Tip Regulations Under the Fair Labor Standards Act (FLSA); Partial Withdrawal

Published date23 June 2021
Citation86 FR 32818
Record Number2021-13262
SectionProposed rules
CourtWage And Hour Division
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Federal Register / Vol. 86, No. 118 / Wednesday, June 23, 2021 / Proposed Rules
public health or safety, common defense
and security, protection of the
environment, or regulatory efficiency
and effectiveness. The public comment
period was originally scheduled to close
on April 6, 2020. On April 2, 2020, the
NRC published a document in the
Federal Register (85 FR 18477)
extending the deadline to May 6, 2020.
During the comment period, on March
5, 2020 (ADAMS Accession No.
ML20069A022), and March 24, 2020
(ADAMS Accession No. ML20085H593),
the NRC held public meetings to discuss
the NRC’s request for public input. In
addition, the NRC requested input from
agency staff through various methods of
internal outreach. The NRC received
comment submissions from the Nuclear
Energy Institute, agency staff, and a
member of the public, for a total of 100
individual comments. The evaluation
summary of these comments is available
in ADAMS under Accession No.
ML21012A439.
II. Discussion
For this Retrospective Review of
Administrative Requirements (RROAR)
initiative, the NRC developed criteria
with which to evaluate potential
regulatory changes. In addition to the
following five criteria, the NRC
considered programmatic experience,
intent of the requirement, impact to the
NRC’s mission, and overall impact to
resources when determining whether to
pursue a change to the regulations.
1. Submittals resulting from routine
and periodic recordkeeping and
reporting requirements, such as
directives to submit recurring reports
that the NRC has not consulted or
referenced in programmatic operations
or policy development in the last 3
years.
2. Requirements for reports or records
that contain information reasonably
accessible to the agency from alternative
resources that, as a result, may be
candidates for elimination.
3. Requirements for reports or records
that could be modified to result in
reduced burden without impacting
programmatic needs, regulatory
efficiency, or transparency, through: (a)
Less frequent reporting, (b) shortened
record retention periods, (c) requiring
entities to maintain a record rather than
submit a report, or (d) implementing
another mechanism that reduces burden
for collecting or retaining information.
4. Recordkeeping and reporting
requirements that result in significant
burden.
5. Reports or records that contain
information used by other Federal
agencies, State and local governments,
or Federally recognized Tribes will be
dropped from the review provided the
information collected is necessary to
support the NRC’s mission or to fulfill
a binding NRC obligation.
To be screened in for rulemaking
consideration, comments had to meet at
least one of Criteria 1 through 4 and not
meet Criterion 5.
Once screened in for rulemaking
consideration, the staff organized the
comments into three categories of
action: (1) To be further evaluated in a
new RROAR-related rulemaking (44
comments), (2) to be incorporated in an
annual administrative corrections
rulemaking (5 comments), or (3) to be
considered in an ongoing rulemaking
activity outside the RROAR initiative (5
comments). For comments that need
further evaluation within the context of
a new RROAR rulemaking effort, the
NRC will consider the comments, in
combination with its preliminary
evaluation of the comments, in the
rulemaking process. However, this is
not a final determination and could
change as NRC proceeds through
rulemaking activities.
The NRC’s evaluation identified 46
comments that did not meet the criteria.
The staff plans no further action on 44
of these comments, and identified two
comments to be reviewed for potential
non-rulemaking solutions under the
agency’s innovation and transformation
efforts.
III. Public Meeting
The NRC will conduct a public
meeting to discuss the comment
evaluation process and answer
stakeholder questions.
The meeting will be held on June 30,
2021, from 10:00 a.m. to 12:00 p.m.
Eastern Standard Time. Interested
members of the public can participate in
this meeting via WebEx at: https://
usnrc.webex.com/usnrc/onstage/
g.php?MTID=e01dcfc6971f79f394
a24d902b4e0e9b3, or by phone
conference at (888) 390–2141, passcode
8801623.
This is an Information Public Meeting
with a question and answer session. The
purpose of this meeting is for the NRC
staff to meet directly with individuals to
discuss regulatory and technical issues.
Attendees will have an opportunity to
ask questions of the NRC staff or make
comments about the issues discussed
throughout the meeting; however, the
NRC is not actively soliciting comments
towards regulatory decisions at this
meeting. For additional information or
to request reasonable accommodations,
please contact Andrew Carrera, phone:
301–415–1078, email: Andrew.Carrera@
nrc.gov, or Solomon Sahle, phone: 301–
415–3781, email: Solomon.Sahle@
nrc.gov. Stakeholders should monitor
the NRC’s public meeting website for
information about the public meeting;
https://www.nrc.gov/public-involve/
public-meetings/index.cfm.
Dated: June 14, 2021.
For the Nuclear Regulatory Commission.
