar arrangement that includes one or
more nontipped employees. Texas RioGrande Legal Aid also opposed the
removal of language in Sec. 531.52 stating that the customer ``has the
right to determine who shall be the recipient'' of a tip.
Other commenters, including those who did not oppose mandatory
nontraditional tip pools as a general matter, expressed concern that an
employer that institutes a mandatory nontraditional tip pool could
conceivably reduce the cash wages it pays to nontipped employees, such
as cooks and dishwashers, who receive tips from the pool. See, e.g.,
ROC, NELP, and Policy Integrity. The Department had acknowledged this
possibility in the economic analysis accompanying the NPRM. See 84 FR
53968. NELP and other commenters asked the Department to prohibit
employers from taking advantage of nontraditional tip pools to pay
lower cash wages to nontipped employees, asserting that those actions
would be inconsistent with 3(m)(2)(B)'s prohibition on employers'
keeping tips. Policy Integrity acknowledged, however, that it would be
``difficult to design a rule'' to accomplish this end.
Finally, Senator Murray and Representative DeLauro recommended that
the Department require employers to institute a ``democratic process''
to obtain the consent of tipped employees before instituting
nontraditional tip pools. They asserted that such a safeguard would
ensure that employers are not keeping employees' tips.
After considering the comments, the Department adopts without
modification the changes it proposed to Sec. Sec. 531.52, 531.54, and
531.59, which allow employers that do not take a tip credit to
implement mandatory nontraditional tip pools, as long as those tip
pools do not include employers, managers, or supervisors. These changes
are consistent with the 2018 amendments to the FLSA and the text of
section 3(m)(2) as a whole. Section 3(m)(2)(A) expressly prohibits
employers that take a tip credit from including employees that do not
customarily and regularly receive tips in mandatory tip pools together
with employees that do, but it does not place
[[Page 86766]]
this prohibition on employers that do not take a tip credit. In
addition, as commenters noted, the revised regulations will afford
employers flexibility to reward nontipped employees who contribute to
the customers' experience and incentivize tipped and nontipped
employees alike to improve that experience.\10\ As finalized,
Sec. Sec. 531.52, 531.54, and 531.59 expressly allow employers that do
not claim a tip credit to implement a mandatory tip pool that includes
both employees who receive tips and employees who do not ''customarily
and regularly'' receive tips. However, that tip pool may not include
any employer, manager, or supervisor.
---------------------------------------------------------------------------
\10\ Given this flexibility afforded to employers to reward
nontipped employees, the Department need not resolve disagreement
between commenters as to whether customers tip based only on the
specific performance of one or more tipped employees or, instead, on
an assessment of the customer's broader experience. The intention(s)
behind individual customers' tipping likely varies depending on
context, customer, and circumstances.
---------------------------------------------------------------------------
The Department declines to require that employers institute a
process to obtain consent from tipped employees before including them
in a mandatory nontraditional tip pool. Nothing in section 3(m)(2)
predicates the imposition of a tip pool on employee consent, and there
is no textual basis for creating such a requirement with respect to
only a nontraditional tip pool. Not only is there no textual basis for
such a requirement, a bill introduced to impose such a requirement was
neither passed, nor its substance incorporated into the CAA. See H.R.
5180, 115th Cong. (2d Sess. 2018). Additionally, this recommendation is
outside of the proposed changes, and the public has not had the
opportunity to comment on its merits or feasibility.
The Department also declines to modify its proposal in response to
commenters' concern that an employer could reduce the cash wages paid
to a nontipped employee who participates in a nontraditional tip pool.
What matters is not nontipped employees' cash wages, but rather their
overall compensation, which includes both cash wages and tips that they
may now receive under this final rule. Employers can already reduce
nontipped employees' overall compensation by lowering cash wages, but
this requires tradeoffs: Morale and productivity would fall, and it
would become more difficult to recruit and retain qualified workers.
Allowing nontraditional tip pools does not alter these tradeoffs and
thus would not make employers more able or willing to reduce nontipped
employees' overall compensation. While employers that share tips with
nontipped employees under this rule could reduce cash wages paid to
those same employees, economic reality makes it unlikely that they
would do so in a way that reduces overall compensation unless the
employer was already able and willing to reduce the employees' overall
compensation for reasons unrelated to this rule.
On the other hand, the nontraditional tip pools allowed under this
rule give employers a new way to increase nontipped employees' overall
compensation and thereby improve morale, productivity, recruitment, and
retention. Some employers will do so by keeping nontipped employees'
cash wages the same while allowing them to share in tips. Others may
reduce cash wages but share tips that, on average, more than offset the
reduction in cash wages so that the net effect on overall compensation
will be positive. Regardless of the approach, a nontipped employee's
overall compensation will increase.
Additionally, it would be difficult, if not impossible, to develop
and enforce a prohibition on employers' adjusting a nontipped
employee's cash wage when the employer complies with the FLSA's minimum
wage and overtime requirements. Given the fungible nature of money and
the innumerable lawful reasons why an employer might set, raise,
reduce, or maintain an employee's compensation, it would be difficult
to distinguish between lawful reductions to compensation and unlawful
``keeping'' of ``tips received by its employees.'' And although
nontraditional tip pooling arrangements may affect pay decisions for
nontipped workers who participate in a nontraditional pool--including
by allowing employers to pay a lower cash wage to retain or hire an
employee in the non-tipped position--the Department disagrees with
commenters' claims that any benefit an employer receives from a
mandatory tip pool constitutes ``keeping'' tips in violation of
3(m)(2)(B). Indeed, for decades in what is currently section
3(m)(2)(A), Congress has expressly authorized mandatory traditional tip
pools that afford employers similar indirect benefits. Congress also
implicitly authorized these nontraditional tip pools when it suspended
the Department's regulations prohibiting them, undercutting any claim
that such tip pools were actually prohibited by the CAA.
Ultimately, the Department believes that employers will rarely
reduce the cash wages of nontipped employees who participate in a
nontraditional tip pool. Economic realities limit employers' practical
ability to reduce compensation significantly and simultaneously retain
employees. Further, employers are constrained by wage and hour laws.
Because back-of-the-house and other employees who receive tips through
a nontraditional tip pool are not employed in an occupation in which
they customarily and regularly receive tips, an employer may not take a
tip credit for these workers, and must pay them at least the full
Federal minimum wage. See 29 U.S.C. 203(m)(2), 206(a); see also S. Rep.
No. 93-690, at 43 (1974); WHD Opinion Letter FLSA2008-18 (Dec. 19,
2008). And, in many workplaces, state and local laws require employers
to pay nontipped workers a minimum wage that exceeds the Federal
minimum wage.
Further, though employers could theoretically do so, an ability
under the rule to decrease nontipped employees' wages is unlikely, by
itself, to motivate an employer to adopt a nontraditional tip pool. An
employer that currently takes a tip credit that institutes a
nontraditional tip pool would lose the tip credit and be required to
pay tipped workers at least the full minimum wage. Accordingly, the
wage obligations required under a nontraditional tip pool could result
in an increased transfer from employers to employees.
Finally, the Department declines to restore to Sec. 531.52 the
statement that a customer ``has the right to determine who shall be the
recipient'' of a tip. This language is confusing in the context of
section 3(m)(2) and the Department's tip regulations, which expressly
permit employers to require employees to pool tips with each other
regardless of which employee or employees the customer intended to
receive the tip.
For these reasons, the Department finalizes the relevant changes to
Sec. Sec. 531.52, 531.54, and 531.59 as proposed. An employer may
implement a nontraditional tip pool that includes tipped and nontipped
employees, provided the pool does not include any employers, managers,
or supervisors, and so long as the employer does not take a tip credit
and pays the full minimum wage to both the tipped employees who
contribute to the pool and the nontipped employees who receive tips
from the pool.
C. Recordkeeping Requirements for Employers That Have Employees Who
Receive Tips--Section 516.28
Section 516.28 imposes certain recordkeeping requirements on only
those employers that take a tip credit. Among other things, Sec.
516.28(a) requires
[[Page 86767]]
that the employer identify each employee for whom the employer takes a
tip credit (see Sec. 516.28(a)(1)) and maintain records regarding the
weekly or monthly amount of tips received, as reported by the employee
to the employer (see Sec. 516.28(a)(2)). The employer may use
information on IRS Form 4070 (Employee's Report of Tips to Employer) to
satisfy the requirements under Sec. 516.28(a)(2).\11\
---------------------------------------------------------------------------
\11\ For information regarding IRS Form 4070, see https://www.irs.gov/businesses/small-businesses-self-employed/tip-recordkeeping-and-reporting.
---------------------------------------------------------------------------
The Department proposed revisions to the recordkeeping requirements
in Sec. 516.28 to improve consistent and effective administration of
section 3(m)(2)(B). The revisions would require similar recordkeeping
requirements for employers that do not take a tip credit but still
collect employees' tips to operate a mandatory tip pool. Proposed Sec.
516.28(b)(1) would require these employers to identify on their payroll
records each employee who receives tips. Proposed Sec. 516.28(b)(2)
would also require those employers to keep records of the weekly or
monthly amount of tips received by each employee, as reported by the
employee to the employer (this may consist of reports from the
employees to the employer on IRS Form 4070).
The Department received only two comments concerning the proposed
recordkeeping requirements for employers that do not take a tip credit
but still collect employees' tips to operate a mandatory tip pool. One
commenter recommended that the Department require additional
recordkeeping beyond the proposed requirements, while the other argued
that the proposed recordkeeping was not required. The proposed
recordkeeping requirements would help the Department determine whether
employers are complying with their tip pooling obligations.
Accordingly, the Department adopts the addition of Sec. Sec.
516.29(b)(1) and 516.28(b)(2) as proposed.
D. Dual Jobs--Section 531.56(e)
i. Summary of the Final Rule
Section 531.56(e) addresses instances in which an employer employs
an employee in both a tipped occupation, for which the employer may
take a tip credit, and a non-tipped occupation, for which the employer
may not take a tip credit. The Department proposed to amend Sec.
531.56(e) to codify its recent subregulatory guidance regarding when an
employer can take a tip credit for hours that a tipped employee
performs non-tipped duties related to his or her tipped occupation. See
WHD Opinion Letter FLSA2018-27 (Nov. 8, 2018); FAB No. 2019-2 (Feb. 15,
2019). Before it was amended to reflect this recent guidance, the FOH
had stated that an employer may not take a tip credit for non-tipped
duties related to an employee's tipped occupation if the time spent on
those duties exceeds 20 percent of the employee's workweek. As
described above, stakeholders and courts sometimes referred to this
guidance as the ``80/20 rule,'' although it was not, in fact, a
regulation. However, as the Department observed in the NPRM, this
policy was difficult for employers to administer and led to confusion,
in part because the guidance did not explain how employers could
determine whether a particular non-tipped duty is ``related'' to the
tip-producing occupation and in part because the monitoring surrounding
the 80/20 approach on individual duties was onerous for employers.
The final rule, which (with the exception of two changes) adopts
the changes to Sec. 531.56(e) as proposed and clarifies, consistent
with the Department's current guidance, that an employer may take a tip
credit for all non-tipped duties an employee performs that meet two
requirements. First, the duties must be related to the employee's
tipped occupation; second, the employee must perform the related duties
contemporaneously with the tip-producing activities or within a
reasonable time immediately before or after the tipped activities. This
updated approach to the related-duties standard is consistent with the
plain text of the FLSA, which permits employers to take a tip credit
based on whether an employee is engaged in a tipped ``occupation,'' not
on whether the employee is performing certain kinds of duties within
the tipped occupation.
To facilitate the administration of this approach, the final rule
also complements the examples already in Sec. 531.56(e) by adopting
the Occupational Information Network (O*NET) as a source of guidance
for determining when a tipped employee's non-tipped duties are related
to his or her tipped occupation. As explained in more detail below, the
final rule states that a non-tipped duty is presumed to be related to a
tip-producing occupation if it is listed as a task of the tip-producing
occupation in O*NET. As the Department explained in the NPRM, O*NET is
a comprehensive database of worker attributes and job characteristics,
and is available to the public at www.onetonline.org. O*NET includes
information on work activities for more than 900 occupations based on
the Standard Occupational Classification system, a statistical standard
used by Federal agencies to classify workers into occupational
categories for the purpose of collecting, calculating, or disseminating
data.
ii. Comments Regarding the Updated Related Duties Approach
The Department received many comments expressing support for the
proposed changes to Sec. 531.56(e). Those commenters suggested that
the updated related duties approach is a substantial improvement over
the 80/20 approach because it is more consistent with the FLSA's text,
structure, and purpose; and it is a more practical and administrable
approach. See, e.g., Inspire Brands; the Center for Workplace
Compliance; Littler Mendelson.
On the first point, several commenters observed that the
Department's proposal aligns the tip credit regulations with the plain
language of the FLSA. For example, Littler stated that ``the FLSA says
nothing about slicing an employee's duties into creditable and non-
creditable categories, nor does it say anything about capping an
employee's related duties at 20%.'' Instead, the statutory language
``suggests that all work within the tipped occupation is eligible for a
credit--not just some arbitrary percentage of the work.'' Inspire
Brands stated that the Department's proposal parallels other FLSA
regulations. In particular, ``in the context of the FLSA's white collar
exemptions, the Department long ago abandoned any notion that employees
must spend a specific amount of time performing exempt work to qualify
for an exemption.'' See 29 CFR 541.700(b) (``The amount of time spent
performing exempt work can be a useful guide . . . , [but] time alone .
. . is not the sole test'').\12\ Inspire Brands also stated that the
Department's proposal best approximates ``what Congress intended to
achieve when it first amended the FLSA to include tip credit rules.
Specifically, when Congress amended sections 203(m) and 203(t) in 1966,
it did so to permit `the continuance of existing practices with respect
to tips' in the hotel and restaurant industries[,] S. Rep. No. 89-1487
(1966),'' and there was no evidence that employers in 1966 had an
``existing practice'' of paying servers or bartenders full minimum
wages whenever related non-tipped duties exceeded a specific time
limit.
---------------------------------------------------------------------------
\12\ The Department maintains a proportion-of-time standard in
other contexts. That standard is not appropriate in the dual jobs
context because of the fluid nature of the work required in many
tipped occupations.
---------------------------------------------------------------------------
[[Page 86768]]
On the second point, a number of commenters observed that the
Department's proposal is easier to administer than the 80/20 approach.
Employers noted they will no longer feel that they have to try to track
their employees minute by minute or task by task. Nor will they have to
wrestle with which duties are related to their employees' tipped work.
Instead, they can refer to the list of tasks for that occupation in
O*NET. An employer that does so may take a tip credit for the
employee's entire shift (as long as any non-tipped duties are performed
contemporaneously with or for a reasonable time immediately before or
after tipped work). This approach increases compliance, reduces
employer costs, and avoids litigation. See, e.g., Littler; Center for
Workplace Compliance; Inspire Brands; Bloomin' Brands; cf. Pellon v.
Bus. Representation Int'l, Inc., 528 F. Supp. 2d 1306, 1314 (S.D. Fla.
2007), aff'd, 291 F. App'x 310 (11th Cir. 2008) (describing the
practical difficulties of administering the contrary 80/20 approach).
Inspire Brands stated that under the proposed rule, employers will no
longer need to devote significant time to monitoring duties performed
by tipped employees or tracking employees' time spent on various
specific duties, and ``in the place of such activities,'' supervisors
will be able to spend ``more time tending to customers'' and helping
servers and bartenders with non-tipped work, such as cleaning tables
and stocking stations. Since a tipped employee ``would have otherwise
performed such tasks,'' Inspire Brands also stated that tipped
employees will be able to ``use that time savings to interact with
customers and generate more in tips.'' Bloomin' Brands noted that the
proposal remedied a ``particularly unrealistic unintended consequence''
of the existing regulation, which required employers to ``evaluate[ ] a
tipped employee's entitlement to the tip credit on a task-by-task
basis.'' Littler commended the Department's proposal for ``solv[ing] .
. . in one stroke'' the monitoring problems associated with the 80/20
approach. The Center for Workplace Compliance stated that by ``not
focusing on the specific amount of time spent on various tasks,'' the
proposal ``will be easier to understand and will make compliance
simpler.''
The Department also received several comments skeptical of or
opposed to its proposal or recommending that the Department adopt a
different approach. The National Restaurant Association, for example,
suggested that the Department loosen the proposed limitations on non-
tipped work and ``specify in the Final Rule that so long as [non-
tipped] work occurs during the same shift or workday in which the
employee engages in the main duties of a tipped occupation, the tip
credit is available for the entire shift or workday.'' In contrast,
several commenters, including those representing employees, 19 State
Attorneys General, and Democratic Members of Congress, expressed
concern that the updated related duties approach was not sufficiently
stringent and would allow an employer to take a tip credit even when a
tipped employee spends a substantial amount of time performing non-
tipped work. These commenters urged the Department to return to the 80/
20 approach (or adopt a more protective standard), and stated that a
return to the 80/20 approach would be more workable than the proposed
approach. They also argued that the Department has not sufficiently
explained why the new standard would be more easily administrable than
the 80/20 approach.
In addition, Senator Murray and Representative DeLauro asserted
that the Department's proposal violates newly added section 3(m)(2)(B),
which prohibits employers from keeping any portion of employees' tips
for any purposes. They contended that to read section 3(m)(2)(B) as
permitting a tip credit for any time an employee spends on non-tipped
duties (whether related or unrelated) would produce an ``absurd
result''; that is, it would allow employers to reassign non-tipped
workers' duties to tipped workers and use tips to fulfill their minimum
wage obligations for that work.
After considering the comments, the Department finalizes Sec.
531.56(e)(2) as proposed (with the exception of one word that was
changed for consistency). The Department disagrees that the updated
related duties test allows an employer to take a tip credit when a
tipped employee performs a substantial amount of non-tipped work and
agrees with other commenters that a return to the 80/20 approach would
be unwise for several reasons.
First, the updated related duties test does not permit employers to
take a tip credit when tipped employees are, in fact, engaged in a non-
tipped occupation. Instead, an employer may take a tip credit for non-
tipped related duties only when those duties are performed
``contemporaneously with or for a reasonable time immediately before or
after'' tipped work. As a result, when a tipped employee engages in a
substantial amount of separate, non-tipped related duties, such that he
or she has effectively ceased to be engaged in a tipped occupation, the
tip credit is no longer available. Thus, an employer could not take a
tip credit for the entire shift when a tipped employee spends ``five
hours, or more'' of a 6-hour shift doing non-tipped work, see NELA, nor
could it claim the tip credit for all hours worked by a dishwasher who
picks up a few serving shifts per week, see Patriotic Millionaires. In
these examples, the employee would not be performing the non-tipped
related duties contemporaneously with or for a reasonable time
immediately before or after performing tipped work. By contrast, an
employer of an employee who has significant non-tipped related duties
which are inextricably intertwined with their tipped duties should not
be forced to account for the time that employee spends doing those
intertwined duties. Rather, such duties are generally properly
considered a part of the employee's tipped occupation, as is consistent
with the statute.
Second, the Department disagrees that the proposed rule's language
is not specific enough to furnish useful guidance. The requirement that
related duties be performed contemporaneously with tipped duties is not
difficult to administer in practice. For example, a barber who cleans
the combs she is using as she is cutting a customer's hair is
performing that duty during the same time as--contemporaneously with--
the tip-producing work. The regulatory term ``contemporaneously'' does
not necessarily mean that the employee must perform tipped and non-
tipped duties at the exact same moment in time.
Moreover, the allowance for related duties performed ``for a
reasonable time immediately before or after'' a tipped duty creates a
sufficiently intelligible distinction between employees engaged in
tipped occupations and non-tipped occupations. It is true that this
limit does not create as bright a line as a firm cap on the amount of
time an employee may spend on particular duties (although the 80/20
approach creates significantly greater uncertainty in other ways as
discussed below). But the concept of reasonableness is a cornerstone of
modern common law and is familiar to employers in a variety of
contexts. See, e.g., Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680,
687-88 (1946) (factfinder may base FLSA back wages award on reasonable
estimates); 29 CFR 825.302(a) (requiring employee to furnish notice of
need for FMLA leave ``as soon as practicable''); 42 U.S.C. 12112(a),
(b)(5)(A) (requiring reasonable accommodations for disabled employees);
29 U.S.C. 1108(b)(2), (c)(2) (ERISA fiduciaries are entitled to
[[Page 86769]]
receive reasonable compensation from a plan for services provided); 29
CFR 1604.11(a) (conduct is sexual harassment if it unreasonably
interferes with an individual's work performance); Burlington N. & S.F.
Ry. Co. v. White, 548 U.S. 53, 67-68 (2006) (Title VII prohibits
employers from taking actions that a reasonable employee would find to
be materially adverse); Burlington Indus., Inc. v. Ellerth, 524 U.S.
742, 765 (1998) (employer is vicariously liable under Title VII unless
it took reasonable steps to prevent and correct harassing behavior);
Green v. Brennan, 136 S. Ct. 1769, 1776-78 (2016) (constructive
discharge occurs when a reasonable employee would feel compelled to
resign). Reasonableness balances a flexible accounting of circumstances
with a sufficiently definite limit on acceptable conduct in those
contexts. This flexible approach is appropriate to apply to the
question of whether particular duties are a part of an employee's
tipped occupation.
For example, consider the following scenario: A hotel bellhop
continuously performs tipped duties such as carrying luggage to guests'
rooms during a busy 8-hour shift and then works for an additional 2
hours performing related non-tipped duties such as cleaning,
organizing, and maintaining bag carts in storage. The 2 hours of
related non-tipped duties would not be ``for a reasonable time'' after
the performance of tipped duties. Accordingly, the bellhop was engaged
in a tipped occupation (bellhop) for 8 hours and a non-tipped
occupation (cleaner) for 2 hours.
On the other hand, consider a second scenario in which this hotel
employee works a 10-hour shift that is less busy. Because there are
fewer hotel guests to assist, there are times during the bellhop's
shift when he is not transporting bags for customers. Rather, every
hour, he transports bags for customers for approximately 48 minutes and
in between transporting bags, spends approximately 12 minutes
performing related non-tipped duties, such as sweeping and mopping the
entrance and cleaning bag carts. At the end of the shift, the employee
in this scenario would have spent a total of 8 hours on tipped duties
and 2 hours on non-tipped related duties--the same amounts as in the
first scenario. But unlike in the first scenario, each period of
related non-tipped duties would have been performed ``for a reasonable
time immediately before or after'' the performance of tipped duties. As
such, the employee would have been engaged in a tipped occupation
(bellhop) for the entire 10-hour shift.
Even though the two above scenarios are different, the previous 80/
20 approach drew no distinction between them because it focused solely
on the precise ratio of time spent on tipped versus related non-tipped
duties. But that focus obscures the relevant question of whether an
employee is functionally engaged in one occupation or two. To answer
this question, it is necessary to examine the context in which time is
spent on tipped versus related non-tipped duties. If tipped and related
non-tipped duties were performed at distinct times that never overlap,
the employee would be engaged in two distinct occupations, even if the
tipped-to-related-non-tipped ratio were more than 80/20. Conversely, if
tipped and related non-tipped duties were performed alongside each
other, the employee would be engaged in a single occupation, even if
the tipped-to-related-non-tipped ratio were less than 80/20. The final
rule's ``reasonable time'' standard considers the critical context in
which tipped and related non-tipped duties are performed and focuses on
the key issue of whether non-tipped duties form a substantial,
segregable part of an employee's work. The 80/20 approach does not
adequately address this issue.
Third, the guidance establishing the 80/20 approach did not
adequately consider the practical difficulties in complying with a hard
quantitative cap. To do so, employers attempted to track the amount of
time employees spend performing duties that are not tip-producing but
are related to each employee's tipped occupation. See Littler. But as
several commenters explained, this proved extremely difficult, if not
impossible. Inspire Brands, for example, stated that it implemented
policies within its timekeeping system intended to allow employees to
switch between different job codes when engaging in different duties,
but found that doing so ``required substantial managerial resources''
and that it was impossible to ``keep track of tipped versus non-tipped
duties at such a micro level.'' Another commenter representing
employers stated, ``[t]imekeeping systems are not designed to deal with
that level of granularity,'' nor ``do tipped employees' jobs allow them
sufficient time to constantly clock in under a different code when
finishing one task but before starting another.'' This is especially
true ``when the tasks are often measured in seconds and are frequently
part of a `multi-tasking' approach.'' See Johnson Jackson. The
practical difficulties of complying with the 80/20 approach are also
evident in case law. For example, as the District Court for the
Southern District of Florida observed in a decision affirmed by the
Eleventh Circuit, the non-tipped duties performed by the employees at
issue were so ``intertwined with indirect tip-producing tasks
throughout the day'' that determining precisely how much time was spent
on non-tipped related duties was indeed ``infeasible.'' Pellon, 528 F.
Supp. 2d at 1314.
The updated related duties test, in contrast, does not require
employers to attempt a minute-by-minute accounting of tipped employees'
work to ensure that non-tipped related work does not exceed a
quantitative cap. Each employee can instead perform the related, non-
tipped work of his or her tipped occupation as needed in conjunction
with his or her tipped work--either contemporaneously with or for a
reasonable time immediately before or after the tipped work--and
employers may confidently take a tip credit without precisely tracking
the time spent by the employee as he or she moves between duties.
Fourth, the 80/20 approach was difficult to administer because it
required employers to distinguish with precision between non-tipped
duties (which were subject to the 20 percent cap) and tipped duties
(which were not). In general, determining whether a duty is tip-
producing is straightforward; WHD and courts ask whether the task
involves direct interaction with customers. See WHD Opinion Letter
FLSA2018-27 (referring to tipped duties as those ``involv[ing] direct
customer service''); Barnhart v. Chesapeake Bay Seafood House Assocs.,
L.L.C., No. CV JFM-16-01277, 2017 WL 1196580, at *6 (D. Md. Mar. 31,
2017) (``tasks that involve direct customer interaction would fall
squarely into the tip-producing category, and tasks that are not
customer-facing would not''); Belt v. P.F. Chang's China Bistro, Inc.,
401 F. Supp. 3d 512, 519-20 (E.D. Pa. 2019) (considering tasks that
``did not involve interacting with, nor serving food and beverages to
customers'' to be untipped work). But the 80/20 approach requires
precision, not generality, and, as commenters noted, the precise minute
when an employee ceases to perform a tip-producing duty and begins
performing a non-tipped, related duty (and vice-versa) is not always
clear. See, e.g., Inspire Brands. One court, for example, observed that
applying the 80/20 approach to the plaintiff skycaps, who ``me[t]
airline travelers at the curb and assist[ed] them with their luggage,''
would require it to determine, ``for instance, how far from the curb
could
[[Page 86770]]
Plaintiffs even walk before they are too far to be considered tipped
employees[.]'' Pellon, 528 F. Supp. 2d at 1315.
The updated related duties approach adopted in this final rule
continues to distinguish between tip producing and non-tip producing
duties. But because the updated test eschews a numerical analysis, it
no longer requires precise parsing of whether tasks performed in close
conjunction with one another are tipped duties or are non-tipped
related duties that must be aggregated against a 20 percent cap.
Instead, an employer may take a tip credit whether an employee is
performing a tipped duty or is performing a related duty
contemporaneously with or for a reasonable time immediately before or
after tipped duties. In addition, as discussed further below, by using
O*NET to identify duties related to the tipped occupation, courts will
be able to better and more consistently apply the dual jobs regulation.
Fifth, the Department disagrees that the 80/20 approach is more
administrable than the proposed rule. An 80/20 approach may well be
easy to administer once the precise amount of time an employee has
spent on various tasks has been tabulated, but it is the categorizing
of tasks and tracking of each employee's time that makes the 80/20
approach difficult to administer.
Sixth, the updated related duties test better effectuates the text
of section 3(m) than did the 80/20 approach. Section 3(m) permits
employers to take a tip credit based on whether an employee is engaged
in a tipped ``occupation,'' not whether the employee is performing
certain kinds of duties or tasks within the tipped occupation. See 29
U.S.C. 203(m) and (t). Because the 80/20 approach imposed a hard cap on
related non-tipped work, regardless of the context, applying this
policy sometimes precluded an employer from taking the tip credit, even
for time when a tipped employee arguably continued to be engaged in his
or her tipped ``occupation.'' By permitting the tip credit for the time
an employee spends performing non-tipped related duties
contemporaneously with or for a reasonable time immediately before or
after tipped work, the updated approach better approximates the point
at which a tipped employee has ceased to be engaged in his or her
tipped occupation and becomes engaged in a non-tipped occupation.
The updated related duties test also draws this line more
effectively than the alternative proposed by the National Restaurant
Association, which would permit an employer to take a tip credit for a
full shift when an employee performs any tipped work during the course
of the shift. For example, under that approach an employer could take a
tip credit for the entire shift of a cook or dishwasher whom it had
directed to perform a token amount of tipped work during the shift.\13\
This is inconsistent with the commonsense understanding of the
statutory term ``occupation'' in the FLSA, which permits an employer to
take a tip credit only for the hours that an employee spends working in
a tipped occupation, not for all hours worked by an employee who spends
part of his or her time working in a tipped occupation. Removing the
rigid 20 percent limitation, but permitting an employer to take a tip
credit for time spent on non-tipped work only when that work is related
to the tipped occupation and performed in conjunction with tipped work,
reasonably interprets the statutory text while striking a balance that
is both protective of employees and manageable for employers.
---------------------------------------------------------------------------
\13\ The employee would also need to earn at least $30 per month
in tips to meet the full criteria set forth in 29 U.S.C. 203(t).
---------------------------------------------------------------------------
Seventh, it is not clear what time frame should be used to
determine compliance with the 80/20 approach. As commenters noted,
there was confusion with how the 80/20 approach would be determined on
a workweek basis. Nor is it clear whether a workweek approach would, in
the dual jobs context, produce results consistent with the FLSA's
language that allows an employer to take a tip credit based on hours
worked, not a workweek. Consider a casino that requires its card
dealers to make periodic security rounds at their pit in order to allow
other employees to focus fully on the tip-producing work of dealing.
Over the course of an 8-hour shift each week, a card dealer is required
to make six half-hour rounds monitoring gaming tables to ensure the
security of the game (for a total of 3 hours over the course of her
shift). The hours she spends monitoring gaming tables constitute more
than 20 percent of her shift devoted to non-tipped related duties, but
less than 20 percent of her workweek. If the workweek were applied as
the standard of measurement, then the casino would be permitted to take
a tip credit for the time spent on security rounds--even if that task
consumed a substantial portion of the card dealer's designated work day
that she could have devoted to tip-producing work. If the 80/20
approach were applied on a shift basis, the employer would be denied
the tip credit for all eight hours the employee worked even though she
was working in her tipped occupation for the entire shift. This lack of
clarity and potential for unintended outcomes counsels against
continued use of the 80/20 approach and in favor of the updated related
duties test.
Eighth, the Department disagrees with some commenters' argument
that the updated related duties approach violates section 3(m)(2)(B) by
allowing employers to use tips to meet their minimum wage obligations
for non-tipped work. Section 3 of the FLSA makes clear that an employer
that takes a tip credit in compliance with section 3(m)(2)(A) does not
``keep'' tips in violation of section 3(m)(2)(B). This is because the
two sections must be read in harmony with each other to avoid internal
contradiction. Section 3(m)(2)(A) permits an employer to take a tip
credit for ``tipped employee[s],'' defined under section 3(t) as those
``engaged in an occupation'' in which they ``customarily and regularly
receive tips.'' When a tipped employee performs non-tipped duties
related to the employee's tipped occupation either contemporaneously
with or for a reasonable time immediately before or after the
employee's tipped duties, the employee continues to be ``engaged'' in
the tipped occupation under section 3(t). As a result, an employer that
takes a tip credit for this time does so in compliance with section
3(m)(2)(A) and thus does not violate section 3(m)(2)(B).
As long as an employee's direct cash wage plus tips equals the
minimum wage (and the employer has met the other criteria for taking a
tip credit) section 6 of the FLSA is satisfied. If tipped employees do
not receive sufficient tips to cover the minimum wage, the employer
must supplement the cash wage payment. Compliance with the FLSA's
minimum wage requirement, therefore, requires sufficient tip-generating
activity to satisfy that minimum wage obligation. It is consistent with
the FLSA for an employer to use tips to cover an employee's non-tipped
work that is related to the tipped occupation, so long as that employee
is engaged in a tipped occupation when performing the non-tipped work
and earns at least the minimum wage for all hours worked. This is the
exact result envisioned by the FLSA's scheme of satisfying the minimum
wage with a mixture of a direct cash wage and tips.
Ninth, the Department disagrees with commenters' suggestions that a
return to the 80/20 approach is appropriate given that some Federal
courts have concluded the Department did not sufficiently explain its
reasoning for the updated related duties test in its 2018
[[Page 86771]]
subregulatory guidance. See Williams v. Bob Evans Rests., LLC, No. 18-
01353, 2020 WL 4692504, at *9 (W.D. Pa. Aug. 13, 2020); Reynolds v.
Chesapeake & Del. Brewing Holdings, LLC, No. 19-2184, 2020 WL 2404904
(E.D. Pa. May 12, 2020); Sicklesmith v. Hershey Entm't & Resorts Co.,
No. 19-1675, 2020 WL 902544 (M.D. Pa. Feb. 25, 2020); O'Neal v. Denn-
Ohio, LLC, No. 19-280, 2020 WL 210801 (N.D. Ohio Jan. 14, 2020); Belt,
401 F. Supp. 3d at 512; Spencer v. Macado's, Inc., 399 F. Supp. 3d 545
(W.D. Va. 2019); Cope v. Let's Eat Out, Inc., 354 F. Supp. 3d 976 (W.D.
Miss. 2019); Esry v. P.F. Chang's China Bistro, Inc., 373 F. Supp. 3d
1205 (E.D. Ark. 2019); Berger v. Perry's Steakhouse of Ill., LLC, No.
14-8543, 2019 WL 7049925 (N.D. Ill. Dec. 23, 2019); Flores v. HMS Host
Corp., No. 18-3312, 2019 WL 5454647 (D. Md. Oct. 23, 2019). But see
Shaffer v. Perry's Rests., Ltd., No. 16-1193, 2019 WL 2098116, at *1
(W.D. Tex. Apr. 24, 2019). The Department has now explained through
this notice-and-comment rulemaking process its reasoning for replacing
the 80/20 approach with the updated related duties test.
In sum, the Department adopts the changes to Sec. 531.56(e) as
proposed, with minor exceptions. First, to ensure that it is read
consistently with Sec. 531.59(b), which makes the tip credit available
``only for hours worked by the employee,'' the Department replaces the
phrase ``amount of time'' in the fourth sentence of proposed Sec.
531.56(e)(2) with ``hours.'' This correction for consistency does not
change the meaning of the proposed language. Thus, the fourth sentence
of Sec. 531.56(e)(2) as adopted reads: ``An employer may take a tip
credit for any hours that an employee performs related, non-tipped
duties contemporaneously with his or her tipped duties, or for a
reasonable time immediately before or after performing the tipped
duties.'' Second, as discussed in more detail below, the Department
does not use O*NET's list of duties for an occupation to definitively
limit the non-tipped duties that are related to that occupation.
Rather, it refers to O*NET as the source of a list of non-tipped duties
that are presumed to be related to a tipped occupation.
iii. Comments Regarding the Use of O*NET
The Department received several comments on proposed Sec.
531.56(e)(3), which would use O*NET as a source for defining which non-
tipped duties are related to a tipped occupation. Some commenters
representing employers stated that using O*NET to define related duties
would make the tip credit easier to administer. Littler, for example,
stated that employers can ``simply check O*NET and assign the duties
appearing on that list. Upon doing that, employers can take a tip
credit for the employee's entire shift.'' The Center for Workplace
Compliance also supported the proposed update to the regulations,
stating that it would ``make compliance simpler.''
The Department also received several comments expressing concerns
about using O*NET to define related duties. Some commenters, including
Littler, Fisher Phillips, and NELP, expressed concern about the fact
that O*NET's listings and identified job duties are subject to change
and could ``even disappear in the future.'' Some commenters were
concerned that the list of related duties could expand without limit or
be manipulated, and some commenters recommended incorporating the O*NET
definitions in place as of the date of this final rule. The National
Restaurant Association and another commenter requested that the
Department state that a task's appearance on O*NET is sufficient but
not necessary to demonstrate that it is related to the occupation. Some
commenters advocated for the Department to state that a tipped worker's
related duties may encompass the duties of any tip-producing occupation
within the same industry. Finally, State Attorneys General and some
other commenters disputed whether further clarity regarding related
duties was necessary, pointing to numerous court cases applying the
Department's prior guidance, which did not comprehensively define
related duties.
After considering the comments, the Department finalizes Sec.
531.56(e)(3) largely as proposed but with an addition to account for
concerns raised by commenters. Specifically, the Department adds the
phrase ``presumed to be'' in two locations in Sec. 531.56(e)(3), so
that the section now states that a non-tipped duty is presumptively
related to a tip-producing occupation if it is listed as a task of the
tip-producing occupation in O*NET.
O*NET is the most current and comprehensive source of descriptive
occupational information in the United States. O*NET has conducted
extensive research and collects occupational data from multiple
sources: Incumbent workers, occupational experts, employers, and trade
and professional associations.\14\ This multiple-method approach
ensures high quality data, which facilitates O*NET's ability to
identify new and emerging occupations in high-growth industries, and
new and changing skills requirements in existing occupations. O*NET
also uses a flexible, common language-based system to describe the
world of work, making it accessible and understandable. In addition to
serving job seekers and students, O*NET is used by state workforce
agencies and the Department's Employment and Training Administration.
Therefore, the Department believes that O*NET is the best way to give
employers and employees clear, comprehensible information on related
duties that will remain current, even in a changing economy. As noted
by commenters, employers may simply check O*NET and take the tip credit
for time spent by their employees performing the related duties
appearing on the list.
---------------------------------------------------------------------------
\14\ More detailed information about O*NET's data collection can
be found at https://www.onetcenter.org/ombclearance.html.
---------------------------------------------------------------------------
Although some commenters expressed concern that O*NET will not be
maintained in perpetuity, the Department has no intention of making
O*NET unavailable at any time in the near future. O*NET has existed for
more than 20 years and replaced a similar product, the Dictionary of
Occupational Titles, which had existed since the 1930s. Should O*NET be
discontinued, the Department would revisit the regulation. The
Department also declines to incorporate O*NET's current list of tasks
into the regulation because doing so would limit its usefulness with
regard to both changing and emerging occupations. In addition, this
would require the Department to expend substantial resources to
identify which of the nearly 1,000 occupations in O*NET are tipped and
which are not, without the benefit of stakeholder input in making these
determinations.
Moreover, some commenters suggested that adopting O*NET by
reference is problematic because automatic updates to the database
would not go through notice and comment. However, in response to those
comments and others concerned with changes to O*NET, and in recognizing
that O*NET is updated using occupational data from various sources and
may not accurately capture all related non-tipped duties, the
Department is not adopting the O*NET listings as binding requirements.
Rather, the Department is adopting O*NET only to assist in determining
when a tipped employee's non-tipped duties are related to his or her
tipped occupation. Specifically, the final rule explains that the
Department will look to the tasks listed within the tip-producing
occupation in O*NET as guidance on
[[Page 86772]]
whether a particular non-tipped duty is related to a tipped occupation.
In other words, a non-tipped duty listed as a task of a tip-producing
occupation in O*NET indicates that this duty can be treated as related
to the tipped occupation. However, if industry-wide practices and
trends demonstrate that a listed duty is not actually related to the
tipped occupation, or that an unlisted duty is actually related to that
occupation, then employers would not be able to rely on O*NET as a
compliance assistance tool in that particular case. In sum, because any
updates to O*NET will not result in additional legal requirements for
affected parties, those changes are not subject to notice and comment.