Kevin A. Coyne,
Deputy Director, Division of Rulemaking,
Environmental Review and Financial
Support, Office of Nuclear Material Safety
and Safeguards.
[FR Doc. 2021–13466 Filed 6–22–21; 8:45 am]
BILLING CODE 7590–01–P
DEPARTMENT OF LABOR
Office of the Secretary
29 CFR Part 10
Wage and Hour Division
29 CFR Part 531
RIN 1235–AA21
Tip Regulations Under the Fair Labor
Standards Act (FLSA); Partial
Withdrawal
AGENCY
: Wage and Hour Division,
Department of Labor.
ACTION
: Notice of proposed rulemaking.
SUMMARY
: In this notice of proposed
rulemaking (NPRM), the Department of
Labor (Department) proposes to
withdraw and re-propose one portion of
the Tip Regulations Under the Fair
Labor Standards Act (FLSA) (2020 Tip
final rule) related to the determination
of when a tipped employee is employed
in dual jobs under the Fair Labor
Standards Act of 1938 (FLSA or the
Act). Specifically, the Department is
proposing to amend its regulations to
clarify that an employer may only take
a tip credit when its tipped employees
perform work that is part of the
employee’s tipped occupation. Work
that is part of the tipped occupation
includes work that produces tips as well
as work that directly supports tip-
producing work, provided the directly
supporting work is not performed for a
substantial amount of time.
DATES
: Submit written comments on or
before August 23, 2021.
ADDRESSES
: You may submit comments,
identified by Regulatory Information
Number (RIN) 1235–AA21, by either of
the following methods: Electronic
Comments: Submit comments through
the Federal eRulemaking Portal at
https://www.regulations.gov. Follow the
instructions for submitting comments.
Mail: Address written submissions to:
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1
See, e.g., Marsh v. J. Alexander’s LLC, 905 F.3d
610, 632 (9th Cir. 2018) (en banc); Fast v.
Applebee’s Int’l, Inc., 638 F.3d 872, 879 (8th Cir.
2011).
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. Instructions:
Response to this NPRM is voluntary.
The Department requests that no
business proprietary information,
copyrighted information, or personally
identifiable information be submitted in
response to this NPRM. Please submit
only one copy of your comments by
only one method. Commenters
submitting file attachments on https://
www.regulations.gov are advised that
uploading text-recognized documents—
i.e., documents in a native file format or
documents which have undergone
optical character recognition (OCR)—
enable staff at the Department to more
easily search and retrieve specific
content included in your comment for
consideration. Anyone who submits a
comment (including duplicate
comments) should understand and
expect that the comment will become a
matter of public record and will be
posted without change to https://
www.regulations.gov, including any
personal information provided. WHD
posts comments gathered and submitted
by a third-party organization as a group
under a single document ID number on
https://www.regulations.gov. All
comments must be received by 11:59
p.m. on August 23, 2021 for
consideration in this NPRM; comments
received after the comment period
closes will not be considered. The
Department strongly recommends that
commenters submit their comments
electronically via https://
www.regulations.gov to ensure timely
receipt prior to the close of the comment
period, as the Department continues to
experience delays in the receipt of mail.
Submit only one copy of your comments
by only one method. Docket: For access
to the docket to read background
documents or comments, go to the
Federal eRulemaking Portal at https://
www.regulations.gov.
FOR FURTHER INFORMATION CONTACT
:
Amy DeBisschop, 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 proposal 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 1–877–889–
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 Fair Labor Standards Act (FLSA
or Act) generally requires covered
employers to pay employees at least the
federal minimum wage, which is
currently $7.25 per hour. See 29 U.S.C.
206(a)(1). Section 3(m) of the FLSA
allows an employer that meets certain
requirements to count a limited amount
of the tips its tipped employees receive
as a credit toward its federal minimum
wage obligation (known as a ‘‘tip
credit’’). See 29 U.S.C. 203(m)(2)(A).
Section 3(t) of the FLSA defines a
‘‘tipped employee’’ for whom an
employer may take a tip credit under
section 3(m) as ‘‘any employee engaged
in an occupation in which he
customarily and regularly receives more
than $30 a month in tips.’’ See 29 U.S.C.
203(t). The FLSA regulations addressing
tipped employment are codified at 29
CFR 531.50 through 531.60. See also 29
CFR 10.28 (establishing a tip credit for
federal contractor employees covered by
Executive Order 13658 who are tipped
employees under section 3(t) of the
FLSA).
The current version of § 531.56(e)
recognizes that an employee may be
employed both in a tipped occupation
and in a non-tipped occupation, ‘‘as[,]
for example, where a maintenance man
in a hotel also serves as a waiter’’,
explaining that in such a ‘‘dual jobs’’
situation, the employee is a ‘‘tipped
employee’’ for purposes of section 3(t)
only while the employee is employed in
the tipped occupation, and that an
employer may only take a tip credit
against its minimum wage obligations
for the time the employee spends in that
tipped occupation. At the same time,
the current regulation also recognizes
that a distinguishable situation can exist
where an employee in a tipped
occupation may perform duties related
to their tipped occupation that are not
‘‘themselves . . . directed toward
producing tips,’’ such as, for example, 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.’’ 29 CFR
531.56(e).