Adopting fluctuating databases and standards as guidance is a
common regulatory practice. For example, the Department refers to the
Dictionary of Occupational Titles, O*NET's predecessor, when
determining whether a public employee's volunteer activity is in the
``same type of services'' that he is paid to perform. See 29 CFR
553.103; FLSA2008-16 at *3 (Dec. 18, 2008) (clarifying that referring
to O*NET for this determination is also acceptable). Other Federal
agencies also use this approach in a variety of contexts. Social
Security Administration regulations, for instance, refer to the
Department's Dictionary of Occupational Titles, several Census
publications, and the Occupational Outlook Handbook published by the
Bureau of Labor Statistics to rule on benefits applications. See 20 CFR
416.966(d). Meanwhile, the Department of Education requires
postsecondary schools to be accredited, but outsources those
accrediting decisions to accrediting bodies, each of which makes its
own accreditation rules. See 34 CFR part 602.
Although some commenters expressed concerns about potential
manipulation of O*NET, the Department is confident that O*NET, upon
which numerous stakeholders and governmental entities depend, is
reliable. O*NET's data collection process ensures this reliability by
incorporating, among other methods, surveying and random sampling, data
cleaning, weighting, and the use of experts and occupational analysts.
Several commenters asked the Department to allow employers to deem
as ``related'' to a tipped occupation additional duties that are
neither included in the O*NET duties list for the occupation nor as
examples in the regulation. The Department does not believe that this
explicit approach is necessary. Under Sec. 531.56(e)(3) as proposed,
O*NET's list of non-tipped duties for an occupation was exhaustive;
non-tipped duties were not related to the occupation unless they
appeared in the O*NET list of duties. But under Sec. 531.56(e)(3) as
adopted, O*NET's lists are no longer exhaustive--O*NET lists duties
that are presumed to be related to the tipped occupation, but that list
is no longer exhaustive.
The Department disagrees with the commenters who dispute the need
for further clarity regarding related duties. The extensive litigation
over the 80/20 approach attests to the difficulty in determining
whether particular non-tipped duties were related to an employee's
tipped occupation. In many of these cases, courts declined to dismiss
at the pleading stage the plaintiffs' claims that they performed
unrelated duties for which they were improperly compensated because
facts developed through discovery could ultimately show that those
duties were related to the plaintiffs' tipped occupations. See, e.g.,
Knox v. Jones Grp., 201 F. Supp. 3d 951, 959 (S.D. Ind. 2016) (citing
precedent in reasoning that ``the division between permissible, related
duties and impermissible, unrelated duties is not categorical''; the
court would ultimately need to consider ``the qualitative and
quantitative nature of the allegedly unrelated duties''); Stokes v.
Wings Inv., LLC, 213 F. Supp. 3d 1097, 1102 (S.D. Ind. 2016) (``After
conducting discovery, Defendant might be able to show that all of the
duties identified by Plaintiff are related to her tipped
occupation[.]''). Using O*NET to identify non-tipped duties that are
presumed to be related to particular tipped occupations will make it
simpler for employers, employees, and courts alike to distinguish
related duties for which employers can take a tip credit from unrelated
duties for which for which they cannot. Section 531.56(e)(3) as adopted
may not furnish as much certainty as that section did as proposed, but
it furnishes much more certainty than the regulatory text prior to this
final rule, which identified few duties as related or unrelated.
Additionally, the Department sought and received comment on the use of
O*NET as a tool for identifying non-tipped duties that would be related
to a tipped occupation, and the majority of commenters agreed that
using the database would be useful and would provide much-needed
clarity.
Finally, the Department declines commenters' requests to expand the
related duties for a particular occupation beyond the O*NET tasks
associated with that occupation to include any tasks associated with
any other tipped occupation in the same industry. One commenter, by way
of example, noted an overlap in a number of tasks shared by bartenders
and servers. That example itself demonstrates why adopting that same-
industry standard would be inappropriate. As reflected in O*NET, the
North American Industrial Classification System (NAICS) places
bartenders and servers within the Accommodation and Food Services
industry--an industry that also includes occupations such as hotel
maids and gaming dealers. It is not part of a hotel bartender's tipped
occupation to equip rooms with linens, nor is it part of a hotel maid's
tipped occupation to deal cards or collect wagers.
In light of these considerations, the Department finalizes the
regulation to include the O*NET database as a source of non-tipped
duties that are presumed to be related to a tipped occupation. The
Department will continue to evaluate and refine its approach with
respect to O*NET to address concerns that may arise.
E. Civil Money Penalties
i. Civil Money Penalties for Violations of Section 3(m)(2)(B)
Section 1201(b)(3) of the CAA amended FLSA section 16(e)(2) by
adding new penalty language: ``Any person who violates section
3(m)(2)(B) shall be subject to a civil penalty not to exceed $1,100 for
each such violation, as the Secretary determines appropriate, in
addition to being liable to the employee or employees affected for all
tips unlawfully kept, and an additional equal amount as liquidated
damages, as described in subsection (b).'' The Department's current
enforcement policy states that the CAA amendments give the Department
discretion to impose civil money penalties (CMPs) up to $1,100 \15\
when employers unlawfully keep employee tips (including when they allow
managers or supervisors to keep any portion of employees' tips). See
FAB 2018-3. The Department currently follows its normal procedures for
FLSA CMPs with regard to violations of section 3(m)(2)(B), ``including
by determining whether the violation is repeated or willful.'' See id.
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\15\ The CMP amounts in this rule are adjusted for inflation as
required by the Federal Civil Penalties Inflation Adjustment Act of
1990 (Pub. L. 101-410), as amended by the Debt Collection
Improvement Act of 1996 (Pub. L. 104-134, sec. 31001(s)) and the
Federal Civil Penalties Inflation Adjustment Act Improvements Act of
2015 (Pub. L. 114-74, sec. 701).
---------------------------------------------------------------------------
The Department proposed to incorporate this current guidance into
the regulations: To use the same
[[Page 86773]]
guidelines and procedures that it follows for assessing CMPs for
violations of the minimum wage (section 6) and overtime (section 7)
requirements of the FLSA as it does for violations of section
3(m)(2)(B). That means the Department proposed to assess CMPs for
violations of section 3(m)(2)(B) only when it determines the violation
is repeated or willful.
Some commenters generally supported the proposal regarding CMPs.
The National Federation of Independent Business (NFIB) noted that the
Department ``has taken into account the practical realities of labor
compliance for small businesses'' by proposing to exercise its
discretion by assessing CMPs for ``violations of section 3(m)(2)(B)
only if committed repeatedly or willfully.'' Other commenters, such as
the National Employment Lawyers Association, the National Women's Law
Center, and NELP, opposed the proposal, arguing that because ``Congress
used the words `repeatedly or willfully' for minimum wage and overtime
violations [in section 16(e)(2)] but omitted such words with respect to
section 3(m)(2)(B),'' that ``demonstrates Congress' clear intent that
civil penalties for this latter section do not require a repeated or
willful violation.'' Senator Murray and Representative DeLauro stated
that the relevant language ``clearly provides for a civil penalty . . .
against `any person' and for `each' violation of the tip-protection
language'' and argued that the Department's proposal was ``in direct
contravention of this plain language.''
The CAA amendments state that ``[a]ny person who violates section
203(m)(2)(B) of this title shall be subject to a civil penalty not to
exceed $1,100 for each such violation, as the Secretary determines
appropriate . . . .'' 29 U.S.C. 216(e)(2) (emphasis added). The plain
meaning of this language is that the Department has the discretion to
determine when civil penalties are appropriate. While Senator Murray
and Representative DeLauro's comment acknowledged that this language
gives the Secretary discretion, they argued ``that discretion is to be
used to determine the amount of the penalty up to $1,100 depending on
the particular circumstances,'' rather than whether to assess a CMP at
all. The Department does not see any inconsistency with its approach
here. Effectively, the Department is exercising its discretion ``to
determine the amount of the penalty . . . depending on the particular
circumstances''; it has determined to assess a CMP of $0 for violations
that are not repeated or willful. Section 216(e) also authorizes the
Department to assess CMPs ``not to exceed'' a specified amount in the
context of child labor, minimum wage, and overtime violations, and the
Department has long used such discretion to determine the amount of
penalties assessed in those areas. Unlike the CAA, however, those
authorizations do not include the language ``as the Secretary
determines appropriate.'' Therefore, the CAA language granting the
Secretary discretion to determine the appropriateness of CMPs for
violations of section 3(m)(2)(B) must refer to the Secretary's
discretion to determine whether to assess CMPs at all.
The Department in the 2019 NPRM proposed to explain in the
regulations its intent to exercise its discretion by limiting the
assessment of CMPs to repeated and willful violations of section
3(m)(2)(B). Assessing CMPs only when an employer has repeatedly or
willfully violated section 3(m)(2)(B), as opposed to doing so for a
first-time violation, is consistent with how the Department enforces
other FLSA wage violations. The Department has been assessing CMPs for
repeated or willful violations of the minimum wage and overtime
requirements of the FLSA using the guidelines in part 578 and
procedures in part 580 for nearly three decades. This consistency of
approach creates familiarity with the Department's requirements in both
the public and in the Department's staff, in turn engendering
consistency of compliance among employers and consistency in
enforcement by the Department's staff, and ultimately improves public
trust in the law and the Department's enforcement of it. For these
reasons, the Department finalizes the revisions to the regulations at
29 CFR 578.1, 578.4, 579.1, 580.2, 580.3, 580.12, and 580.18 as
proposed.
In addition to clarifying the circumstances under which it will
seek CMPs, the Department proposed to revise 29 CFR 578.3 and 579.2 to
clarify how it determines whether a violation is willful for purposes
of assessing CMPs. See 84 FR 53964-65. As explained in the NPRM, the
Department's definition of a ``willful'' violation in Sec. Sec. 578.3
and 579.2 is based on McLaughlin v. Richland Shoe Co., 486 U.S. 128,
133 (1988), which held that a violation is willful if the employer
``knew or showed reckless disregard'' for whether its conduct was
prohibited by the FLSA. Sections 578.3(c)(1) and 579.2 incorporate this
holding and state that ``[a]ll of the facts and circumstances
surrounding the violation shall be taken into account in determining
whether a violation was willful.'' The Department proposed no changes
to this language.
Previous Sec. Sec. 578.3(c)(2) and (3) and 579.2 stated that ``an
employer's conduct shall be deemed knowing'' if the employer received
advice from WHD that its conduct is unlawful. These sections further
stated that ``an employer's conduct shall be deemed to be in reckless
disregard'' of the FLSA's requirements ``if the employer should have
inquired further'' into whether its conduct complied with the FLSA
``and failed to make adequate further inquiry.'' In the NPRM, the
Department discussed concerns with this language that two appellate
courts had identified. See 84 FR 53964-65 (discussing Rhea Lana, Inc.
v. Dep't of Labor, 824 F.3d 1023, 1030-32 (D.C. Cir. 2016), and
Baystate Alt. Staffing, Inc. v. Herman, 163 F.3d 668, 680-81 (1st Cir.
1998)). Those courts noted the inconsistency between the regulation's
language, on the one hand, that conduct ``shall be deemed knowing'' if
the employer was previously advised by WHD that the conduct was
unlawful, and its language, on the other hand, derived from Richland
Shoe that WHD shall take into account ``[a]ll of the facts and
circumstances surrounding the violation'' when determining willfulness.
See id. The Department explained in the NPRM that it does evaluate all
of the facts and circumstances surrounding a violation when litigating
willfulness and that while an employer's receipt of advice from WHD
that its conduct was unlawful can be sufficient to prove willfulness,
notwithstanding the regulatory language that appears to be to the
contrary, it would not necessarily be so. See 84 FR 53965. In light of
the appellate courts' opinions and the Department's acknowledgement of
how it litigates willfulness, the NPRM proposed to revise Sec. Sec.
578.3(c)(2)-(3) and 579.2 to clarify that, in considering all of the
facts and circumstances, an employer's receipt of advice from WHD that
its conduct is unlawful and its failure to inquire further regarding
the legality of its conduct are each ``a relevant fact and
circumstance'' in determining willfulness. See 84 FR 53978.
Some commenters supported the proposed revision. The Center for
Workplace Compliance (CWC) explained that, under the proposal, ``advice
from [WHD] about the lawfulness of conduct would be a relevant factor
in determining willfulness, but would not automatically trigger the
standard.'' CWC stated that the proposed revision ``more closely aligns
with federal court precedent'' and is ``a more practical
[[Page 86774]]
interpretation that recognizes that employers should not be
automatically subject to civil money penalties where legitimate
questions exist concerning coverage of the FLSA.'' Fisher Phillips
described the proposed revision as ``vague'' but asserted that ``there
is [often] a legitimate dispute with the Department's position''--
suggesting that an employer's receipt of advice from WHD that its
conduct was unlawful should not always mean that the violation was
willful.
Other commenters, such as Texas RioGrande Legal Aid and NELA,
opposed the proposed revision. They described Sec. 578.3(c) as stating
``longstanding, bright line rules'' that ``promote consistency in
application and certainty for employers.'' They asserted that, ``in
redefining willfulness, the Department is using the need to implement
new worker protections in the FLSA as a pretext to weaken worker
protections--in this case, far beyond the context of tipped
occupations.'' They stated that the Department ``is misguided at best .
. . to apply a vaguer, weaker standard to the new statutory provision
at hand, and it is beyond the pale to apply the same proposal to
minimum wage, overtime, and child labor standards that are not at issue
in this rulemaking.'' They criticized the proposed revision as
treating, in Texas RioGrande Legal Aid's words, ``an employer's
decision to ignore advice from the Department as a mere factor to be
considered rather than'' evidence that is ``sufficient'' to show that
the violation was willful. Finally, NELA stated that the Department did
not furnish adequate notice of its intent to change ``nontip'' portions
of the regulations and that the NPRM's statement that Sec. 578.3(c)
contradicts Supreme Court precedent was considered and rejected when it
was promulgated in 1992.
Having considered the comments, the Department adopts the proposed
revisions with some modifications. The final rule revises Sec.
578.3(c)(2) and corresponding language in Sec. 579.2 to state that, in
considering all of the facts and circumstances, an employer's receipt
of advice from WHD that its conduct was unlawful can be sufficient to
show that the violation is willful but is not automatically
dispositive. This revision addresses concerns raised by commenters that
one fact should not automatically result in a violation being willful
but that the fact identified in Sec. 578.3(c)(2) can be ``sufficient''
for a violation to be willful. In addition, the final rule deletes
Sec. 578.3(c)(3) and corresponding language in Sec. 579.2. Upon
further consideration, Sec. 578.3(c)(3) does not just identify a fact
and address how that fact impacts a willfulness finding (like Sec.
578.3(c)(2) does). Instead, it addresses a scenario--should have
inquired further but did not do so adequately--that is tantamount to
reckless disregard. See Davila v. Menendez, 717 F.3d 1179, 1185 (11th
Cir. 2013). Accordingly, revising Sec. 578.3(c)(3) in the same manner
as Sec. 578.3(c)(2) did not seem helpful, and retaining Sec.
578.3(c)(3) without modifying it would not resolve the concerns raised
by the appellate decisions discussed above.
These modified revisions, including deleting Sec. 578.3(c)(3) and
corresponding language in Sec. 579.2, resolve the tensions identified
within the Department's regulations and with the Supreme Court's
decision and comport more precisely with how the Department litigates
willfulness than did the original proposed revisions. An employer's
receipt of advice from WHD that its conduct is unlawful is a relevant,
and may be a determining, factor regarding that employer's
willfulness--but the law also requires examining all facts and
circumstances surrounding the violation. Among other situations, proof
that an employer should have inquired further into whether its conduct
was in compliance with the Act and failed to make adequate further
inquiry is only one indicium of reckless disregard. Finally, the
Department gave adequate notice of its intent to revise Sec. Sec.
578.3(c)(2)-(3) and 579.2, and the Rhea Lana and Baystate decisions
give a sufficient basis for reconsidering its regulations on
willfulness.
F. Additional Proposed Regulatory Revisions
In the NPRM, the Department proposed to revise Sec. 531.50 to
reflect the language that the CAA added to the FLSA. The Department
also proposed to update Sec. Sec. 531.50, 531.51, 531.52, 531.55,
531.56, 531.59, and 531.60 to reflect the new statutory citation to the
FLSA's existing tip credit language, previously cited as section 3(m),
as section 3(m)(2)(A). Additionally, the Department proposed to clarify
references in Sec. Sec. 531.56(d), 531.59(a) and (b), and 531.60 to
the amount an employer can take as a tip credit under current section
3(m)(2)(A). The Department's regulations currently state that an
employer can take a tip credit for each employee equal to the
difference between the minimum wage required by section 6(a)(1) of the
FLSA (currently $7.25 an hour) and $2.13 an hour. To ensure that the
Department's regulations clearly state employers' obligations under the
FLSA, the Department proposed to revise Sec. Sec. 531.56(d), 531.59(a)
and (b), and 531.60 to state, consistent with the text of the statute,
that the tip credit permitted by section 3(m)(2)(A) is equal to the
difference between the Federal minimum wage and the cash wage paid by
the employer. That cash wage must be at least $2.13 per hour, but the
statute does not preclude an employer from paying more.
The Department received little comment on these proposed regulatory
revisions, which merely update the regulations to reflect the new
statutory language and citations added by the CAA amendments and
clarify other references consistent with the statutory text.
Accordingly, the Department adopts as proposed the updates to
Sec. Sec. 531.50, 531.51, 531.52, 531.55, 531.56, 531.59, and 531.60
to reflect the new statutory citation to the FLSA's existing tip credit
language, previously cited as section 3(m), as section 3(m)(2)(A) and
to revise Sec. 531.50 to reflect the language that the CAA added to
the FLSA. Additionally, the Department adopts as proposed the
clarifying references in Sec. Sec. 531.56(d), 531.59(a) and (b), and
531.60 to the amount an employer can take as a tip credit under section
3(m)(2)(A).
In the NPRM, the Department proposed to amend the tip language of
its Executive Order 13658 regulations. Executive Order 13658 raised the
hourly minimum wage paid by contractors to workers performing work on
or in connection with covered Federal contracts. See E.O. 13658, 79 FR
9851 (Feb. 12, 2014). The Executive order also established a tip credit
for workers covered by the Order who are tipped employees pursuant to
section 3(t) of the FLSA. Section 4(c) of the Executive Order
encourages the Department, when promulgating regulations under that
Order, to incorporate existing ``definitions, procedures, remedies, and
enforcement processes'' from a number of laws that the agency enforces,
including the FLSA, and the Department's current Executive Order 13658
regulations are modeled after the Department's current FLSA tip
regulations. The Department proposed to amend Sec. 10.28, consistent
with its proposed rescissions to portions of the Department's FLSA
regulations, to remove restrictions on an employer's use of
nontraditional tip pools and to otherwise align those regulations with
the authority in the Executive Order. The Department also proposed to
amend Sec. 10.28, consistent with its proposed revisions to Sec.
531.56(e), to reflect its current guidance on when an employee
[[Page 86775]]
performing non-tipped work constitutes a tipped employee for the
purposes of 3(t). The Department received few comments on the proposal
to amend Sec. 10.28. The Center for Workplace Compliance indicated
that they ``support DOL's corresponding revisions to the regulations
implementing the federal contractor minimum wage.'' The Department
continues to believe that since many Federal contractors also are
subject to the FLSA regulations proposed, it is important to align the
corresponding regulations in part 10. Accordingly, in this final rule
the Department adopts Sec. 10.28 as proposed, with these exceptions:
As with the fourth sentence in Sec. 531.56(e)(2), the Department
replaces the phrase ``amount of time'' in the fourth sentence of Sec.
10.28(b)(2)(ii) with ``hours,'' so that sentence as adopted reads: ``An
employer may take a tip credit for any hours that an employee performs
related, non-tipped duties contemporaneously with his or her tipped
duties, or for a reasonable time immediately before or after performing
the tipped duties.'' Additionally, as with the changes to Sec.
531.56(e)(3), the Department adds the phrase ``presumed to be'' in two
locations in Sec. 10.28(b)(2)(iii).
The Department attempted to use gender-neutral phrasing in its
proposed regulations. Texas RioGrande Legal Aid appreciated the
Department's efforts but noted some omissions. In response, the
Department has made revisions to Sec. Sec. 531.54(a) and 531.56(a),
(c), and (e) to make these sections gender-neutral.
Finally, in this final rule the Department corrects a typographical
error in the NPRM, identified by the NFIB. In the authority section of
the regulatory text, the Department corrects the authority to cite
Title 5, not Title 4. The Department also corrects an additional
typographical error in Sec. 10.28(b)(2)(iii) referencing examples
described in paragraph (b)(2)(ii).