For three decades, the Department
issued subregulatory guidance to
provide further clarity to the terms
‘‘occasionally’’ and ‘‘part of [the] time’’
found in § 531.56(e). The Department’s
guidance recognized that because the
FLSA permits employers to compensate
their tipped employees as little as $2.13
an hour directly, it is important to
ensure that this reduced direct wage is
only available to employers when
employees are actually engaged in a
tipped occupation within the meaning
of section 3(t) of the statute. The
guidance explained that an employer
could continue to take a tip credit for
the time an employee spent performing
duties that are related to the employee’s
tipped occupation but that do not
produce tips, but only if that time did
not exceed 20 percent of the employee’s
workweek (80/20 guidance). See WHD
Field Operations Handbook (FOH)
30d00(e), Revision 563 (Dec. 9, 1988).
The 80/20 guidance and its tolerance
permitting the performance of a limited
amount of non-tipped, related duties
provided an essential backstop to
prevent abuse of the tip credit, and a
number of courts deferred to the
guidance.
1
In 2018, the Department rescinded the
80/20 guidance. In 2018 and 2019, the
Department issued new subregulatory
guidance providing that the Department
would no longer prohibit an employer
from taking a tip credit for the time a
tipped employee performs related, non-
tipped duties, as long as those duties are
performed contemporaneously with, or
for a reasonable time immediately
before or after, tipped duties. See WHD
Opinion Letter FLSA2018–27 (Nov. 8,
2018); Field Assistance Bulletin (FAB)
2019–2 (Feb. 15, 2019); FOH 30d00(f)
(2018–2019 guidance). The Department
explained that, in addition to the
examples listed in § 531.56(e), it would
use the Occupational Information
Network (O*NET) to determine whether
a tipped employee’s non-tipped duties
are related to their tipped occupation.
On December 30, 2020, the Department
published the 2020 Tip final rule
updating § 531.56(e) largely
incorporating the 2018–2019 guidance
addressing situations where an
employee performs both tipped and
non-tipped duties (dual jobs portion of
the 2020 Tip final rule). See 85 FR
86771.
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On February 26, 2021, the Department
published a final rule extending the
effective date of the 2020 Tip final rule
from March 1, 2021, until April 30,
2021, in order to allow it the
opportunity to review issues of law,
policy, and fact raised by the 2020 Tip
final rule before it took effect. See 86 FR
11632. On March 25, 2021, in a second
NPRM, the Department proposed to
further extend the effective date of three
portions of the 2020 Tip final rule. See
86 FR 15811. This delay provided the
Department additional time to consider
whether to withdraw and re-propose the
dual jobs portion of the 2020 Tip final
rule, and to complete a separate
rulemaking addressing the two other
portions of the rule. Having considered
the dual jobs portion, the Department
now believes that the 2020 Tip final rule
may fall short of providing the intended
clarity and certainty for employers and
could harm tipped employees and non-
tipped employees in industries that
employ significant numbers of tipped
workers. On April 29, 2021, the
Department published a final rule
confirming the delay as proposed and
announcing that it would undertake a
separate rulemaking on dual jobs. See
81 FR 22597.
The Department is now proposing to
withdraw the dual jobs portion of the
2020 Tip final rule and to re-propose
new regulatory language that it believes
would provide more clarity and
certainty for employers while better
protecting employees. Specifically, the
Department is proposing to amend its
regulations to clarify that an employee
is only engaged in a tipped occupation
under 29 U.S.C. 203(t) when the
employee either performs work that
produces tips, or performs work that
directly supports the tip-producing
work, provided that the directly
supporting work is not performed for a
substantial amount of time. Under the
Department’s proposal, work that
‘‘directly supports’’ tip-producing work
is work that assists a tipped employee
to perform the work for which the
employee receives tips. In the proposed
regulatory text, the Department explains
that an employee has performed work
that directly supports tip-producing
work for a substantial amount of time if
the tipped employee’s directly
supporting work either (1) exceeds, in
the aggregate, 20 percent of the
employee’s hours worked during the
workweek or (2) is performed for a
continuous period of time exceeding 30
minutes. The Department believes it is
important to provide a clear limitation
on the amount of non-tipped work that
tipped employees perform in support of
their tip-producing work, because if a
tipped employee engages in a
substantial amount of such non-tipped
work, that work is no longer incidental
to the tipped work, and thus, the
employee is no longer employed in a
tipped occupation. The Department
requests comment on all aspects of its
proposal, including its proposal to
withdraw the dual jobs portion of the
2020 Tip final rule.
II. Background
A. FLSA Provisions on Tips and Tipped
Employees
Section 6(a) of the FLSA requires
covered employers to pay nonexempt
employees a minimum wage of at least
$7.25 per hour. See 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, known as a ‘‘tip
credit,’’ toward the minimum wage
based on tips an employee receives. See
29 U.S.C. 203(m)(2)(A). 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, if the employees’ tips are
sufficient to fulfill the remainder of the
minimum wage, provided that the
employer meets certain requirements.