IV. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501 et seq.,
and its attendant regulations, 5 CFR part 1320, require the Department
to consider the impact of paperwork and other information collection
burdens imposed on the public. This final rule will revise the existing
information collection burden estimates previously approved under OMB
control number 1235-0018 (Records to be Kept by Employers--Fair Labor
Standards Act) because employers may choose to pay the full Federal
minimum wage and not take a tip credit, and collect tips to operate an
employer-required, mandatory tip pooling arrangement, thereby
triggering the new recordkeeping requirement in Sec. 516.28(b).
In accordance with the PRA, the Department solicited comments on
the FLSA information collections in the NPRM published October 8, 2019,
see 84 FR 53956, as the NPRM was expected to impact these collections.
44 U.S.C. 3506(c)(2). The Department also submitted a contemporaneous
request for OMB review of the proposed revisions to the FLSA
information collections, in accordance with 44 U.S.C. 3507(d). The
Department opened OMB control number 1235-0NEW for this action and OMB
assigned control number 1235-0030 for this action.\16\ As the PRA
requires, the Department submitted the information collection revisions
to OMB for review to reflect changes that would result from this final
rule. The Department reports a slight burden increase for employers
keeping records concerning employees who receive tips. OMB asked the
Department to resubmit the information collection request upon
promulgation of the final rule and after considering public comments on
the proposed rule.
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\16\ The NPRM for this final rule cited 1235-0NEW as the OMB
control number for revising information collection burdens
previously approved under control number 1235-0018. A different
control number was needed for this action because a revision of
1235-0018 was already under review for another of the Department's
rulemakings. The creation of a new control number allowed OMB to
process this action. On December 10, 2019, OMB issued a notice of
action assigning new control number 1235-0030. Upon conclusion of
this action by OMB, the Department will submit a nonsubstantive
change request to combine the control numbers 1235-0018 with 1235-
0030.
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Circumstances Necessitating Collection: FLSA section 11(c) requires
covered employers to make, keep, and preserve records of employees and
their wages, hours, and other conditions of employment, as prescribed
by regulation. The Department's regulations at 29 CFR part 516
establish the basic FLSA recordkeeping requirements. Section 516.28(a)
currently requires employers to keep certain records concerning tipped
employees for whom the employer takes a tip credit under the FLSA.
Among other things, Sec. 516.28(a) requires that the employer identify
each employee for whom the employer takes a tip credit, identify the
hourly tip credit for each such employee, and maintain records
regarding the weekly or monthly amount of tips received (which may
consist of IRS Form 4070) as reported by the employee to the employer.
The new recordkeeping regulations found at Sec. 516.28(b)(1) and (2)
require an employer that does not take a tip credit, but that collects
employees' tips to operate a mandatory tip pooling arrangement, to
indicate on its pay records each employee who receives tips and to
maintain records of the weekly or monthly amount of tips that each such
employee receives (this may consist of reports that the employees make
to the employer on IRS Form 4070). The increase in the number of
respondents and, accordingly, the burden hours associated with records
to be kept under Sec. 516.28(b)(1)-(2), is attributable to an
expanding economy increasing the number of establishments employing
individuals who receive tips since the last PRA revision of this
recordkeeping requirement.
Public Comments: The Department sought public comments regarding
the burdens imposed by information collections contained in the NPRM.
The Department received few comments relevant to the PRA. The
Pennsylvania Department of Labor and Industry expressed support for the
Sec. 516.28 requirement ``that employers who take a tip credit must
record which employees are tipped employees.''
An agency may not conduct an information collection unless it has a
currently valid OMB approval, and the Department submitted the
identified information-collection contained in the NPRM to OMB for
review under the PRA for control number 1235-0030. See 44 U.S.C.
3507(d); 5 CFR 1320.11. The Department has resubmitted the revised FLSA
information collections to OMB for approval, and intends to publish a
notice announcing OMB's decision regarding this information collection
request. A copy of the information collection request can be obtained
at http://www.reginfo.gov or by contacting the Wage and Hour Division
as shown in the For Further Information Contact section of this
preamble.
Total annual burden estimates, which reflect both the existing and
new responses for the recordkeeping information collection, are
summarized as follows:
Type of Review: Revision of a currently approved collection.
Agency: Wage and Hour Division, Department of Labor.
Title: Records to be Kept by Employers--Fair Labor Standards Act.
OMB Control Number: 1235-0030.
Affected Public: Private Sector: Businesses or other for-profits,
farms, and not-for-profit institutions; State, local and tribal
governments; and individuals or households.
Estimated Number of Respondents: 3,763,890 (29,296 from this
rulemaking).
[[Page 86776]]
Estimated Number of Responses: 43,709,493 (703,104 from this
rulemaking).
Estimated Burden Hours: 983,359 hours (1,953 from this rulemaking).
Estimated Time per Response: Various (unaffected by this
rulemaking).
Frequency: Various (unaffected by this rulemaking).
Other Burden Cost: $0.
V. Analysis Conducted in Accordance With Executive Order 12866,
Regulatory Planning and Review and Executive Order 13563, Improved
Regulation and Regulatory Review
A. Introduction
Under Executive Order 12866, OMB's Office of Information and
Regulatory Affairs determines whether a regulatory action is
significant and, therefore, subject to the requirements of the
Executive Order and OMB review.\17\ Section 3(f) of Executive Order
12866 defines a ``significant regulatory action'' as an action that is
likely to result in a rule that: (1) Has an annual effect on the
economy of $100 million or more, or adversely affects in a material way
a sector of the economy, productivity, competition, jobs, the
environment, public health or safety, or state, local or tribal
governments or communities (also referred to as economically
significant); (2) creates serious inconsistency or otherwise interferes
with an action taken or planned by another agency; (3) materially
alters the budgetary impacts of entitlement grants, user fees, or loan
programs, or the rights and obligations of recipients thereof; or (4)
raises novel legal or policy issues arising out of legal mandates, the
President's priorities, or the principles set forth in the Executive
order. Because the annual effect of this rule would be greater than
$100 million, this rule is economically significant under section 3(f)
of Executive Order 12866.
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\17\ 58 FR 51735 (Sept. 30, 1993).
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Executive Order 13563 directs agencies to propose or adopt a
regulation only upon a reasoned determination that its benefits justify
its costs; that it is tailored to impose the least burden on society,
consistent with achieving the regulatory objectives; and that, in
choosing among alternative regulatory approaches, the agency has
selected the approaches that maximize net benefits. Executive Order
13563 recognizes that some benefits are difficult to quantify and
states that, when appropriate and permitted by law, agencies may
consider and discuss qualitatively values that are difficult or
impossible to quantify, including equity, human dignity, fairness, and
distributive impacts.
B. Economic Analysis
i. Introduction
In March 2018, Congress amended section 3(m) and sections 16(b),
(c), and (e) of the FLSA to prohibit employers from keeping their
employees' tips, to permit recovery of tips that an employer unlawfully
keeps, and to suspend the operations of the portions of the 2011 final
rule that restricted tip pooling when employers do not take a tip
credit. This analysis examines the economic impact associated with the
Department's implementation of those amendments. Specifically, it
examines the possible transfers resulting from employers who implement
a new nontraditional tip pool that includes ``back-of-the-house''
employees (i.e., janitors, chefs, dishwashers, and food-preparation
workers) who formerly either did not claim a tip credit and previously
did not have a mandatory tip pool, or who only had a traditional tip
pool limited to ``front-of-the-house'' employees. The Department is
also amending its ``dual jobs'' regulation to replace the 80/20
approach with the updated related duties test. The Department
qualitatively discusses potential economic impacts of this update but
does not quantify them due to lack of data and the wide range of
possible responses by market actors that cannot be predicted with
specificity. Commentators provided neither needed data nor a reliable
quantitative estimate of economic impacts that the Department could
use. The Department quantified rule familiarization costs and
qualitatively discusses additional costs, cost savings, and benefits.
To perform the quantitative analysis, the Department compared the
impact relative to a pre-statutory baseline (i.e., before Congress
amended the FLSA in March 2018). If the Department were to look at
economic impacts relative to a post-statutory baseline, there would
likely be no impact of the tip pooling aspect of the final rule, aside
from rule familiarization costs, as the transfers arise from the
changes put forth in the statute.
The economic analysis covers employees in two industries and in two
occupations within those industries. The two industries are classified
under the North American Industry Classification System (NAICS) as
722410 (Drinking Places (Alcoholic Beverages)) and 722511 (Full-service
Restaurants); referred to in this analysis as ``restaurants and
drinking places.'' The two occupations are classified under Bureau of
Labor Statistics (BLS) Standard Occupational Classification (SOC) codes
SOC 35-3031 (Waiters and Waitresses) and SOC 35-3011 (Bartenders).\18\
The Department understands that there are other occupations beyond
servers and bartenders with tipped workers, such as SOC 35-9011 (Dining
room and Cafeteria Attendants and Bartender Helpers), SOC 35-9031
(Hosts and Hostesses, Restaurant, Lounge, and Coffee Shop), and others,
as well as other industries that employ workers who receive tips, such
as NAICS 722515 (snack and nonalcoholic beverage bars), NAICS 722513
(limited service restaurants), NAICS 721110 (hotels and motels), and
NAICS 713210 (casinos). Nonetheless, the Department concentrates its
analysis on the above two occupations because they constitute a large
percentage of total tipped workers and more than half (56.5 percent) of
the workers in these occupations receive tips (see Table 1 for shares
of workers in these occupations who report receiving tips).
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\18\ In the Current Population Survey, these occupations
correspond to Bartenders (Census Code 4040) and Waiters and
Waitresses (Census Code 4110). The industries correspond to
Restaurants and Other Food Services (Census Code 8680) and Drinking
Places, Alcoholic Beverages (Census Code 8690).
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The analysis presents its estimates over a 10-year time horizon.
When summarizing the costs and transfers of the rule, the Department
presents the first year's impact, as well as the 10-year annualized
costs and transfers with 3 percent and 7 percent discounting.\19\
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\19\ Discount rates are directed by OMB. See Circular A-4, OMB
(Sept. 17, 2003).
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Since the Department's analysis relies on data collected before
2020, it reflects the state of the economy prior to the COVID-19
pandemic. The Department acknowledges that data on tipped workers will
possibly look different following the economic effects of the pandemic,
and discusses potential effects here.
The COVID-19 pandemic has greatly affected the restaurant industry
and tipped workers. The unemployment rate for the Food Services and
Drinking Places industry jumped from 5.7 percent in February 2020 to
35.4 percent in April 2020. Although the rate has fallen by more than
half of its peak, 16.4 percent of these workers were still unemployed
as of September 2020.\20\ Even as restaurants begin to reopen across
the nation, and tipped workers return to their jobs, uncertainty exists
[[Page 86777]]
regarding the long-term impacts. Even in areas with limited pandemic-
related restrictions, business may be affected as some customers may
remain reluctant to eat at restaurants due to the pandemic. As a
result, employers may not be hiring or staffing at pre-pandemic levels,
at least in the near term. In a survey of full service restaurant
operators conducted by the National Restaurant Association from August
26 through September 1, 2020, staffing plans were mixed--26 percent of
operators said they plan to add employees and 25 percent said they plan
to lay off or furlough employees.\21\ During the short term, as the
economic effects of the pandemic linger, the labor market for tipped
workers will be less predictable, and aggregate tips may be reduced,
though the amount of tips per employee may or may not be impacted.
Because unemployment in tipped industries is still higher than it was
at the beginning of the year, the transfer estimate for the first year
of the RIA's time horizon could be reduced. The Department lacks data
to determine how much the transfer estimate will be reduced, and
believes that this effect will be temporary.
---------------------------------------------------------------------------
\20\ BLS Current Population Survey, https://data.bls.gov/timeseries/LNU04034262/?amp%253bdata_tool=XGtable&output_view=data&include_graphs=true.
\21\ National Restaurant Association, Restaurant Employment
Recovery is in Danger of Stalling, Sept. 4, 2020, https://restaurant.org/articles/news/restaurant-employment-recovery-is-in-danger.
---------------------------------------------------------------------------
The Department acknowledges these changes in the industry but
believes that the justifications for the Rule remain as strong as--if
not more so than--before the pandemic. More flexibility in compensation
and labor allocation will help businesses retain workers and maintain
capacity. Further, the increased cooperation and efficiency that the
final rule promotes will help businesses maintain quality of service--
and therefore support tipped-employee compensation and provide
increased certainty to tipped workers--at a time when the industry as a
whole is struggling.
ii. Estimated Transfers
Under this regulation, transfers could arise when employers that
already pay the full Federal minimum wage and previously did not have a
mandatory tip pool or had only a traditional tip pool institute
nontraditional tip pools in which tipped employees, such as servers and
bartenders, are required to share tips with employees who do not
customarily and regularly receive tips, such as cooks and dishwashers.
The Department believes that including back-of-the-house workers in tip
pools could help promote cooperation and collaboration among employees.
This increased cooperation and flexibility could lead to Pareto
improvement: Efficiencies that allow employers to engage in tip-pooling
without decreasing wages for anyone while increasing wages for some.
However, even in the event that tip-pooling requires a transfer from
the front-of-the-house, directly observable transfers will mainly occur
among employees because the statute prohibits employers from keeping
employee tips.
It is possible that there will be subsequent transfers after the
initial tip pooling and redistribution takes place. Because back-of-
the-house workers could now be receiving tips, employers may offset
this increase in total compensation by reducing the direct wage that
they pay back-of-the-house workers (as long as employers do not reduce
the employees' direct wages below the applicable minimum wage), and
such an outcome is what is modeled to produce the quantitative estimate
of transfers. However, there are reasons to believe this may not be
common in practice. Consider a pastry chef currently making $20 per
hour. The Department assumes that, in practice, this established wage
would restrict an employer's ability to reduce the total compensation
wage (i.e., wages plus pooled tips) below that rate. The chef, who last
year was paid $20 per hour in Georgia, could in theory, with this rule,
have her direct wage reduced to the Federal minimum wage of $7.25, with
tip pooling adding to that wage and bringing the total take-home to
near or above $20. However, even if the pooled tips amounted to $15 per
hour, the minimum wage would prevent the employer from reducing her
direct wage to $5. If pooled tips account for only $3 per hour on
average, it is unlikely the employer would be able to reduce her hourly
wage rate below $17, more than twice as much as is allowed by law,
because of the market effects impacting wages.
A number of commenters raised the prospect that employers could use
tip pooling to ultimately transfer tips to themselves by reducing the
base wages of back-of-the-house workers since those workers would now
be earning tips to offset the wage reduction. However, employers in
states that permit tip credits--which is a majority of states--may
already transfer to themselves up to the full amount of the tip credit
(up to $5.12 per hour) directly from front-of-the-house workers without
first initiating a system of tip pooling for back-of-the-house workers
by taking the credit and paying those front-of-the-house workers the
lower direct cash wage (at least $2.13 per hour).
The analysis assumes that employers will institute nontraditional
tip pools with employees who do not customarily and regularly receive
tips only in situations that are beneficial to them. Accordingly, it
assumes that employers will include back-of-the-house employees in
their tip pools only if they believe that they can do so without losing
their front-of-the-house staff and without reducing the overall quality
of the customer experience. To attract and retain the tipped workers
that they need, employers must pay these workers as much as their
``outside option,'' which is the hourly earnings that they could
receive from another employer in a non-tipped job with a similar skill
level requirement to their current position. For each tipped worker,
the Department assumes a transfer could occur only if their total
earnings, including tips, is greater than the predicted outside-option
wage from a non-tipped job. While the Department identified serious
methodological faults with a commenter's outside option analyses, which
are discussed later in this document, the approach comports in
principle to expected market behavior, and therefore the Department
built an outside option calculation into this analysis to frame the
potential upper bound of total transfers.
The transfer calculation herein excludes workers who are paid a
direct cash wage below the full FLSA minimum wage of $7.25, because
under the amended statute and the Department's rule, employers who take
a tip credit are still subject to section 3(m)(2)(A)'s restrictions on
tip pools. Some employers may begin paying their tipped workers a
direct cash wage of at least the full FLSA minimum wage to institute a
tip pool with back-of-the-house workers. The potential transfer due to
this scenario is not quantified due to uncertainty regarding how many
employers would choose to no longer use the tip credit. Choosing to no
longer take a tip credit would require a change to employers' payroll
systems and methods of compensation to which employers and employees
are accustomed, and it would increase the employers' out of pocket
payroll expenses, both of which could discourage employers from making
this change.
The transfer calculation also excludes workers who are paid a
direct cash wage by their employers, exclusive of any tips received,
that exceeds the applicable minimum wage (either the Federal or
applicable state minimum wage). The Department assumes that because
these employers are already paying more than required under applicable
law for these
[[Page 86778]]
workers, any reduction in compensation would result in these workers
leaving that employment. These employees would therefore not have their
tips redistributed through a nontraditional tip pool.
The Department does not attempt to definitively interpret
individual states' laws. However, some servers and bartenders work in
states that either prohibit mandatory tip pooling or impose stricter
limits on who can participate in a mandatory tip pool than are in this
rule,\22\ or in states in the Tenth Circuit where, as a result of
Marlow, 861 F.3d at 1159, employers that do not take a tip credit were
already permitted to institute nontraditional tip pools at the time
Congress amended the FLSA. The transfer estimate excludes tipped
employees in these states whom the changes in this rule may not
affect.\23\ The Department first determined total transfers for all
servers and bartenders using the method described above. The Department
then excluded workers whom the changes would not affect due to their
respective state laws. Finally, the Department further reduced the
total transfer amount to account for the uncertain number of employers
who are expected to decline to change their tip pooling practices
because it will require changes to practices to which employers and
employees are accustomed, including payroll and recordkeeping changes.
---------------------------------------------------------------------------
\22\ See, e.g., Minn. Stat. sec. 177.24, subd. 3 (``No employer
may require an employee to contribute or share a gratuity received
by the employee with the employer or other employees or to
contribute any or all of the gratuity to a fund or pool operated for
the benefit of the employer or employees.''); Mass. Gen. Laws ch.
149, sec. 152A(c) (``No employer or person shall cause, require or
permit any wait staff employee, service employee, or service
bartender to participate in a tip pool through which such employee
remits any wage, tip or service charge, or any portion thereof, for
distribution to any person who is not a wait staff employee, service
employee, or service bartender.'')
\23\ Arkansas, California, Colorado, Delaware, Hawaii, Kansas,
Kentucky, Massachusetts, Minnesota, New Hampshire, New Mexico, New
York, North Carolina, North Dakota, Oklahoma, Utah, and Wyoming.
---------------------------------------------------------------------------
To compute potential tip transfers, the Department used individual-
level microdata from the 2017 Current Population Survey (CPS), a
monthly survey of about 60,000 households that is jointly sponsored by
the U.S. Census Bureau and BLS. Households are surveyed for four
months, excluded from the survey for eight months, surveyed for an
additional four months, and then permanently dropped from the sample.
During the last month of each rotation in the sample (month 4 and month
16), employed respondents complete a supplementary questionnaire in
addition to the regular survey. These households and questions form the
CPS Merged Outgoing Rotation Group (CPS-MORG) and give more detailed
information about those surveyed.\24\ Because the CAA went into effect
in March 2018, the Department used CPS data from 2017, the most recent
full year of data that predates the CAA, to calculate the transfer. In
this analysis, 2017 wage data are inflated to 2019 dollars using the
GDP deflator. For purposes of rule familiarization costs, the
Department used the most recent year of data (2019) to reflect
employers reading the rule after it is published.
---------------------------------------------------------------------------
\24\ See Current Population Survey, U.S. Census Bureau, https://www.census.gov/surveys/cps.html (last visited Aug. 13, 2019); CPS
Merged Outgoing Rotation Groups, NBER, http://www.nber.org//.html
(last visited Aug. 13, 2019).
---------------------------------------------------------------------------
The CPS asks respondents whether they usually receive overtime pay,
tips, and commissions (OTTC), which allows the Department to estimate
the number of bartenders and wait staff in restaurants and drinking
places who receive tips.\25\ CPS data are not available separately for
overtime pay, tips, and commissions, but the Department assumes very
few bartenders and wait staff at restaurants and drinking places
receive commissions, and the number who receive overtime pay but not
tips is also assumed to be minimal.\26\ Therefore, when bartenders and
wait staff responded affirmatively to this question, the Department
assumed that they receive tips. Based on CPS data, the Department
identified 2,546 observations (unique data points), which based on the
survey's methodology represent 2.2 million individuals, of respondents
claiming to fall in the two categories of Waiters and Bartenders. The
number of observations decreases as the analysis refines the universe
of applicable employees.
---------------------------------------------------------------------------
\25\ This question is asked only of hourly employees and
nonhourly workers are consequently excluded from the transfer
estimate. The Department did not quantify transfers from nonhourly
workers because without knowing the prevalence of tipped income
among nonhourly workers, the Department cannot accurately estimate
potential transfers from these workers. However, the Department
believes the transfer from nonhourly workers will be small because
only 13 percent of wait staff and bartenders in restaurants and
drinking places are nonhourly workers, whom the Department believes
may have a lower probability of receiving tips.
\26\ According to BLS Current Population Survey data, in 2017,
workers in service occupations worked an average of 35 hours per
week. See https://www.bls.gov/cps/aa2017/cpsaat23.htm.
---------------------------------------------------------------------------
All data tables in this analysis include estimates for the year
2017 as the baseline. To identify the relevant population, the
Department removed from the analysis workers who do not receive tips.
Table 1 presents the estimates of the share of bartenders and wait
staff in restaurants and drinking places who reported that they usually
earned OTTC in 2017. Approximately 64 percent of bartenders and 55
percent of wait staff reported usually earning OTTC in 2017. These
numbers include workers in all states, including states where the
changes in this rule are assumed not to affect. These numbers also
include workers who are paid a direct cash wage below the full FLSA
minimum wage of $7.25 (that is, employees whose employers are using a
tip credit). Both these populations are excluded from the transfer
calculation. Only 56.5 percent of workers in these occupations report
earning tips, which may be low and could result in an underestimation
of transfers. The Department did not adjust for this possibility
because it lacked the data to do so and also estimates there is
sufficient downward pressure on the total transfer estimate due to
other factors that were not adjusted for. Discussions of these can be
found in section V.B.ii (Estimated Transfers and Outside-Option Wage
Calculation).
Table 1--Share of Bartenders and Waiters/Waitresses in Restaurants and Drinking Places Who Earned Overtime Pay,
Tips, or Commissions
----------------------------------------------------------------------------------------------------------------
Workers Report earning OTTC
responding to -------------------------------
Occupation Total workers question on
(millions) OTTC Workers Percent
(millions) (millions)
----------------------------------------------------------------------------------------------------------------
Total......................................... 2.21 1.92 1.08 56.5
Bartenders.................................... 0.34 0.27 0.17 63.5
[[Page 86779]]
Waiters/Waitresses............................ 1.88 1.65 0.91 55.4
----------------------------------------------------------------------------------------------------------------
Source: CEPR, 2017 CPS-MORG.
Occupations: Bartenders (Census Code 4040) and Waiters and Waitresses (Census Code 4110).
Industries: Restaurants and other food services (Census Code 8680) and Drinking places, alcoholic beverages
(Census Code 8690).
Of the 1.08 million bartenders and wait staff who receive OTTC,
only 688,000 reported the amount received in OTTC. Therefore, the
Department imputed OTTC for those workers who did not report the amount
received in OTTC. As shown in Table 2, 54 percent of bartenders'
earnings (an average of $281 per week) and 49 percent of waiters' and
waitresses' earnings (an average of $238 per week) were from overtime
pay, tips, and commissions in 2017. For workers who reported receiving
tips but did not report the amount, the ratio of OTTC to total earnings
for the sample who reported their OTTC amounts (54 or 49 percent) was
applied to their weekly total income to estimate weekly tips. Nonhourly
workers, who are not asked the question on receipt of OTTC, are assumed
to not be tipped employees.
Table 2--Portion of Income From Overtime Pay, Tips, and Commissions for Bartenders and Waiters/Waitresses in
Restaurants and Drinking Places
----------------------------------------------------------------------------------------------------------------
Those who report the amount earned in OTTC
------------------------------------------------------------------
Percent of
Occupation Average weekly Average weekly earnings
Workers earnings OTTC attributable
to OTTC
----------------------------------------------------------------------------------------------------------------
Total........................................ 688,171 $486.95 $244.48 50
Bartenders................................... 105,787 521.51 280.61 54
Waiters/Waitresses........................... 582,384 480.67 237.91 49
----------------------------------------------------------------------------------------------------------------
Source: CEPR, 2017 CPS-MORG, inflated to $2019 using the GDP deflator.
Occupations: Bartenders (Census Code 4040) and Waiters and Waitresses (Census Code 4110).
Industries: Restaurants and other food services (Census Code 8680) and Drinking places, alcoholic beverages
(Census Code 8690).
1. Outside-Option Wage Calculation
As discussed above, to determine potential transfers of tips, the
Department assumes that employers will redistribute tips from tipped
employees to employees who are not customarily and regularly tipped in
a nontraditional tip pool only if the tipped employee's total earnings,
including the tips the employee retains, are greater than the
``outside-option wage'' that the tipped employee could earn in a non-
tipped job. To model a worker's outside-option wage, the Department
used quantile regression analysis to attempt to predict the wage that
these workers would earn in a non-tipped job. Hourly wage was regressed
on age, age squared, age cubed, education, gender, race, ethnicity,
citizenship, marital status, veteran status, metro area status, and
state for a sample of non-tipped workers.\27\ The Department restricted
the regression sample to workers earning at least the Federal minimum
wage of $7.25 per hour (inclusive of OTTC), and those who are employed.
This analysis excludes states where the law prohibits non-tipped back-
of-the-house employees from being included in the tip pool and states
governed by the Marlow decision.
---------------------------------------------------------------------------
\27\ For workers who had missing values for one or more of these
explanatory variables we imputed the missing value as the average
value for tipped/non-tipped workers.
---------------------------------------------------------------------------
In calculating the outside-option wage for tipped workers, the
Department developed a model that defined the comparator sample for
tipped workers in two different ways: (1) All non-tipped workers (i.e.,
workers who are either not waiters, waitresses, or bartenders, or do
not work in restaurants or drinking places), and (2) Non-tipped workers
in a set of occupations that are likely to represent outside options.
The Department selected the list of relevant occupations by exploring
the similarity between the knowledge, activities, skills, and abilities
required by the occupation to that of servers and bartenders. The
Department searched the Occupational Information Network (O*NET) system
for occupations that share important similarities with waiters and
waitresses and bartenders--the occupations had to require ``customer
and personal service'' knowledge and ``service orientation''
skills.\28\ The list was further reduced by eliminating occupations
that are not comparable to the waitress and bartender occupations in
terms of education and training, as waiter and waitress and bartender
occupations do not require formal education or
[[Page 86780]]
training.\29\ See Appendix Table 1 for a list of these occupations.\30\
---------------------------------------------------------------------------
\28\ For a full list of all occupations on O*NET, see https://www.onetcenter.org/taxonomy/2010/updated.html.
\29\ Approximately 14 percent of waiters and waitresses and 16
percent of bartenders have college degrees, even though a degree is
not generally required to obtain such positions. According to
research, the degree itself may carry an earnings premium for these
workers. Therefore, excluding outside option occupations based on
education attainment inflates the transfer estimates produced from
this analysis because it compares these workers to artificially
suppressed wage alternatives (e.g., only those positions for which
at least this 14 percent of servers would be over-qualified).
However, since in most cases servers and bartenders are not required
to have degrees, and it is unclear the degree to which including
additional occupations in the outside option pool may skew the
results, the Department opted to exclude these comparator
occupations and simply highlight this fact here. BLS data on the
share of workers with bachelor's degrees working in jobs that only
require a high school diploma are presented in a study by Vedder,
R., Denhart, C., and Robe, J. (2013), available here: https://eric.ed.gov/?id=ED539373.
\30\ The Appendix and data tables are included in the rulemaking
docket at www.regulations.gov.
---------------------------------------------------------------------------
The transfer estimates presented in this analysis use this sample
of limited occupations to predict each tipped worker's outside-option
wage, that is, the wage that the tipped worker could earn in a non-
tipped job. The Department also ran the regression to predict the
outside-option wage using all non-tipped workers as the outside-option
sample, and found that transfers are approximately 30 percent lower in
that specification. This implies that the resulting transfer estimate
is likely a significant overestimate.
The regression calculates a distribution of outside-option wages
for each worker. The Department considered two methods: (1) Using the
50th percentile and (2) using the same percentile for each worker as
they currently earn in the distribution of wages for wait staff and
bartenders in restaurants and drinking places in the state where they
live.\31\ The second method accounts for the fact that two workers may
have the exact same characteristics (age, race, education, etc.), but
one worker may have a higher or lower outside-option wage because he or
she is a more or less effective employee. This method assumes that a
worker's position in the wage distribution for wait staff and
bartenders in restaurants and drinking places reflects his or her
position in the wage distribution for the outside-option occupations.
The Department believes this method is more appropriate than the 50th
percentile method.\32\
---------------------------------------------------------------------------
\31\ Because of the uncertainty in the estimate of the
percentile ranking of the worker's current wage, the Department used
the midpoint percentile for workers in each decile. For example,
workers whose current wage was estimated to be in the zero to tenth
percentile range were assigned the predicted fifth percentile
outside-option wage, those with wages estimated to be in the
eleventh to twentieth percentile were assigned the predicted
fifteenth percentile outside-option wage, etc.
\32\ The 50th percentile method results in a higher transfer
estimate ($176 million, compared to $109 million).
---------------------------------------------------------------------------
To calculate the outside option wage, the Department first
calculated the hourly wage decile (including tips) for each of the
tipped workers identified above (i.e., in a tipped occupation/industry
and report earning OTTC), relative to other tipped workers.\33\ Second,
the Department ran quantile regressions of the hourly wages of workers
in non-tipped occupations that are similar to the tipped workers'
occupations (Appendix Table 1). The regressions controlled for state
dummy variables, education level, sex, age, race, citizenship status,
marital status, veteran status, and metropolitan area status. Workers
reporting an hourly wage with overtime, tips, and commissions of less
than $7.25 were excluded from this analysis.\34\ The regression results
are included in Appendix A. Third, based on the regression estimates,
the Department calculated a predicted wage in a non-tipped occupation
for each worker in a tipped occupation, for each of the ten deciles.
The Department then used the predicted wage from the decile regression
applicable to each tipped worker (i.e., based on his or her wage
percentile) as his or her outside wage. Lastly, for the workers in
tipped occupations, the Department removed some that did not have
applicable data, including workers as follows:
---------------------------------------------------------------------------
\33\ All workers in tipped occupations/industries earning at
least $7.25/hour when including tips were broken into deciles. This
sample included about 1,500 observations (representing approximately
1.3 million workers) in the non-excluded states.
\34\ The quantile regressions using non-tipped workers in
comparable occupations included 21,086 observations.
---------------------------------------------------------------------------
Without wage data,
with negative or zero tips (after removing overtime pay),
with hourly wages including tips less than or equal to
than their outside option wage, and
with hourly wages including tips less than the state
minimum wage.
After making these exclusions, the analysis includes 237
observations.\35\ Upon adjusting the universe of observations for
employees who report earning tips, residing in states that may be
impacted by this rule, individuals reporting wages lower than the
applicable minimum wage, and those reporting wages higher than the
minimum wage, only 37 observations remain, representing 24,743
workers.\36\ The Department does not know the degree to which the
reduced sample size may impact the findings of its analysis.
Nonetheless, the Department remains confident that the outside option
calculation is of sufficient merit to retain it in the analysis,
insofar as it is instructive in setting an approximate upper bound for
the potential total transfers due to tip pooling.
---------------------------------------------------------------------------
\35\ Based on the original CPS methodology, these observations
were calculated to represent 205,170 individuals. Due to the
subsequent calculations conducted in this analysis, the Department
remains confident in its findings but recognizes methodological
constraints may impact the ability to extrapolate the findings
across the originally representative universe with as much accuracy.
\36\ The same constraints apply to this extrapolation as
described in the previous footnote, to an even greater degree.
---------------------------------------------------------------------------
The Institute for Policy Integrity (IPI), in their comment,
asserted that the assumptions used to calculate the Department's
outside option were flawed because they do not account for the search
and travel costs that an employee would incur when deciding to change
jobs. According to IPI, this caused the Department to overestimate the
value of the outside-option wage for affected workers, leading to an
underestimate in the overall size of the transfer. The Department
acknowledges that search and travel costs are part of an employee's
decision to leave his or her current job, but believes these costs to
be relatively minimal (due to being time-limited) and highly variable
from employee to employee and location to location. The Department does
not have data to estimate these and other highly individualized costs
employees might face in considering their outside option nor does the
commenter provide or address them. Instead, the Department's outside
option regression controls for location and other factors that may
relate to differences in these costs.
2. Per Worker Transfer Calculation
After determining each tipped worker's outside-option wage, the
Department calculated the potential transferrable tips as the lesser of
the following four numbers:
A. The positive differential between a worker's current earnings
(wage plus tips) and his or her predicted outside-option wage,
B. The positive differential between a worker's current earnings
and the state minimum wage,
C. The total tips earned by the worker, or
D. Zero if the worker currently earns a direct cash wage above the
full applicable minimum wage.
The second number is included for cases where the outside-option
wage predicted by the analysis is below the
[[Page 86781]]
state minimum wage, because the worker will not earn less than his or
her applicable state minimum wage. The third number is included because
the maximum potential tips that can be transferred from an employee
cannot be greater than his or her total tips. Total tips for each
worker were calculated from the OTTC variable in the CPS data. For
hourly-paid workers, the Department subtracted predicted overtime pay
to better estimate total tips.\37\ For workers who reported receiving
overtime, tips, and commissions, but did not report the amount they
earned, the Department applied the ratio of tipped earnings to total
earnings for all waiters and waitresses and bartenders in their state
(see Table 2).
---------------------------------------------------------------------------
\37\ Predicted overtime pay is calculated as (1.5 x base wage) x
weekly hours worked over 40.
---------------------------------------------------------------------------
The Department set the transfer to zero if the worker currently
earns a direct cash wage above the full applicable minimum wage. If the
employer is paying a tipped employee a direct cash wage above the
required full minimum wage, this indicates the wage is set at the
market clearing wage and any reduction in the wage (e.g., by requiring
tips to be transferred to back-of-the-house workers) would cause the
employee to quit and look for other work commensurate with the value
they provide. Therefore, where an employer is paying a tipped employee
above the full applicable minimum wage, the Department assumes the
employer would generally not require the employee to contribute tips to
a nontraditional tip pool.
The Department includes an example to demonstrate how the outside
option and the hourly transfers are calculated. Suppose a worker, with
tips, earns $16.82 per hour. She earns a direct cash wage of $8.33 per
hour, which is the relevant state minimum wage (both values adjusted to
2019 dollars using the GDP deflator), and $8.49 per hour in tips. The
outside option wage for her wage decile is $15.44. We then calculate
the following values:
Hourly wage ($16.82) minus state minimum wage ($8.33): $8.49
hourly wage ($16.82) minus outside option wage ($15.44): $1.38
hourly tips ($16.82 minus $8.33): $8.49
The lesser of these three numbers is $1.38 per hour; therefore,
hourly transfers are determined to be $1.38.
One notable constraint to this methodology is that it does not
account for variations in total number of hours worked or the number of
weeks worked per year, which have a direct impact on compensation.\38\
If the averages of usual hours differ between a restaurant service job
and an outside option, not adjusting the resultant figures accordingly
could present a transfer estimate above or below reality. For example,
a bartender working 4 hours per night and 5 days per week might make
$30 per hour, but work only 20 hours per week (earning $600 per week).
Comparing that wage to her outside option wage, set at $20 per hour but
with 40 hours per week, would result in a $10 per hour loss, totaling
$200 per week. Yet in reality she would earn more in the outside option
role than in the original restaurant service role ($800 total, or $200
more), and the transfer calculation could be drastically overestimated.
Conversely, the outside option transfer calculation would be
underestimated if the same bartender works five 12-hour shifts at the
same wage rate. The Department recognizes this as a constraint to its
approach. It nonetheless maintains that the resultant transfer estimate
is instructive.
---------------------------------------------------------------------------
\38\ On average, from the dataset employed for the regression
analysis, the tipped workers included in the outside option
calculation usually work 14 percent fewer hours per week than the
non-tipped workers included in the regression (30 hours versus 35
hours).
---------------------------------------------------------------------------
3. Total Annual Transfer
Next, the Department estimates total weekly transfers. Estimated
per worker hourly transfers were multiplied by usual hours to estimate
weekly transfers per worker (on average $192.40 per week). Estimated
weekly transfers were then aggregated over the relevant population
(24,743 workers, based on the 37 CPS observations in the refined
employee universe).
To determine the potential annual total tip transfer, the
Department first multiplied the estimated weighted sum of weekly tip
transfers for all wait staff and bartenders who work at full-service
restaurants and bars in the United States by 45.2 weeks--the average
weeks worked in a year for waiters and waitresses and bartenders in the
2017 CPS Annual Social and Economic Supplement. Using this methodology,
the maximum possible transfer from front-of-the-house employees is
estimated not to exceed $217.2 million (24,743 workers x $194.20 per
week x 45.2 weeks).\39\ This represents the total transfers that the
Department estimates would occur in the extremely unlikely situation
where every employer that does not take a tip credit institutes tip
pools that include back-of-the-house workers and where none of the
front-of-the-house workers see an increase in total tips. In reality,
even when it is seemingly economically beneficial when considering the
wage dimension, many employers may not change their tip pooling
practices because it would require changes to current practices to
which they and their employees are accustomed, including their payroll
and recordkeeping systems.
---------------------------------------------------------------------------
\39\ An additional source of uncertainty with regard to the
magnitude of the estimated transfers is due to sampling error, the
use of sample data to make inferences about the population. The
estimated standard error on the point estimate of total potential
tip transfers per year is large. The 95 percent confidence interval
around this estimate is $128.6 million to $305.3 million, a 41
percent swing either higher or lower than the provided estimate.
Additionally, this confidence interval itself is too narrow due to
the inability to take into account the stratified sampling design of
the CPS, which means the spread is likely larger.
---------------------------------------------------------------------------
The Department was unable to determine what proportion of the total
tips estimated to be potentially transferred from these workers will
realistically be transferred. For a range of reasons presented in this
analysis, the Department expects that the potential transfers fall
significantly below the above-calculated $217.2 million, and therefore
considered the midpoint between this amount and zero to be a reasonable
estimate of the potential transfers. The Department accordingly
estimates that transfers of tips from front-of-the-house workers will
be $109 million in the first year that this rule is effective. Assuming
these transfers occur annually, and there is no real wage growth, this
results in 10-year annualized transfers of $109 million at both the 3
percent and 7 percent discount rates. These transfers, in and of
themselves, could have benefits which are discussed further below.
The $217 million transfer amount could also be an overestimation
because employers do not have perfect information about employees'
outside option wages. Employers could decide not to implement a
nontraditional tip pool in order to ensure that they do not lose any of
their front-of-the-house workers.
The earnings reduction for front-of-house workers could also be
reduced if instituting a nontraditional tip pool leads to increased
cooperation and productivity among workers, which the Department
expects will occur. This, in turn, could lead to better service for
customers, and higher tip amounts. Such effects would be categorized as
benefits of the rule, rather than transfers, so please see section
V.B.iii.3. for further discussion of these potential benefits.
As noted above, the Department acknowledges that it is possible
some employers might choose to respond to
[[Page 86782]]
the rule by decreasing back-of-the-house workers' wages, as the rule
will allow these employees' wages to be supplemented with tips, and
such an outcome is what is modeled to produce the $109 million estimate
of transfers from front-of-house employees to employers. (The
Department notes that, because employers cannot take a tip credit for
employees in nontraditional tip pools, an employer who institutes such
a program would be precluded from taking a tip credit for their front-
of-the-house workers and would have to pay those workers at least the
full minimum wage.)