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.’’ 29 U.S.C. 203(t). The
legislative history accompanying the
1974 amendments to the FLSA’s tip
provisions identified tipped
occupations to include ‘‘waiters,
bellhops, waitresses, countermen,
busboys, service bartenders, etc.’’ S.
Rep. No. 93–690, at 43 (Feb. 22, 1974).
The legislative history also identified
‘‘janitors, dishwashers, chefs, [and]
laundry room attendants’’ as
occupations in which employees do not
customarily and regularly receive tips
within the meaning of section 3(t). See
id. Since the 1974 Amendments, the
Department’s guidance documents have
identified a number of additional
occupations, such as barbacks, as tipped
occupations. See, e.g., FOH 30d04(b).
However, Congress left ‘‘occupation,’’
and what it means to be ‘‘engaged in an
occupation,’’ in section 3(t) undefined.
Thus, Congress delegated to the
Department the authority to determine
what it means to be ‘‘engaged in an
occupation’’ that customarily and
regularly receives tips. See Fair Labor
Standards Amendments of 1966, Public
Law 89–601, 101, § 602, 80 Stat. 830,
830, 844 (1966).
B. The Department’s ‘‘Dual Jobs’’
Regulation
The Department promulgated its
initial tip regulations in 1967, the year
after Congress first created the tip credit
provision. See 32 FR 13575 (Sept. 28,
1967); Public Law 89–601, sec. 101(a),
80 Stat. 830 (1966). As part of this
rulemaking, the Department
promulgated a ‘‘dual jobs’’ regulation
recognizing that an employee may be
employed both in a tipped occupation
and in a non-tipped occupation,
providing that in such a ‘‘dual jobs’’
situation, the employee is a ‘‘tipped
employee’’ for purposes of section 3(t)
only while the employee is employed in
the tipped occupation, and that an
employer may only take a tip credit
against its minimum wage obligations
for the time the employee spends in that
tipped occupation. See 32 FR 13580–81;
29 CFR 531.56(e). At the same time, the
regulation also recognizes that an
employee in a tipped occupation may
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.’’ 29 CFR
531.56(e). In that example where the
tipped employee performs non-tipped
duties related to the tipped occupation
for a limited amount of time, 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. See id. Section
531.56(e) thus distinguishes between
employees who have dual jobs and
tipped employees who perform ‘‘related
duties’’ that are not themselves directed
toward producing tips.
C. The Department’s Dual Jobs
Guidance
Over the past several decades, the
Department has issued guidance
interpreting the dual jobs regulation as
it applies to employees who perform
both tipped and non-tipped duties. The
Department first addressed this issue
through a series of Wage and Hour
Division (WHD) opinion letters. In a
1979 opinion letter, the Department
considered whether a restaurant
employer could take a tip credit for time
servers spent preparing vegetables for
use in the salad bar. See WHD Opinion
Letter FLSA–895 (Aug. 8, 1979) (‘‘1979
Opinion Letter’’). Citing the dual jobs
regulation and the legislative history
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distinguishing between tipped
occupations, such as server, and non-
tipped occupations, such as chef, the
Department concluded that ‘‘salad
preparation activities are essentially the
activities performed by chefs,’’ and
therefore ‘‘no tip credit may be taken for
the time spent in preparing vegetables
for the salad bar.’’ Id.
A 1980 opinion letter addressed a
situation in which tipped restaurant
servers performed various non-tipped
duties including cleaning and resetting
tables, cleaning and stocking the server
station, and vacuuming the dining room
carpet. See WHD Opinion Letter WH–
502 (Mar. 28, 1980) (‘‘1980 Opinion
Letter’’). The Department reiterated
language from the dual jobs regulation
distinguishing between employees who
spend ‘‘part of [their] time’’ performing
‘‘related duties in an occupation that is
a tipped occupation’’ that do not
produce tips and ‘‘where there is a clear
dividing line between the types of
duties performed by a tipped employee,
such as between maintenance duties
and waitress duties.’’ Id. Because in the
circumstance presented the non-tipped
duties were ‘‘assigned generally to the
waitress/waiter staff,’’ the Department
found them to be related to the
employees’ tipped occupation. The
letter suggested, however, that the
employer would not be permitted to
take the tip credit if ‘‘specific employees
were routinely assigned, for example,
maintenance-type work such as floor
vacuuming.’’ Id.
In 1985, the Department issued an
opinion letter addressing non-tipped
duties both unrelated and related to the
tipped occupation of server. See WHD
Opinion Letter FLSA–854 (Dec. 20,
1985) (‘‘1985 Opinion Letter’’). First, the
letter concluded (as had the 1979
Opinion Letter) that ‘‘salad preparation
activities are essentially the activities
performed by chefs,’’ not servers, and
therefore ‘‘no tip credit may be taken for
the time spent in preparing vegetables
for the salad bar.’’ Id. Second, the letter
explained, building on statements in the
1980 Opinion Letter, that although a
‘‘tip credit could be taken for non-salad
bar preparatory work or after-hours
clean-up if such duties are incidental to
the [servers’] regular duties and are
assigned generally to the [server] staff,’’
if ‘‘specific employees are routinely
assigned to maintenance-type work or
. . . tipped employees spend a
substantial amount of time in
performing general preparation work or
maintenance, we would not approve a
tip credit for hours spent in such
activities.’’ Id. Under the circumstances
described by the employer seeking an
opinion—specifically, ‘‘one waiter or
waitress is assigned to perform . . .
preparatory activities,’’ including setting
tables and ensuring that restaurant
supplies are stocked, and those
activities ‘‘constitute[ ] 30% to 40% of
the employee’s workday’’—a tip credit
was not permissible as to the time the
employee spent performing those
activities. Id.
WHD’s FOH is an ‘‘operations
manual’’ that makes available to WHD
staff, as well as the public, policies
‘‘established through changes in
legislation, regulations, significant court
decisions, and the decisions and
opinions of the WHD Administrator.’’ In
1988, WHD revised its FOH to add
section 30d00(e) which distilled and
refined the policies established in the
1979, 1980, and 1985 Opinion Letters.
See WHD FOH Revision 563. According
to the 1988 FOH entry, § 531.56(e)
‘‘permits the taking of the tip credit for
time spent in duties related to the
tipped occupation, even though such
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. Id. at 30d00(e). 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 § 531.56(e). Id. But ‘‘where the facts
indicate that specific employees are
routinely assigned to maintenance, or
that tipped employees spend a
substantial amount of time (in excess of
20 percent) performing general
preparation work or maintenance, no tip
credit may be taken for the time spent
in such duties.’’ Consistent with WHD’s
interpretations elsewhere in the FLSA,
the FOH noted a ‘‘substantial’’ amount
of time spent performing general
preparation or maintenance work as
being ‘‘in excess of 20 percent,’’ creating
a substantial but limited tolerance for
this work. Id. This guidance recognized
that if a tipped employee performs too
much related, non-tipped work, the
employee is no longer engaged in a
tipped occupation.
WHD did not revisit its 80/20
guidance until more than 20 years later,
when it briefly superseded its 80/20
guidance in favor of guidance that
placed no limitation on the amount of
duties related to a tip-producing
occupation that may be performed by a
tipped employee, ‘‘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.’’ See WHD
Opinion Letter FLSA2009–23 (dated
Jan. 16, 2009, withdrawn Mar. 2, 2009).
This guidance further stated that the
Department ‘‘believe[d] that guidance
[was] necessary for an employer to
determine on the front end which duties
are related and unrelated to a tip-
producing occupation . . . .’’ Id.
Accordingly, it stated that the
Department would consider certain
duties listed in O*NET for a particular
occupation to be related to the tip-
producing occupation. See id. The
guidance cited Pellon v. Bus.
Representation Int’l, Inc., 291 F. App’x
310 (11th Cir. 2008) (unpublished), aff’g
528 F. Supp. 2d 1306 (S.D. Fla. 2007),
in which the district granted summary
judgment to the employer based in part
on the infeasibility of determining
whether the employees spent more than
20 percent of their work time on such
duties; significantly, however, the court
believed such a determination was
unnecessary because the employees had
not shown that their non-tipped work
exceeded that threshold. See 528 F.
Supp. 2d at 1313–15. However, WHD
later withdrew this guidance on March
2, 2009, and reverted to and followed
the 80/20 approach for most of the next
decade. See WHD Opinion Letter
FLSA2009–23 (dated Jan. 16, 2009,
withdrawn Mar. 2, 2009); WHD Opinion
Letter FLSA2018–27 (Nov. 8, 2018).