Furthermore, although some employers may consider implementing a
tip pooling system that substitutes back-of-the-house workers' hourly
wages for tips, tips fluctuate at any given time. Thus, employers'
ability to do so would be limited by market forces, such as,
potentially, workers' aversion to risk and the endowment effect
(workers potentially valuing their set wages more than tips of the same
average amount). Furthermore, the minimum wage limits an employer's
ability to decrease back-of-the-house wages. In the NPRM, the
Department stated that it lacked data to quantify the extent to which
this will occur, and this remains true. The Department requested
information during the comment period on this point and received no
applicable data.
In its comment, IPI asserted that the Department's transfer
calculation wrongly assumes the restaurant industry is perfectly
competitive. According to IPI's comment, the assumption of perfect
competition underestimates the degree to which employers will be able
to transfer wages from employees and understates the total volume of
transfers. The Department acknowledges that, the less competitive the
labor market, the greater the ability of employers to reduce worker
wages to an amount near the minimum wage.\40\ However, the Department
does not have sufficient information to estimate the magnitude of this
effect beyond the controls it already applied in its outside-options
regression, and maintains that existing data on average wages indicate
that employers face constraints consistent with market competition.
---------------------------------------------------------------------------
\40\ The Department further notes, however, that even a worker
who receives minimum wage and also participates in the tip pool will
in every conceivable scenario make more than a worker whose sole
compensation is the minimum wage.
---------------------------------------------------------------------------
Some commenters asserted that the Department failed to provide a
quantitative analysis of the potential transfer between employees and
employers. For example, IPI suggested that, ``DOL could, using its
already stated assumptions, isolate the subset of employers that would
be able to capture the transfer. The Department could then construct a
range of values for that subset using the same data sources and methods
used to construct the overall transfer estimate.'' The Department
acknowledges that employers could ultimately capture some transfers, as
stated above. Employers would be more able to lower the base wages of
back-of-the-house employees, and therefore capture the transfer, over a
longer time horizon. It is unlikely that they could immediately lower
wages of existing employees. Importantly, by instituting a
nontraditional tip pool, employers would disqualify themselves from
taking a tip credit for front-of-the-house workers, which is already
permitted by law. Moreover, it is probably less complex and more direct
for employers to continue such established arrangements than it is to
set up a new nontraditional tip pool to reduce overall employee wages,
if that is their objective.
Finally, even if employers are able to lower the base wages of
back-of-the-house employees, it is possible that they would reinvest
these wage savings back into the business, or use it to generate
additional efficiencies. This, in turn, could lead to improvements in
the overall customer experience, which could lead to customers leaving
higher tips. This increase in tips would ultimately benefit all
employees in the tip pool.
Employers face a strong incentive to take action that will boost
productivity and maximize long-term profits. The Department did not
attempt to account for this point in the outside option analysis, but
nonetheless holds that employers face real incentives. All of the
employers in the population sample used for the regression analysis are
eligible to take a tip credit, and therefore already have means by
which to transfer tips to themselves via reduced wait staff wages if
that were their goal. Thus, the employers who decide to implement tip
pooling will likely do so because they believe it will boost
productivity and profits. If employees have the incentive for greater
cooperation because they all share in the tip pool, it is quite
possible the quality of service will increase and result in a higher
absolute value of tips in the pool. Consider a cook who, motivated by
his participation in a tip pool, walks past a table and decides to stop
and chat for a minute to ask about how the patrons are enjoying the
food--this would likely be well received and may very well result in
higher tips in the pool, in which the cook would now be eligible to
partake. Conceivably, such quality and efficiency improvements could
result in back-of-the-house and front-of-the-house workers all
receiving higher tipped wages.
One commenter, IPI, said that the Department should consider social
costs and transfers when promulgating this rule, such as an increase in
reliance on public benefits and adverse health consequences. If total
compensation were reduced and if that reduction caused individual
workers to rely on public benefits, then the transfers described as
being borne by front-of-house workers would instead be partially borne
by the Federal, state, or local government funding the benefits
program. However, such an outcome is uncertain, and an attempted
analysis of it would be characterized by lack of data. The Department
notes that these same or newly hired workers may receive more
compensation due to the rule and thus there could be a reduction in any
reliance they presently have on social welfare benefits.
iii. Estimated Costs, Cost Savings, and Benefits
In this subsection, the Department addresses costs attributable to
the rule, by quantifying regulatory familiarization costs and
qualitatively discussing additional recordkeeping costs. The Department
qualitatively discusses benefits and cost savings associated with the
rule. Lastly, the Department qualitatively discusses the potential
costs, transfers, and benefits associated with the revisions to Sec.
531.56(e).
1. Regulatory Familiarization Costs
Regulatory familiarization costs represent direct costs to
businesses associated with reviewing the new regulation. It is not
clear whether regulatory familiarization costs are a function of the
number of establishments or the number of firms.\41\ Presumably, the
headquarters of a firm will conduct the regulatory review for
businesses with multiple restaurants, and may also require chain
restaurants to familiarize themselves with the regulation at the
establishment level. To
[[Page 86783]]
reduce the chance of underestimating costs, the Department used the
number of establishments in its cost estimate--which is larger than the
number of firms--and assumes that regulatory familiarization occurs at
both the headquarters and establishment levels.
---------------------------------------------------------------------------
\41\ An establishment is commonly understood as a single
economic unit, such as a farm, a mine, a factory, or a store, that
produces goods or services. Establishments are typically at one
physical location and engaged in one, or predominantly one, type of
economic activity for which a single industrial classification may
be applied. An establishment is in contrast to a firm, or a company,
which is a business and may consist of one or more establishments,
where each establishment may participate in a different predominant
economic activity. See BLS, ``Quarterly Census of Employment and
Wages: Concepts,'' https://www.bls.gov/opub/hom/cew/concepts.htm.
---------------------------------------------------------------------------
The Department assumes that all establishments will incur some
regulatory familiarization costs regardless of whether the employer
decides to change its tip pooling practices as a result of the
rule.\42\ There may be differences in familiarization cost by the size
of establishments; however, our analysis does not compute different
costs for establishments of different sizes. To estimate the total
regulatory familiarization costs, the Department used (1) the number of
establishments in the two industries, Drinking Places (Alcoholic
Beverages) and Full-Service Restaurants; (2) the wage rate for the
employees reviewing the rule; and (3) the number of hours that it
estimates employers will spend reviewing the rule. Table 3 shows the
number of establishments in the two industries. To estimate the number
of potentially affected establishments, the Department used data from
BLS's Quarterly Census of Employment and Wages (QCEW) for 2019.
---------------------------------------------------------------------------
\42\ This includes establishments in states excluded from the
transfer calculation.
Table 3--Number of Establishments With Tipped Workers
------------------------------------------------------------------------
Industry Establishments
------------------------------------------------------------------------
NAICS 722410 (Drinking Places (Alcoholic Beverages)).. 42,912
NAICS 722511 (Full-service Restaurants)............... 250,056
-----------------
Total............................................. 292,968
------------------------------------------------------------------------
Source: QCEW, 2019.
The Department assumes that a Compensation, Benefits, and Job
Analysis Specialist (SOC 13-1141) (or a staff member in a similar
position) with a mean wage of $33.58 per hour in 2019 will review the
rule.\43\ Given the change in this rule, the Department assumes that it
will take on average about 15 minutes to review the final rule. The
Department has selected a small time estimate because it is an average
for both establishments making changes to their compensation structure
and those who are not (and consequently will have negligible or no
regulatory familiarization costs). Further, the change effected by this
regulation is unlikely to cause major burdens or costs. Assuming
benefits are paid at a rate of 46 percent of the base wage, and
overhead costs are 17 percent of the base wage, the reviewer's
effective hourly rate is $54.74; thus, the average cost per
establishment is $13.68 for 15 minutes of review time. The number of
establishments in the selected industries was 292,968 in 2019.
Therefore, regulatory familiarization costs in Year 1 are estimated to
be $4.01 million ($13.68 x 292,968 establishments), which amounts to a
10-year annualized cost of $469,902 at a discount rate of 3 percent or
$570,700 at a discount rate of 7 percent. Regulatory familiarization
costs in future years are assumed to be de minimis.
---------------------------------------------------------------------------
\43\ A Compensation/Benefits Specialist ensures company
compliance with Federal and state laws, including reporting
requirements; evaluates job positions, determining classification,
exempt or non-exempt status, and salary; plans, develops, evaluates,
improves, and communicates methods and techniques for selecting,
promoting, compensating, evaluating, and training workers. See BLS,
``13-1141 Compensation, Benefits, and Job Analysis Specialists,''
https://www.bls.gov/oes-current-oes131141.htm (last visited July 27,
2020).
---------------------------------------------------------------------------
2. Other Costs
The Department also assumes that there will be a minimal increase
in recordkeeping costs associated with this rule. Under the
Department's previous regulations, employers were only required to keep
records of which employees receive tips, the hours those employees
worked, and how much each employee receives if the employer takes a tip
credit. Some employers also kept records of the time employees spent on
tipped duties and non-tipped duties to demonstrate compliance with the
Department's 80/20 approach to enforcing the dual-jobs regulation.
Under this rule, employers that do not take a tip credit but collect
tips to institute a mandatory tip pool must keep records showing which
employees are included in the tip pool, and the amount of tips they
receive, as reported by employees to the employer. As those records are
already required under IRS Form 4070, there will be minimal additional
recordkeeping costs for employers that pay the full Federal minimum
wage in direct cash wages and choose to institute a nontraditional tip
pool.
Employers may incur some training costs associated with
familiarizing first line managers and staff with the rule; however, the
Department believes these costs will be de minimis.
3. Benefits
In their comment, IPI stated that the Department should better
support its assertions regarding the proposed rule's benefits. In
response, the Department has further elaborated on the benefits
discussed in this section.
Section 3(m)'s tip credit language allows an employer to meet a
portion of its Federal minimum wage obligation from the tips customers
give employees. If an employer takes a tip credit, section 3(m)(2)(A)
applies, along with its requirement that only employees who customarily
and regularly receive tips be included in any mandatory tip pool. When
an employer does not take a tip credit, however, the rule would allow
the employer to act in a manner currently prohibited by regulation--
that is, by distributing tips to employees who are employed in
occupations in which they do not customarily and regularly receive tips
(e.g., cooks or dishwashers) through a tip pool. The rule, therefore,
gives employers greater flexibility in determining their pay policies
for tipped and non-tipped workers. Allowing employers and employees to
structure tip pools in a manner that fits the needs of their business
will improve efficiency and enhance cooperation amongst employees. By
creating an atmosphere of cooperation, diminishing incentives for
employees to unduly compete amongst themselves, and allowing workers at
all levels to profit directly from quality service, employers with
nontraditional tip pools may realize efficiencies and take on more
business and more tips. This could cause an overall increase in
business, employment, tips, and wages for all workers, not to mention
increased job security and job satisfaction.
The Department conducted a literature review of relevant academic
studies that address the nexus of service quality and remuneration. One
analysis
[[Page 86784]]
has suggested that tip pooling promotes and rewards cooperation among
employees as serving customers is often a cooperative endeavor among
front- and back-of-the-house employees; this study further suggests
that tip pooling leads to uniformly better service, which in turn,
leads to increased patronage and increased tipping.\44\ Another study
indicates that tip pooling may foster customer-focused service, promote
employee camaraderie, and increase productivity.\45\ Additionally,
under the changes in this rule and per the transfer analysis discussed
above, the employer will be able to distribute customer tips to back-
of-the-house employees like cooks and dishwashers, possibly resulting
in increased earnings for those employees. This would allow employers
to hire more or higher quality workers for those roles. Finally, the
Department believes that allowing employers to expand tip pools beyond
customarily and regularly tipped workers like servers and bartenders
could help incentivize back-of-the-house workers to perform better,
which may improve the customer's experience.
---------------------------------------------------------------------------
\44\ Samuel Estreicher & Jonathan R. Nash, The Case for Tipping
and Unrestricted Tip-Pooling: Promoting Intrafirm Cooperation, 59
B.C.L. Rev. 1 (2018), http://lawdigitalcommons.bc.edu/bclr/vol59/iss1/2.
\45\ Ofer H. Azar, The Implications of Tipping for Economics and
Management, 30 (10) Int'l J. Soc. Econ., 1084-94 (2003), http://individual.utoronto.ca/diep/c/azar2003.pdf.
---------------------------------------------------------------------------
As noted above, Estreicher and Nash (2018) assert that tip pooling
leads to uniformly better service, which in turn, leads to increased
tipping.\46\ The potential for increased tipping deserves some
additional consideration. Theoretically, if the tip pool amount
increases due to improved service, then the possible reduction in
earnings noted in the transfer analysis for front-of-the-house workers
could be overestimated. The Department conducted a literature review of
both (1) the direct relationship between tip pooling and tips and (2)
the indirect relationship between dining experience and tips received.
The Department did not identify studies that show a direct empirical
relationship between tip pooling and tip levels, although studies such
as Estreicher and Nash (2018) present related findings. There is some
literature on the relationship between dining quality (e.g., service
quality, food quality) and tip amounts. However, much of this
literature is based on relatively small, locality-specific, non-
representative samples. That does not mean their findings are
inaccurate, but tempers the Department's interest in extrapolating the
findings across the U.S. economy. Several particularly applicable
papers are briefly described here. The key takeaway is the relationship
between dining quality and tip amount varies, so, despite having
relative confidence in the direction of the impact (i.e., improved
quality leads to higher tips), the amount non-traditional tip pooling
may impact tips is unknown.
---------------------------------------------------------------------------
\46\ Samuel Estreicher & Jonathan R. Nash, The Case for Tipping
and Unrestricted Tip-Pooling: Promoting Intrafirm Cooperation, 59
B.C.L. Rev. 1 (2018), http://lawdigitalcommons.bc.edu/bclr/vol59/iss1/2.
---------------------------------------------------------------------------
The literature generally found a positive but small to moderate
impact of quality of service on tips. The following are examples:
Conlin, Lynn, and O'Donoghue (2003) find that a one-point
increase in service quality (on scale from 1 to 5) increases tip
percent by either 1.43 or 1.464 percentage points (depending on the
model, both statistically significant).\47\ The average tip percent is
17.56 percent so this is approximately an 8 percent increase. A one-
point increase in food quality (which may improve after implementation
of a non-traditional tip pool) increased the tip percent by either
0.585 or 1.481 percentage points (depending on the model; only the
latter is statistically significant).
---------------------------------------------------------------------------
\47\ Conlin, M., Lynn, M., and O'Donoghue, T. (2003). The Norm
of Restaurant Tipping. Retrieved October 16, 2020 from Cornell
University, School of Hospitality Administration site: http://scholarship.sha.cornell.edu/articles/133.
---------------------------------------------------------------------------
Lynn (2003) finds that service ratings explained an
average of less than two percent of the variation in a restaurant's tip
percentages.\48\ Although the paper cites empirical findings of
increases in tips for servers who take certain actions (e.g., smiling,
writing ``thank you'' on check, drawing a picture such as a smiley face
on check), actions taken by back-of-the-house workers may also increase
tips.
---------------------------------------------------------------------------
\48\ Lynn, M. (2003). Tip Levels and Service: An Update,
Extension, and Reconciliation. Cornell Hotel and Restaurant
Administration Quarterly. October-December.
---------------------------------------------------------------------------
Bodvarsson and Gibson (1997) estimated that within the
seven central Minnesota restaurants in their survey, a one unit
increase in service quality (on a scale of 1-5) was associated with
slightly higher tips (0.44 to 0.54 percent of the bill or $0.14 on
average).\49\
---------------------------------------------------------------------------
\49\ Bodvarsson, B. and Gibson, W.A. (1997). Economics and
Restaurant Gratuities: Determining Tip Rates. The American Journal
of Economics and Sociology, 56(2): 187-203, https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1536-7150.1997.tb03460.x.
---------------------------------------------------------------------------
Whaley, Kim, and Kim (2019) find that tipping size is
positively related to server quality, food quality, and ambiance
(although indirectly and occur through an intermediary variable of
customer value).\50\ However, the magnitudes of these impacts on tips
are relatively small.
---------------------------------------------------------------------------
\50\ Whaley, J., Kim, S., and Kim, Y. (2019). Drivers and Impact
of Restaurant Tipping Behavior, Journal of Foodservice Business
Research, 22:2, 117-131, https://www.tandfonline.com/doi/abs/10.1080/15378020.2019.1570773.
---------------------------------------------------------------------------
4. Cost Savings
The cost savings associated with this rule would result in part
from the increased earnings for back-of-the-house employees. Higher
earnings for these employees could result in reduced turnover, which
reduces hiring and training costs for employers. This rule will also
give employers greater flexibility for tip pooling, and could reduce
effort spent ensuring that the tip pool is limited to only customarily
and regularly tipped employees. The Department believes that the cost
savings would outweigh any increased rule-familiarization and
recordkeeping costs.
This rule may also reduce deadweight loss. Deadweight loss is the
loss of economic efficiency that occurs when the perfectly competitive
equilibrium in a market for a good or service is not achieved. Minimum
wages may prevent the market from reaching equilibrium and thus result
in fewer hours worked than would otherwise be efficient. Allowing
nontraditional tip pools may cause a shift in the labor demand or
supply curves for wait staff and bartenders. This could result in the
market moving closer to the competitive market equilibrium. Although
deadweight loss reductions are most commonly thought about in
quantitative terms, such as new hiring or expanded hours for existing
workers, quality could be how it manifests itself; in this case,
deadweight loss reduction would be another term for some of the same
benefits discussed elsewhere in this regulatory impact analysis.
The Department did not quantify the potential reduction in
deadweight loss because of uncertainty (e.g., what the appropriate
demand and supply elasticities may be).
5. Costs, Benefits, and Potential Transfers Associated With Revision to
Dual Jobs Regulation
The Department is amending its dual jobs regulation to reflect its
recent guidance replacing the 80/20 approach with the updated related
duties test.
In the NPRM, the Department stated the removal of the arbitrary 20
percent cap on tasks that are not directly tied to receipt of a tip may
result in tipped workers such as wait staff and
[[Page 86785]]
bartenders performing more non-tipped related duties such as ``cleaning
and setting tables, toasting bread, making coffee, and occasionally
washing dishes or glasses.'' Consequently, employment of workers
currently performing these duties, such as dishwashers and cooks, may
fall on the margin. In addition, the Department acknowledged that one
possibility from taking on related, non-tipped duties would be that
tipped workers might lose tipped income by spending more of their time
performing duties where they are not earning tips, while still
receiving cash wages of less than minimum wage (total compensation
would nonetheless remain at or above the minimum wage). However, the
Department did not suggest that this was the only possible outcome;
another distinct possibility, for instance, is that these ``non-
tipped'' activities could result in greater overall tips for the
worker.\51\
---------------------------------------------------------------------------
\51\ For example, if cleaning and setting tables helps a
restaurant turn over tables more quickly and the server is able to
wait on one additional party at each table during a shift, the
``non-tipped'' work may, in fact, result in an increase in the total
tip and total compensation that the employee receives for a shift.
---------------------------------------------------------------------------
The Department stated that it lacked the data to quantify any
potential reduction in tips or employment, because data does not exist
on the amount of time that tipped employees currently spend on tipped
duties or related, non-tipped duties.\52\ Several commenters criticized
the Department's lack of a quantitative analysis, but did not
themselves provide data on the amount of time that tipped employees
currently spend on tipped or related, tipped duties. See, e.g., NELP,
NELA; State Attorneys General; National Women's Law Center; Leadership
Conference on Civil and Human Rights. The Economic Policy Institute
(EPI), in particular, asserted that the removal of the 20 percent cap
on related duties could cost workers millions each year. In its
comment, EPI cited to a blog post where it had published an analysis
claiming, ``the proposed rule would cost workers more than $700 million
annually if finalized.'' \53\ EPI argued that employers will
``exploit'' this new regulation by shifting non-tipped work from
traditionally non-tipped to tipped staff, paying an hourly rate less
than the full minimum wage for that work, and then applying a tip
credit from tips received by the tipped staff for tipped work. The blog
post estimates the change in total earnings that could occur if this
shift took place. The Department carefully considered EPI's blog
analysis, but concluded that flaws in EPI's premise and methodology
render the analysis an inadequate estimate of any potential
transfer.\54\
---------------------------------------------------------------------------
\52\ Note that the Department quantified a potential transfer in
the tip pooling portion of this analysis, unlike the impacts due to
the related duties test, because the Department has greater
confidence in the ability to model a simpler system (i.e., interplay
between the minimum wages with and without a tip credit, for front-
of-the-house workers) than the complexities of the related duties
system (e.g., ambiguous baseline, competing incentives of market
actors, uncertain magnitudes of changes, etc.). It is consistent for
the Department to not attempt to quantify impacts for a portion of
the regulation for which it has less confidence in accurately
estimating the input variables for a more dynamic interplay of
factors. The Department requested comments and data to inform these
approaches, and while it received a number of comments, none of them
provided data or sufficient methodological parameters to increase
the Department's confidence in a quantitative analysis.