Between 2009 and 2018, both the
Eighth Circuit and the Ninth Circuit
deferred to the Department’s dual jobs
regulations and 80/20 guidance in the
FOH. See Marsh v. J. Alexander’s LLC,
905 F.3d 610, 632 (9th Cir. 2018) (en
banc); Fast v. Applebee’s Int’l, Inc., 638
F.3d 872, 879 (8th Cir. 2011). Both
courts of appeal concluded that the
Department’s dual jobs regulation at
531.56(e) appropriately interprets
section 3(t) of the FLSA which ‘‘does
not define when an employee is
‘engaged in an [tipped] occupation.’ ’’
Applebee’s, 638 F.3d at 876, 879; see
also Marsh, 905 F.3d at 623. Both courts
further held that the Department’s 80/20
guidance was a reasonable
interpretation of the dual jobs
regulation. See Marsh, 905 F.3d at 625
(‘‘The DOL’s interpretation is consistent
with nearly four decades of interpretive
guidance and with the statute and the
regulation itself.’’); Applebee’s, 638 F.3d
at 881 (‘‘The 20 percent threshold used
by the DOL in its Handbook is not
inconsistent with § 531.56(e) and is a
reasonable interpretation of the terms
‘part of [the] time’ and ‘occasionally’
used in that regulation.’’).
In November 2018, WHD reinstated
the January 16, 2009, opinion letter
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2
O*NET is developed under the sponsorship of
the Department’s Employment and Training
Administration through a grant to the North
Carolina Department of Commerce. See https://
www.onetcenter.org/overview.html.
3
See also Roberson v. Tex. Roadhouse Mgmt.
Corp., No. 19–628, 2020 WL 7265860 (W.D. Ky.
Dec. 10, 2020); Rorie v. WSP2, 485 F. Supp. 3d 1037
(W.D. Ark. 2020); Williams v. Bob Evans
Restaurants, No. 18–1353, 2020 WL 4692504 (W.D.
Pa. Aug. 13, 2020); Esry v. OTB Acquisition, No. 18–
255, 2020 WL 3269003 (E.D. Ark. June 17, 2020);
Reynolds v. Chesapeake & Del. Brewing Holdings,
No. 19–2184, 2020 WL 2404904 (E.D. Pa. May 12,
2020); Sicklesmith v. Hershey Ent. & Resorts Co.,
440 F. Supp. 3d 391 (M.D. Pa. 2020); O’Neal v.
Denn-Ohio, No. 19–280, 2020 WL 210801 (N.D.
Ohio Jan. 14, 2020); Spencer v. Macado’s, 399 F.
Supp. 3d 545 (W.D. Va. 2019); Esry v. P.F. Chang’s
China Bistro, 373 F. Supp. 3d 1205 (E.D. Ark. 2019);
Cope v. Let’s Eat Out, 354 F. Supp. 3d 976 (W.D.
Mo. 2019).
A few other courts have followed the guidance.
See Rafferty v. Denny’s Inc., No. 19–24706, 2020
WL 5939064 (S.D. Fla. Sept. 4, 2020); Shaffer v.
Perry’s Restaurants, Ltd., No. 16–1193, 2019 WL
2098116 (W.D. Tex. Apr. 24, 2019).
4
District courts have also declined to defer to the
2018–19 guidance on the grounds that it did not
reflect the Department’s ‘‘fair and considered
judgment,’’ because the Department did not provide
a compelling justification for changing policies after
30 years of enforcing the 80/20 guidance. See e.g.,
Williams, 2020 WL 4692504, at *10; O’Neal, 2020
WL 210801, at *7; see also 85 FR 86771 (noting that
the 2020 Tip final rule addressed this criticism by
explaining through the notice-and-comment
rulemaking process its reasoning for replacing the
80/20 approach with an updated related duties
test).
5
See, e.g., Rorie, 485 F. Supp. 3d at 1042;
Sicklesmith, 440 F. Supp. 3d at 404–05; Belt, 401
F. Supp. 3d at 536–37; Esry v. P.F. Chang’s, 373 F.
Supp. 3d at 1211; Berger, 430 F. Supp. 3d at 412;
Cope, 354 F. Supp. 3d at 987; Spencer, 399 F. Supp.
3d at 554; Roberson, 2020 WL 7265860, at *7–*8;
Williams, 2020 WL 4692504, at *10; Esry v. OTB
Acquisition, 2020 WL 3269003, at *1; Reynolds,
2020 WL 2404904, at *6.
6
WHD–2019–0004–0425.
7
WHD–2019–0004–0438.
rescinding the 80/20 guidance and
articulating a new test. See WHD
Opinion Letter FLSA2018–27 (Nov. 8,
2018). Shortly thereafter, WHD issued
FAB No. 2019–2, announcing that its
FOH had been updated to reflect the
guidance contained in the reinstated
opinion letter. See FAB No. 2019–2
(Feb. 15, 2019), see also WHD FOH
Revision 767 (Feb. 15, 2019). WHD
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 WHD Opinion
Letter FLSA2018–27 (Nov. 8, 2018), see
also FOH 30d00(f)(3). WHD also
explained that it would use O*NET, a
database of worker attributes and job
characteristics and source of descriptive
occupational information,
2
to determine
whether a tipped employee’s non-tipped
duties were related to the employee’s
tipped occupation. See id.