\53\ The Department notes that the comment itself lacks any
specificity to replicate the estimates it purports to support the
conclusions. To better understand the basis for these assertions,
the Department reviewed the blog post at one point in time (and is
unaware whether the post was modified at any time during the notice
and comment period or thereafter) which itself lacks certain data
and calculations necessary to reproduce it and evaluate its rigor.
Further, because the comment itself merely concludes without the
blog's analysis that transfers would occur, the Department treats
those conclusions as unsupported assertions. However, because the
comment pointed to the blog post and the blog post itself contains a
number of errors, which color the conclusions cited in the comment,
the Department evaluates the blog post here.
---------------------------------------------------------------------------
The Department conducted additional sensitivity analyses of the
outside-options estimate conducted in the tip pooling section. For
example, two variations were evaluated that more closely align with the
EPI's outside option wage regression used to estimate the impacts of
the 80/20 provision. When EPI's linear regression model is used instead
of a quartile regression, estimated transfers are approximately 42
percent higher, but this analysis did not include control variables,
which the Department believes would better analyze whether location is
simply being captured by the transfer calculation rather than regional
variability. The Department believes a quantile regression is more
appropriate because it compares more similar workers. In addition, EPI
did not include veteran status and metro status as control variables in
the regression; when these are removed from the Department's model, the
results are essentially unchanged. Furthermore, EPI did not provide
information on the methodological specifications, including details on
central assumptions, upon which their analysis relied.
The analysis described in EPI's blog post does not consider the
amount of time tipped employees currently spend on tipped versus
related, non-tipped duties or how this final rule would affect that
amount. Instead, it assumes that the final rule would enable certain
duties-shifting practices that employers may use to reduce tipped
employees' earnings and estimates the amount of that reduction. This
assumption, which undergirds EPI's entire analysis, proceeds from a
fundamental misunderstanding of this final rule and the 80/20 approach
it replaces.
According to the blog post, EPI is concerned that replacing the 80/
20 approach with the final rule would enable the following type of
duties-shifting practice: ``a restaurant that employs a cleaning
service to clean the restaurant each night'' could avoid paying a
direct cash wage of at least the full Federal minimum wage of $7.25 per
hour for cleaning services by ``requir[ing] servers to spend an extra
hour or two performing such work and only pay them the tipped minimum
wage of $2.13 per hour,'' and then applying a tip credit to make up the
difference. However, taking a tip credit under these circumstances is
clearly prohibited under this final rule. Consistent with the
discussion in Section III.D.ii, an employee who performs related, non-
tipped duties for ``an extra hour or two'' each night after the end of
a shift would not be performing those related, non-tipped duties
contemporaneously with tipped duties or for a reasonable time
immediately before or after tipped duties. As such, the employer could
not take a tip credit for time spent on the related, non-tipped duties
performed well after tipped duties. Moreover, the practice that EPI is
concerned about is presently permitted under the 80/20 approach, which
allows a restaurant to apply a tip credit to time a server spends
cleaning each night at the end of his or her shift if the arbitrary
ratio is maintained. For example, a restaurant could apply a tip credit
where it requires its servers to clean the dining area for up to 2
hours after finishing an 8-hour shift.
As a second example, EPI's blog post envisions a situation in which
a restaurant that needs three dishwashers would purposefully employ
only a single dishwasher and ``require all servers to wash dishes
periodically over the course of their shifts'' to fill the expected
gap. Again, this practice is permitted under the 80/20 approach, as
long as the restaurant maintains the arbitrary ratio between tipped
service duties and non-tipped dishwashing duties. A restaurant with a
dozen servers could easily require them to perform the work of two
dishwashers and still maintain the 80/20 ratio
[[Page 86786]]
needed to apply a tip credit to the dishwashing work. But this same
practice would actually not be feasible under the final rule, which
requires related non-tipped dishwashing duties to be performed
contemporaneously or for a reasonable time immediately before or after
tipped service duties. To be sure, a restaurant could theoretically
micromanage servers to ensure that they perform dishwashing and service
duties in close temporal proximity, but that effort would likely be
prohibitively costly. The restaurant would have to hire managers to
supervise servers' minute-by-minute tasks, and major business
disruptions would result because servers' use of time would be dictated
by maintaining temporal proximity between serving and dishwashing,
rather than by any actual need to serve customers or wash dishes.\55\
No rational restaurant would bear these managerial expenses and
business disruptions just to save a maximum of approximately $5 per
hour on dishwashing.\56\ As such, it would be highly infeasible for a
restaurant to shift dishwashing duties onto servers as contemplated by
EPI under the final rule. Furthermore, this does not even begin to
address the shock this supposed shift in duties would deliver to the
underlying business model that relies on many duties occurring
simultaneously to provide quality of service concentrated around common
meal times, which would make it impossible for wait staff and
bartenders to take on the full scope of additional duties that EPI
hypothesized.
---------------------------------------------------------------------------
\55\ The second example in EPI's blog post is distinguishable
from the Department's example in section III.D.ii explaining that
the final rule would permit a hotel to take a tip credit for time
when a bellhop performing related, non-tipped duties in between
serving guests during a slow shift. In the Department's example, the
natural pace of business needs dictates when the bellhop performs
related, non-tipped duties versus tipped customer service duties. By
contrast, in EPI's example, maintaining close temporal proximity
between non-tipped and tipped duties, as oppose to actual business
needs, dictates when servers perform service versus dishwashing
duties. The restaurant would need to direct servers' minute-by-
minute tasks to ensure this artificial objective is given priority
over the restaurant's actual business needs of serving customers and
washing dishes.
\56\ According to EPI's blog post, the duties-shifting enables a
restaurant to pay $2.13 per hour for non-tipped duties instead of
the Federal minimum wage of $7.25 per hour, thus achieve labor cost
saving of $5.12 per hour for the non-tipped duties.
---------------------------------------------------------------------------
In sum, EPI's calculation is based entirely on the premise that
replacing the 80/20 approach with this final rule would increase
certain duties-shifting practices that it deems exploitative. But the
opposite may very well be true because those ``exploitative'' practices
are permitted under the 80/20 approach and prohibited under the final
rule. The Department does not believe it is possible to overcome the
flawed premise that is central to EPI's attempt to quantify the
potential transfers occasioned by the rule. That said, the Department
acknowledges that such transfers could occur in some cases, but
believes that employees will nonetheless benefit from this rule. For
instance, replacing the 80/20 approach with this final rule would
prevent the exploitative practices described in EPI's blog post. And
employees may receive higher earnings as a result of the efficiencies
that this rule advances.
As explained in the NPRM, the Department believes there will be
considerable cost savings and efficiencies associated with this change.
In particular, the Department believes--and several commentators
agreed--that by eliminating the cost to scrutinize employees' time to
demonstrate compliance with the 80/20 approach, employers will see a
reduction in regulatory cost and be able to adopt work arrangements
that better serve customers, leading to more business and greater tips.
Additionally, the revisions add clarity by referring to the list of
duties presumed to be related on O*NET. The Department anticipates that
the cost of occasionally referring to O*NET to ensure that employees'
non-tipped duties are related to their tipped duties will be
significantly less than the cost of continually monitoring the time
employees have spent performing particular tasks.
iv. Summary of Transfers and Costs
Below is a summary table of the quantified transfers and costs for
the RIA. Transfer costs in years two through ten are assumed to be the
same as in Year 1.
Table 4--Summary of Transfers and Costs Calculations
[2019 Dollars]
------------------------------------------------------------------------
Potential tip Regulatory
transfers familiarization
(millions) costs (millions)
------------------------------------------------------------------------
$108.6 (range: $0 $4.0
to $217.2).
------------------------------------------------------------------------
10-Year Annualized Estimates
------------------------------------------------------------------------
3% Discount Rate................ $108.6 (range: $0 0.5
to $217.2).
7% Discount Rate................ $108.6 (range: $0 0.6
to $217.2).
------------------------------------------------------------------------
VI. Regulatory Flexibility Act Analysis--Certification
The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601 et seq.,
as amended by the Small Business Regulatory Enforcement Fairness Act of
1996, Public Law 104-121 (1996), requires Federal agencies engaged in
rulemaking to consider the impact of their rules on small entities,
consider alternatives to minimize that impact, and solicit public
comment on their analyses. The RFA requires the assessment of the
impact of a regulation on a wide range of small entities, including
small businesses, not-for-profit organizations, and small governmental
jurisdictions. Accordingly, the Department examined the regulatory
requirements of the rule to determine whether they would have a
significant economic impact on a substantial number of small entities.
In its analysis, the Department used the Small Business
Administration size standards, which determine whether a business
qualifies for small-business status.\57\ According to the 2017
standards, Full-service Restaurants (NAICS 722511) and Drinking Places
(Alcoholic Beverages) (NAICS 722410) have a size standard of $7.5
million in annual revenue.\58\ The Department used this number to
estimate the number of small entities. Any establishments with
[[Page 86787]]
annual sales revenue less than this amount were considered small
entities.
---------------------------------------------------------------------------
\57\ SBA, Summary of Size Standards by Industry Sector, 2017,
www.sba.gov/document/support--table-size-standards.
\58\ Id., Subsector 722.
---------------------------------------------------------------------------
The Department used the U.S. Census Bureau's 2012 Economic Census
to obtain the number of establishments (operating the entire year) and
annual sales/receipts for the two industries in the analysis: Full-
service Restaurants and Drinking Places (Alcoholic Beverages).\59\ From
annual receipts/sales, the Department can estimate how many
establishments fall under the size standard. Table 5 shows the number
of private, year-round establishments in the two industries by
revenue.\60\
---------------------------------------------------------------------------
\59\ U.S. Census Bureau, 2012 Economic Census, Accommodation and
Food Services: Subject Series--Estab. & Firm Size: Summary
Statistics by Sales Size of Establishments for the U.S., 2012,
https://factfinder.census.gov/faces/tableservices/jsf/pages/productview.xhtml.
\60\ The small-business size standard for the two industries is
$7.5 million in annual revenue. However, the final size category
reported in the table is $5 million-$9 million. This is a data
limitation because the 2012 Economic Census reported this category
of $5 million-$9 million and not $5 million-$7.5 million. Thus, the
total number of firms shown may be slightly higher than the actual
number of small entities.
---------------------------------------------------------------------------
The Department assumes that a Compensation, Benefits, and Job
Analysis Specialist (SOC 13-1141) (or a staff member in a similar
position) with a mean wage of $33.58 per hour in 2019 will review the
rule.\61\ Given the change in this rule, the Department assumes that it
will take on average about 15 minutes to review the final rule. The
Department has selected a small time estimate because it is an average
for both establishments making changes to their compensation structure
and those who are not (and consequently will have negligible or no
regulatory familiarization costs). Further, the change effected by this
regulation is unlikely to cause major burdens or costs. Assuming
benefits are paid at a rate of 46 percent of the base wage, and
overhead costs are 17 percent of the base wage, the reviewer's
effective hourly rate is $54.74; thus, the average cost per
establishment is $13.68 for 15 minutes of review time. The Department
applied this cost to all sizes of establishments since each
establishment would incur this cost regardless of the number of
affected workers. Finally, the impact of this rule was calculated as
the ratio of annual cost per establishment to average sales receipts
per establishment. As shown, the annual cost per establishment is less
than 0.02 percent of average annual sales for establishments in all
small entity size classes. The impact of this rule on small
establishments will be de minimis. The Department certifies that the
rule will not have a significant economic impact on a substantial
number of small entities.
---------------------------------------------------------------------------
\61\ A Compensation/Benefits Specialist ensures company
compliance with Federal and state laws, including reporting
requirements; evaluates job positions, determining classification,
exempt or non-exempt status, and salary; plans, develops, evaluates,
improves, and communicates methods and techniques for selecting,
promoting, compensating, evaluating, and training workers. See BLS,
``13-1141 Compensation, Benefits, and Job Analysis Specialists,''
https://www.bls.gov/oes/current/oes131141.htm (last visited July 27,
2020).
Table 5--Costs to Small Entities
----------------------------------------------------------------------------------------------------------------
Average annual Annual cost per
Number of sales per Annual cost per establishment as
Annual revenue/sales/receipts establishments \a\ establishment ($) establishment ($) percent of sales/
\b\ \c\ receipts
----------------------------------------------------------------------------------------------------------------
722511 Full-Service Restaurants
----------------------------------------------------------------------------------------------------------------
www.onetonline.org. Occupations not listed in O*NET may
qualify as tipped occupations. For those occupations, duties usually
and customarily performed by employees are presumed to be related
duties as long as they are included in the list of duties performed in
similar O*NET occupations.
(c) Characteristics of tips. A tip is a sum presented by a customer
as a gift or gratuity in recognition of some service performed for the
customer. It is to be distinguished from payment of a fixed charge, if
any, made for the service. Whether a tip is to be given, and its
amount, are matters determined solely by the customer. Customers may
present cash tips directly to the employee or may designate a tip
amount to be added to their bill when paying with a credit card or by
other electronic means. Special gifts in forms other than money or its
equivalent such as theater tickets, passes, or merchandise, are not
counted as tips received by the employee for purposes of determining
wages paid under the Executive order.
* * * * *
(e) Tip pooling. Where tipped employees share tips through a tip
pool, only the amounts retained by the tipped employees after any
redistribution through a tip pool are considered tips in applying the
provisions of FLSA section 3(t) and the wage payment provisions of
section 3 of the Executive order. There is no maximum contribution
percentage on mandatory tip pools. However, an employer must notify its
employees of any required tip pool contribution amount, may only take a
tip credit for the amount of tips each employee ultimately receives,
and may not retain any of the employees' tips for any other purpose.
(f) Notice. An employer is not eligible to take the tip credit
unless it has informed its tipped employees in advance of the
employer's use of the tip credit. The employer must inform the tipped
employee of the amount of the cash wage that is to be paid by the
employer, which cannot be lower than the cash wage required by
paragraph (a)(1) of this section; the additional amount by which the
wages of the tipped employee will be considered increased on account of
the tip credit claimed by the employer, which amount may not exceed the
value of the tips actually received by the employee; that all tips
received by the tipped employee must be retained by the employee except
for a tip pooling arrangement; and that the tip credit shall not apply
to any worker who has not been informed of the requirements in this
section.
PART 516--RECORDS TO BE KEPT BY EMPLOYERS
0
3. Revise the authority citation for part 516 to read as follows:
Authority: Sec. 11, Pub. L. 75-718, 52 Stat. 1066, as amended
(29 U.S.C. 211). Section 516.28 also issued under 29 U.S.C. 203(m),
as amended by sec. 2105(b), Pub. L. 104-188, 110 Stat. 1755; sec.
8102(a), Pub. L. 110-28, 121 Stat. 112; and sec. 1201, Div. S., Tit.
XII, Pub. L. 115-141, 132 Stat. 348. Section 516.33 also issued
under Pub. L. 75-718, 52 Stat. 1060, as amended (29 U.S.C. 201 et
seq.). Section 516.34 also issued under Sec. 7, Pub. L. 101-157, 103
Stat. 944 (29 U.S.C. 207(q)).
0
4. Amend Sec. 516.28 by revising the section heading and adding
paragraph (b) to read as follows:
Sec. 516.28 Tipped employees and employer-administered tip pools.
* * * * *
(b) With respect to employees who receive tips but for whom a tip
credit is not taken under section 3(m)(2)(A), any employer that
collects tips received by employees to operate a mandatory tip-pooling
or tip-sharing arrangement shall maintain and preserve payroll or other
records containing the information and
[[Page 86789]]
data required in Sec. 516.2(a) and, in addition, the following:
(1) A symbol, letter, or other notation placed on the pay records
identifying each employee who receive tips.
(2) Weekly or monthly amount reported by the employee, to the
employer, of tips received (this may consist of reports made by the
employees to the employer on IRS Form 4070).
PART 531--WAGE PAYMENTS UNDER THE FAIR LABOR STANDARDS ACT OF 1938
0
5. Revise the authority citation for part 531 to read as follows:
Authority: 29 U.S.C. 203(m) and (t), as amended by sec. 3(m),
Pub. L. 75-718, 52 Stat. 1060; sec. 2, Pub. L. 87-30, 75 Stat. 65;
sec. 101, sec. 602, Pub. L. 89-601, 80 Stat. 830; sec. 29(B), Pub.
L. 93-259, 88 Stat. 55 sec. 3, sec. 15(c), Pub. L. 95-151, 91 Stat
1245; sec. 2105(b), Pub. L. 104-188, 110 Stat 1755; sec. 8102, Pub.
L. 110-28, 121 Stat. 112; and sec. 1201, Div. S., Tit. XII, Pub. L.
115-141, 132 Stat. 348.
0
6. Revise Sec. 531.50 to read as follows:
Sec. 531.50 Statutory provisions with respect to tipped employees.
(a) With respect to tipped employees, section 3(m)(2)(A) provides
that, in determining the wage an employer is required to pay a tipped
employee, the amount paid such employee by the employee's employer
shall be an amount equal to--
(1) The cash wage paid such employee which for purposes of such
determination shall not be less than the cash wage required to be paid
such an employee on August 20, 1996 [i.e., $2.13]; and
(2) An additional amount on account of the tips received by such
employee which amount is equal to the difference between the wage
specified in paragraph (a)(1) of this section and section 6(a)(1) of
the Act.
(b) Section 3(m)(2)(A) also provides that an employer that takes a
tip credit against its minimum wage obligations to its tipped employees
must inform those employees of the provisions of that subsection, and
that the employees must retain all of their tips, although the employer
may require those employees to participate in a tip pool with other
tipped employees that customarily and regularly receive tips.
(c) Section 3(m)(2)(B) provides that an employer may not keep tips
received by its employees for any purposes, including allowing managers
and supervisors to keep any portion of employees' tips, regardless of
whether the employer takes a tip credit under section 3(m)(2)(A).
(d) ``Tipped employee'' is defined in section 3(t) of the Act as
any employee engaged in an occupation in which he or she customarily
and regularly receives more than $30 a month in tips.
0
7. Revise the first sentence of Sec. 531.51 to read as follows:
Sec. 531.51 Conditions for taking tip credits in making wage
payments.
The wage credit permitted on account of tips under section
3(m)(2)(A) may be taken only with respect to wage payments made under
the Act to those employees whose occupations in the workweeks for which
such payments are made are those of ``tipped employees'' as defined in
section 3(t). * * *
0
8. Revise Sec. 531.52 to read as follows:
Sec. 531.52 General restrictions on an employer's use of its
employees' tips.
(a) A tip is a sum presented by a customer as a gift or gratuity in
recognition of some service performed for the customer. It is to be
distinguished from payment of a charge, if any, made for the service.
Whether a tip is to be given, and its amount, are matters determined
solely by the customer. An employer that takes a tip credit against its
minimum wage obligations is prohibited from using an employee's tips
for any reason other than that which is statutorily permitted in
section 3(m)(2)(A): As a credit against its minimum wage obligations to
the employee, or in furtherance of a tip pool limited to employees who
customarily and regularly receive tips. Only tips actually received by
an employee as money belonging to the employee may be counted in
determining whether the person is a ``tipped employee'' within the
meaning of the Act and in applying the provisions of section 3(m)(2)(A)
which govern wage credits for tips.
(b) Section 3(m)(2)(B) of the Act provides that an employer may not
keep tips received by its employees for any purposes, regardless of
whether the employer takes a tip credit.