A large number of district courts have
considered the 2018 Opinion Letter and
2019 FAB and declined to defer to the
Department’s interpretation of the dual
jobs regulation in this guidance. Among
other concerns, these courts have noted
that the guidance: (1) Does not clearly
define what it means to perform related,
non-tipped duties ‘‘contemporaneously
with, or for a reasonable time
immediately before or after, tipped
duties,’’ thus inserting ‘‘new uncertainty
and ambiguity into the analysis,’’ see,
e.g., Flores v. HMS Host Corp., No. 18–
3312, 2019 WL 5454647 at *6 (D. Md.
Oct. 23, 2019), and companion case
Storch v. HMS Host Corp., No. 18–3322;
(2) is potentially in conflict with
language in 29 CFR 531.56(e) limiting
the tip credit to related, non-tipped
duties performed ‘‘occasionally’’ and
‘‘part of [the] time,’’ see Belt v. P.F.
Chang’s China Bistro, Inc., 401 F. Supp.
3d 512, 533 (E.D. Pa. 2019); and (3)
potentially ‘‘runs contrary to the
remedial purpose of the FLSA—to
ensure a fair minimum wage,’’ see
Berger v. Perry’s Steakhouse of Illinois,
430 F. Supp. 3d 397 (N.D. Ill. 2019).
3
In
addition, some courts have also
expressed doubts about whether it is
reasonable to rely on O*NET to
determine related duties. See O’Neal,
2020 WL 210801, at *7 (employer
practices of requiring non-tipped
employees to perform certain duties
would then be reflected in O*NET,
allowing employers to influence the
definitions).
4
After declining to defer to
the Department’s 2018–2019 guidance,
many of these district courts have
independently concluded that the 80/20
approach is reasonable, and applied a
20 percent tolerance to the case before
them.
5
D. The 2020 Tip Final Rule
The NPRM for the 2020 Tip final rule
(2019 NPRM) proposed to codify the
Department’s 2018–2019 guidance
regarding when an employer can
continue to take a tip credit for a tipped
employee who performs related, non-
tipped duties. See 84 FR 53956, 53963
(Oct. 8, 2019). Although, as noted above,
multiple circuit courts had deferred to
the Department’s 80/20 guidance, the
Department opined in its 2019 NPRM
that this guidance ‘‘was difficult for
employers to administer and led to
confusion, in part because employers
lacked guidance to determine whether a
particular non-tipped duty is ‘related’ to
the tip-producing occupation.’’ Id. Some
employer representatives raised similar
criticism in their comments on the
NPRM. In its comment on the 2019
NPRM, for instance, law firm Littler
Mendelson argued that the 80/20
guidance was challenging to administer
because it did not include a
‘‘comprehensive list of related duties or
even a way to determine which duties
were related’’; among other concerns, it
also argued that employers found it
challenging to track employees’ duties.
6
Littler Mendelson and the National
Restaurant Association (NRA) also
argued that the 2018–2019 guidance was
more consistent with the FLSA than the
80/20 guidance because the statute
refers to tipped employees being
‘‘engaged in an occupation’’ in which
they receive tips, 29 U.S.C. 203(t), and
therefore does not distinguish between
duties of a tipped employee for which
employers can and cannot take a tip
credit.
7
However, the NRA argued that
the Department’s retention of a
distinction between tipped and non-
tipped duties was still a ‘‘flawed
analytical approach.’’
The 2020 Tip final rule amended
§ 531.56(e) to largely reflect the
Department’s guidance issued in 2018
and 2019 that addressed whether and to
what extent an employer can take a tip
credit for a tipped employee who is
performing non-tipped duties related to
the tipped occupation. See 85 FR 86771.
The 2020 Tip final rule reiterated the
Department’s conclusion from the 2019
NPRM that its prior 80/20 guidance was
difficult to administer ‘‘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.’’ Id. at 86767. The
Department also asserted that the 80/20
guidance ‘‘generated extensive, costly
litigation.’’ Id. at 86761. The 2020 Tip
final rule provided, consistent with the
Department’s 2018–2019 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.’’ Id. at 86767.
Rather than using O*NET as a
definitive list of related duties, the final
rule adopted O*NET as a source of
guidance for determining when a tipped
employee’s non-tipped duties are
related to their tipped occupation.
Under the final rule, a non-tipped duty
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See Compl., Commonwealth of Pennsylvania et
al. v. Scalia et al., No. 2:21–cv–00258 (E.D. Pa.).
9
Id., ¶¶87–89.
10
Id. ¶87 (citing Belt, 401 F. Supp. 3d at 526).
11
Id. ¶128.
12
See, e.g., Belt, 401 F. Supp. 3d at 533; Flores,
2019 WL 5454647, at *6.
13
Commonwealth of Pennsylvania v. Scalia, at
¶131; see also id. ¶ 129 (‘‘The Department never
provides a precise definition of ‘contemporaneous,’
simply stating that it means ‘during the same time
as’ before making the caveat that it ‘does not
necessarily mean that the employee must perform
tipped and non-tipped duties at the exact same
moment in time.’’’)