(1) An employer may exert control over an employee's tips only to
distribute tips to the employee who received them, require employees to
share tips with other employees in compliance with Sec. 531.54, or,
where the employer facilitates tip pooling by collecting and
redistributing employees' tips, distribute tips to employees in a tip
pool in compliance with Sec. 531.54.
(2) An employer may not allow managers and supervisors to keep any
portion of an employee's tips, regardless of whether the employer takes
a tip credit. A manager or supervisor may keep tips that he or she
receives directly from customers based on the service that he or she
directly provides. For purposes of section 3(m)(2)(B), the term
``manager'' or ``supervisor'' shall mean any employee whose duties
match those of an executive employee as described in Sec.
541.100(a)(2) through (4) or Sec. 541.101 of this chapter.
0
9. Revise Sec. 531.54 to read as follows:
Sec. 531.54 Tip pooling.
(a) Monies counted as tips. Where employees practice tip splitting,
as where waiters give a portion of their tips to the busser, both the
amounts retained by the waiters and those given the bussers are
considered tips of the individuals who retain them, in applying the
provisions of sections 3(m)(2)(A) and 3(t). Similarly, where an
accounting is made to an employer for his or her information only or in
furtherance of a pooling arrangement whereby the employer redistributes
the tips to the employees upon some basis to which they have mutually
agreed among themselves, the amounts received and retained by each
individual as his or her own are counted as his or her tips for
purposes of the Act. Section 3(m)(2)(A) does not impose a maximum
contribution percentage on mandatory tip pools.
(b) Prohibition against keeping tips--(1) Meaning of ``keep.''
Section 3(m)(2)(B)'s prohibition against keeping tips applies
regardless of whether an employer takes a tip credit. Section
3(m)(2)(B) expressly prohibits employers from requiring employees to
share tips with managers or supervisors, as defined in Sec.
531.52(b)(2), or employers, as defined in 29 U.S.C. 203(d). An employer
does not violate section 3(m)(2)(B)'s prohibition against keeping tips
if it requires employees to share tips with other employees who are
eligible to receive tips.
(2) Full and prompt distribution of tips. An employer that
facilitates tip pooling by collecting and redistributing employees'
tips does not violate section 3(m)(2)(B)'s prohibition against keeping
tips if it fully distributes any tips the employer collects no later
than the regular payday for the workweek in which the tips were
collected, or when the pay period covers more than a single workweek,
the regular payday for the period in which the workweek ends. To the
extent that it is not possible for an employer to ascertain the amount
of tips that have been received or how tips should be distributed prior
to processing payroll, tips must be distributed to employees as soon as
practicable after the regular payday.
(c) Employers that take a section 3(m)(2)(A) tip credit. When an
employer
[[Page 86790]]
takes a tip credit pursuant to section 3(m)(2)(A):
(1) The employer may require an employee for whom the employer
takes a tip credit to contribute tips to a tip pool only if it is
limited to employees who customarily and regularly receive tips; and
(2) The employer must notify its employees of any required tip pool
contribution amount, may only take a tip credit for the amount of tips
each employee ultimately receives, and may not retain any of the
employees' tips for any other purpose.
(3) An employer may not participate in such a tip pool and may not
include managers and supervisors in the pool.
(d) Employers that do not take a section 3(m)(2)(A) tip credit. An
employer that pays its tipped employees the full minimum wage and does
not take a tip credit may impose a tip pooling arrangement that
includes dishwashers, cooks, or other employees in the establishment
who are not employed in an occupation in which employees customarily
and regularly receive tips. An employer may not participate in such a
tip pool and may not include supervisors and managers in the pool.
0
10. Revise Sec. 531.55(a) to read as follows:
Sec. 531.55 Examples of amounts not received as tips.
(a) A compulsory charge for service, such as 15 percent of the
amount of the bill, imposed on a customer by an employer's
establishment, is not a tip and, even if distributed by the employer to
its employees, cannot be counted as a tip received in applying the
provisions of sections 3(m)(2)(A) and 3(t). Similarly, where
negotiations between a hotel and a customer for banquet facilities
include amounts for distribution to employees of the hotel, the amounts
so distributed are not counted as tips received.
* * * * *
0
11. Amend Sec. 531.56 by revising the second and third sentences in
paragraph (a) and paragraphs (c), (d), and (e) to read as follows:
Sec. 531.56 ``More than $30 a month in tips.''
(a) * * * An employee employed in an occupation in which the tips
he or she receives meet the minimum standard in the preceding sentence
is a ``tipped employee'' for whom the wage credit provided by section
3(m)(2)(A) may be taken in computing the compensation due him or her
under the Act for employment in such occupation, whether he or she is
employed in it full time or part time. An employee employed full time
or part time in an occupation in which he or she does not receive more
than $30 a month in tips customarily and regularly is not a ``tipped
employee'' within the meaning of the Act and must receive the full
compensation required by the provisions of the Act in cash or allowable
facilities without any deduction for tips received under the provisions
of section 3(m)(2)(A).
* * * * *
(c) Individual tip receipts are controlling. An employee must him-
or herself customarily and regularly receive more than $30 a month in
tips in order to qualify as a tipped employee. The fact that he or she
is part of a group which has a record of receiving more than $30 a
month in tips will not qualify him or her. For example, a server who is
newly hired will not be considered a tipped employee merely because the
other servers in the establishment receive tips in the requisite
amount. For the method of applying the test in initial and terminal
months of employment, see Sec. 531.58.
(d) Significance of minimum monthly tip receipts. More than $30 a
month in tips customarily and regularly received by the employee is a
minimum standard that must be met before any wage credit for tips is
determined under section 3(m)(2)(A). It does not govern or limit the
determination of the appropriate amount of wage credit under section
3(m)(2)(A) that may be taken for tips under section 6(a)(1) (tip credit
equals the difference between the minimum wage required by section
6(a)(1) and the cash wage paid (at least $2.13 per hour)).
(e) Dual jobs. (1) In some situations an employee is employed in a
dual job, as for example, where a maintenance person in a hotel also
works as a server. In such a situation the employee, if he or she
customarily and regularly receives more than $30 a month in tips for
his or her work as a server, is a tipped employee only with respect to
his or her employment as a server. The employee is employed in two
occupations, and no tip credit can be taken for his or her hours of
employment in the occupation of maintenance person.
(2) Such a situation is distinguishable from that of an employee
who spends time performing duties that are related to his or her tip-
producing occupation but are not themselves directed toward producing
tips. For example, a server may spend part of his or her time cleaning
and setting tables, toasting bread, making coffee and occasionally
washing dishes or glasses. Likewise, a counter attendant may also
prepare his or her own short orders or may, as part of a group of
counter attendants, take a turn as a short order cook for the group. An
employer may take a tip credit for any hours that an employee performs
related, non-tipped duties contemporaneously with his or her tipped
duties, or for a reasonable time immediately before or after performing
the tipped duties.
(3) In addition to the examples described in paragraph (e)(2) of
this section, a non-tipped duty is presumed to be related to a tip-
producing occupation if the duty is listed as a task in the description
of the tip-producing occupation in the Occupational Information Network
(O*NET) at www.onetonline.org. Occupations not listed in O*NET may also
qualify as tipped occupations. For those occupations, duties usually
and customarily performed by employees are presumed to be related
duties as long as they are included in the list of duties performed in
similar O*NET occupations.
0
12. Revise Sec. 531.59 to read as follows:
Sec. 531.59 The tip wage credit.
(a) In determining compliance with the wage payment requirements of
the Act, under the provisions of section 3(m)(2)(A) the amount paid to
a tipped employee by an employer is increased on account of tips by an
amount equal to the formula set forth in the statute (minimum wage
required by section 6(a)(1) of the Act minus cash wage paid (at least
$2.13)), provided that the employer satisfies all the requirements of
section 3(m)(2)(A). This tip credit is in addition to any credit for
board, lodging, or other facilities which may be allowable under
section 3(m).
(b) As indicated in Sec. 531.51, the tip credit may be taken only
for hours worked by the employee in an occupation in which the employee
qualifies as a ``tipped employee.'' Pursuant to section 3(m)(2)(A), an
employer is not eligible to take the tip credit unless it has informed
its tipped employees in advance of the employer's use of the tip credit
of the provisions of section 3(m)(2)(A) of the Act, i.e.: The amount of
the cash wage that is to be paid to the tipped employee by the
employer; the additional amount by which the wages of the tipped
employee are increased on account of the tip credit claimed by the
employer, which amount may not exceed the value of the tips actually
received by the employee; that all tips received by the tipped employee
must be retained by the employee except for a tip pooling arrangement
limited to employees who
[[Page 86791]]
customarily and regularly receive tips; and that the tip credit shall
not apply to any employee who has not been informed of the requirements
in this section. The credit allowed on account of tips may be less than
that permitted by statute (minimum wage required by section 6(a)(1)
minus the cash wage paid (at least $2.13)); it cannot be more. In order
for the employer to claim the maximum tip credit, the employer must
demonstrate that the employee received at least that amount in actual
tips. If the employee received less than the maximum tip credit amount
in tips, the employer is required to pay the balance so that the
employee receives at least the minimum wage with the defined
combination of wages and tips. With the exception of tips contributed
to a tip pool limited to employees who customarily and regularly
receive tips as described in Sec. 531.54, section 3(m)(2)(A) also
requires employers that take a tip credit to permit employees to retain
all tips received by the employee.
0
13. Revise Sec. 531.60 to read as follows:
Sec. 531.60 Overtime payments.
When overtime is worked by a tipped employee who is subject to the
overtime pay provisions of the Act, the employee's regular rate of pay
is determined by dividing the employee's total remuneration for
employment (except statutory exclusions) in any workweek by the total
number of hours actually worked by the employee in that workweek for
which such compensation was paid. (See part 778 of this chapter for a
detailed discussion of overtime compensation under the Act.) In
accordance with section 3(m)(2)(A), a tipped employee's regular rate of
pay includes the amount of tip credit taken by the employer per hour
(not in excess of the minimum wage required by section 6(a)(1) minus
the cash wage paid (at least $2.13)), the reasonable cost or fair value
of any facilities furnished to the employee by the employer, as
authorized under section 3(m) and this part, and the cash wages
including commissions and certain bonuses paid by the employer. Any
tips received by the employee in excess of the tip credit need not be
included in the regular rate. Such tips are not payments made by the
employer to the employee as remuneration for employment within the
meaning of the Act.
PART 578--TIP RETENTION, MINIMUM WAGE, AND OVERTIME VIOLATIONS--
CIVIL MONEY PENALTIES
0
14. The authority citation for part 578 is revised to read as follows:
Authority: 29 U.S.C. 216(e), as amended by sec. 9, Pub. L. 101-
157, 103 Stat. 938, sec. 3103, Pub. L. 101-508, 104 Stat. 1388-29,
sec. 302(a), Pub. L. 110-233, 122 Stat. 920, and sec. 1201, Div. S.,
Tit. XII, Pub. L. 115-141, 132 Stat. 348; Pub. L. 101-410, 104 Stat.
890 (28 U.S.C. 2461 note), as amended by sec. 31001(s), Pub. L. 104-
134, 110 Stat. 1321-358, 1321-373, and sec. 701, Pub. L. 114-74, 129
Stat 584.
0
15. The heading of part 578 is revised to read as set forth above.
0
16. Revise Sec. 578.1 to read as follows:
Sec. 578.1 What does this part cover?
Section 9 of the Fair Labor Standards Amendments of 1989 amended
section 16(e) of the Act to provide that any person who repeatedly or
willfully violates the minimum wage (section 6) or overtime provisions
(section 7) of the Act shall be subject to a civil money penalty not to
exceed $1,100 for each such violation. In 2001, the Wage and Hour
Division (WHD) adjusted this penalty for inflation pursuant to the
Federal Civil Penalties Inflation Adjustment Act of 1990 (Pub. L. 101-
410), as amended by the Debt Collection Improvement Act of 1996 (Pub.
L. 104-134, section 31001(s)). The Genetic Information
Nondiscrimination Act of 2008 amended section 16(e) of the Act to
reflect this increase. See Public aw. 110-233, sec. 302(a), 122 Stat.
920. Section 1201(b)(3) of the Consolidated Appropriations Act, 2018,
amended section 16(e) to add that any person who violates section
3(m)(2)(B) of the Act shall be subject to a civil money penalty not to
exceed $1,100. The Federal Civil Penalties Inflation Adjustment Act of
1990 (Pub. L. 101-410), as amended by the Debt Collection Improvement
Act of 1996 (Pub. L. 104-134, section 31001(s)) and the Federal Civil
Penalties Inflation Adjustment Act Improvements Act of 2015 (Pub. L.
114-74, section 701), requires that inflationary adjustments be
annually made in these civil money penalties according to a specified
cost-of-living formula. This part defines terms necessary for
administration of the civil money penalty provisions, describes the
violations for which a penalty may be imposed, and describes criteria
for determining the amount of penalty to be assessed. The procedural
requirements for assessing and contesting such penalties are contained
in part 580 of this chapter.
0
17. Revise Sec. 578.3 to read as follows:
Sec. 578.3 What types of violations may result in a penalty being
assessed?
(a) In general. (1) A penalty of up to $1,162 per violation may be
assessed against any person who repeatedly or willfully violates
section 3(m)(2)(B) of the Act.
(2) A penalty of up to $2,074 per violation may be assessed against
any person who repeatedly or willfully violates section 6 (minimum
wage) or section 7 (overtime) of the Act. The amount of the penalties
stated in paragraphs (a)(1) and (2) of this section will be determined
by applying the criteria in Sec. 578.4.
(b) Repeated violations. An employer's violation of section
3(m)(2)(B), section 6, or section 7 of the Act shall be deemed to be
``repeated'' for purposes of this section:
(1) Where the employer has previously violated section 3(m)(2)(B),
section 6, or section 7 of the Act, provided the employer has
previously received notice, through a responsible official of the Wage
and Hour Division or otherwise authoritatively, that the employer
allegedly was in violation of the provisions of the Act; or
(2) Where a court or other tribunal has made a finding that an
employer has previously violated section 3(m)(2)(B), section 6, or
section 7 of the Act, unless an appeal therefrom which has been timely
filed is pending before a court or other tribunal with jurisdiction to
hear the appeal, or unless the finding has been set aside or reversed
by such appellate tribunal.
(c) Willful violations. (1) An employer's violation of section
3(m)(2)(B), section 6, or section 7 of the Act shall be deemed to be
``willful'' for purposes of this section where the employer knew that
its conduct was prohibited by the Act or showed reckless disregard for
the requirements of the Act. All of the facts and circumstances
surrounding the violation shall be taken into account in determining
whether a violation was willful.
(2) For purposes of this section, the employer's receipt of advice
from a responsible official of the Wage and Hour Division to the effect
that the conduct in question is not lawful can be sufficient to show
that the employer's conduct is knowing, but is not automatically
dispositive.
0
18. Revise Sec. 578.4(a) to read as follows:
Sec. 578.4 Determination of penalty.
(a) In determining the amount of penalty to be assessed for any
repeated or willful violation of section 3(m)(2)(B), section 6, or
section 7 of the Act, the Administrator shall consider the seriousness
of the violations and the size of the employer's business.
* * * * *
[[Page 86792]]
PART 579--CHILD LABOR VIOLATIONS--CIVIL MONEY PENALTIES
0
19. The authority citation for part 579 is revised to read as follows:
Authority: 29 U.S.C. 203(m), (l), 211, 212, 213(c), 216; Reorg.
Plan No. 6 of 1950, 64 Stat. 1263, 5 U.S.C. App; secs. 25, 29, 88
Stat. 72, 76; Secretary of Labor's Order No. 01-2014 (Dec. 19,
2014), 79 FR 77527 (Dec. 24, 2014); 28 U.S.C. 2461 Note.
0
20. Amend Sec. 579.1 by:
0
a. Revising paragraph (a) introductory text;
0
b. Redesignating paragraph (a)(2) as paragraph (a)(2)(i); and
0
c. Adding paragraph (a)(2)(ii).
The revision and addition read as follows:
Sec. 579.1 Purpose and scope.
(a) Section 16(e), added to the Fair Labor Standards Act of 1938
(FLSA), as amended, by the Fair Labor Standards Amendments of 1974, and
as further amended by the Fair Labor Standards Amendments of 1989, the
Omnibus Budget Reconciliation Act of 1990, the Compactor and Balers
Safety Standards Modernization Act of 1996, the Genetic Information
Nondiscrimination Act of 2008, and the Consolidated Appropriations Act
of 2018, provides for the imposition of civil money penalties in the
following manner:
* * * * *
(2) * * *
(ii) Any person who repeatedly or willfully violates section
203(m)(2)(B) of the FLSA, relating to the retention of tips, shall be
subject to a civil penalty not to exceed $1,162 for each such
violation.
* * * * *
0
21. Amend Sec. 579.2 by revising the definition of ``Willful
violations'' to read as follows:
Sec. 579.2 Definitions.
* * * * *
Willful violations under this section has several components. An
employer's violation of section 12 or section 13(c) of the Act relating
to child labor or any regulation issued pursuant to such sections,
shall be deemed to be willful for purposes of this section where the
employer knew that its conduct was prohibited by the Act or showed
reckless disregard for the requirements of the Act. All of the facts
and circumstances surrounding the violation shall be taken into account
in determining whether a violation was willful. In addition, for
purposes of this section, the employer's receipt of advice from a
responsible official of the Wage and Hour Division to the effect that
the conduct in question is not lawful can be sufficient to show that
the employer's conduct is knowing, but is not automatically
dispositive.
PART 580--CIVIL MONEY PENALTIES--PROCEDURES FOR ASSESSING AND
CONTESTING PENALTIES
0
22. The authority citation for part 580 continues to read as follows:
Authority: 29 U.S.C. 9a, 203, 209, 211, 212, 213(c), 216; Reorg.
Plan No. 6 of 1950, 64 Stat. 1263, 5 U.S.C. App; secs. 25, 29, 88
Stat. 72, 76; Secretary's Order 01-2014 (Dec. 19, 2014), 79 FR 77527
(Dec. 24, 2014); 5 U.S.C. 500, 503, 551, 559; 103 Stat. 938.
0
23. Revise the first sentence of Sec. 580.2 to read as follows:
Sec. 580.2 Applicability of procedures and rules.
The procedures and rules contained in this part prescribe the
administrative process for assessment of civil money penalties for any
violation of the child labor provisions at section 12 of the Act and
any regulation thereunder as set forth in part 579 of this chapter, and
for assessment of civil money penalties for any repeated or willful
violation of the tip retention provisions of section 3(m)(2)(B), the
minimum wage provisions of section 6, or the overtime provisions of
section 7 of the Act or the regulations thereunder set forth in 29 CFR
subtitle B, chapter V. * * *
0
24. Revise the first sentence of Sec. 580.3 to read as follows:
Sec. 580.3 Written notice of determination required.
Whenever the Administrator determines that there has been a
violation by any person of section 12 of the Act relating to child
labor or any regulation thereunder as set forth in part 579 of this
chapter, or determines that there has been a repeated or willful
violation by any person of section 3(m)(2)(B), section 6, or section 7
of the Act, and determines that imposition of a civil money penalty for
such violation is appropriate, the Administrator shall issue and serve
a notice of such penalty on such person in person or by certified mail.
* * *
0
25. Amend Sec. 580.12 by revising the first sentence of paragraph (b)
of to read as follows:
Sec. 580.12 Decision and Order of Administrative Law Judge.
* * * * *
(b) The decision of the Administrative Law Judge shall be limited
to a determination of whether the respondent has committed a violation
of section 12, or a repeated or willful violation of section
3(m)(2)(B), section 6, or section 7 of the Act, and the appropriateness
of the penalty assessed by the Administrator. * * *
* * * * *
0
26. Amend Sec. 580.18 by revising the third sentence in paragraph
(b)(3) to read as follows:
Sec. 580.18 Collection and recovery of penalty.
* * * * *
(b) * * *
(3) * * * A willful violation of sections 3(m)(2)(B), 6, 7, or 12
of the Act may subject the offender to the penalties provided in
section 16(a) of the Act, enforced by the Department of Justice in
criminal proceedings in the United States courts. * * *
[FR Doc. 2020-28555 Filed 12-29-20; 8:45 am]
BILLING CODE 4510-27-P