14
See id. ¶127; see also id. ¶ 41 (noting that
many courts awarded Auer deference to the 80/20
guidance).
15
Id. ¶¶127–28.
16
Id. ¶115.
17
Id. ¶¶114–15.
18
Id. at §I(C)(i), ¶¶ 108–9.
19
Id. ¶105.
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. See id. at 86771. The 2020 Tip
final rule included a qualitative
discussion of the potential economic
impacts of the rule’s revisions to the
dual jobs regulations but ‘‘[did] not
quantify them due to lack of data and
the wide range of possible responses by
market actors that [could not] be
predicted with specificity.’’ Id. at 86776.
The Department noted that one
commenter, the Economic Policy
Institute (EPI), provided a quantitative
estimate of the economic impact of this
portion of the rule but concluded that
its estimate was not reliable. See id. at
86785. This final rule was published
with an effective date of March 1, 2021,
see id. at 86756; however, as explained
below, the Department has extended the
effective date for this part of the rule
until December 31, 2021.
E. Legal Challenge to the 2020 Tip Final
Rule
On January 19, 2021, before the 2020
Tip final rule went into effect, Attorneys
General from eight states and the
District of Columbia filed a complaint in
the United States District Court for the
Eastern District of Pennsylvania, in
which they argued that the Department
violated the Administrative Procedure
Act in promulgating the 2020 Tip final
rule, including that portion amending
the dual jobs regulations. (Pennsylvania
complaint or Pennsylvania litigation).
8
The Pennsylvania complaint alleges that
this portion of the 2020 Tip final rule is
contrary to the FLSA. Specifically, the
complaint alleges that the rule’s
elimination of the 20 percent limitation
on the amount of time that tipped
employees can perform related, non-
tipped work contravenes the FLSA’s
definition of a tipped employee: An
employee ‘‘engaged in an occupation in
which [they] customarily and regularly’’
receive tips, 29 U.S.C. 203(t).
9
According to the complaint, ‘‘when
employees ‘spend more than 20 percent
of their time performing untipped
related work’ they are no longer
‘engaged in an occupation in which
[they] customarily and regularly
receive[ ] . . . tips.’’’
10
The complaint also alleges that that
this portion of the 2020 Tip final rule is
arbitrary and capricious for several
reasons. First, the complaint alleges that
the 2020 Tip final rule’s new test for
when an employer can continue to take
a tip credit for a tipped employee who
performs related, non-tipped duties
relied on ‘‘ill-defined’’ terms—
‘‘contemporaneously with’’ and ‘‘a
reasonable time immediately before or
after tipped duties’’
11
—which some
district courts have also found to be
unclear when construing the 2018–2019
guidance.
12
According to the complaint,
the 2020 Tip final rule failed to
‘‘provide any guidance as to when—or
whether—a worker could be deemed a
dual employee during a shift or how
long before or after a shift constitutes a
‘reasonable time.’ ’’
13
The complaint
also alleges that the Department failed
to offer a valid justification for replacing
the 80/20 guidance with a new test for
when an employer can take a tip credit
for related, non-tipped duties. The
complaint disputes the Department’s
conclusion in the 2020 Tip final rule
that its former 80/20 guidance was
difficult to administer, noting that
courts consistently applied and, in
many cases, deferred to the 80/20
guidance.
14
The complaint argues that
the 2020 Tip final rule’s new test, in
contrast, will invite ‘‘a flood of new
litigation’’ due to its ‘‘murkiness’’ and
its reliance on ‘‘ill-defined’’ terms.
15
The complaint further alleges that the
rule’s use of O*NET to define ‘‘related
duties’’ is ‘‘itself’’ arbitrary and
capricious because O*NET ‘‘seeks to
describe the work world as it is, not as
it should be’’ and ‘‘does not objectively
evaluate whether a task is actually
related to a given occupation.’’
16
According to the complaint, the use of
O*NET to define related, non-tipped
duties ‘‘dramatically expand[ed] the
universe of duties that can be performed
by tipped workers,’’ thereby authorizing
employer ‘‘conduct that has been
prohibited under the FLSA for
decades.’’
17
Lastly, the complaint
alleges that the Department ‘‘failed to
consider or quantify the effect’’ that this
portion of the rule ‘‘would have on
workers and their families’’ in the rule’s
economic analysis and ‘‘disregarded’’
the data and analysis provided by a
commenter on the NPRM for the 2020
Tip final rule, the EPI.
18
The complaint
claims that these asserted flaws in the
Department’s economic analysis are
evidence of a ‘‘lack of reasoned
decision-making.’’
19
F. Delay and Partial Withdrawal of the
2020 Tip Final Rule
On February 26, 2021, the Department
delayed the effective date of the 2020
Tip final rule until April 30, 2021, to
provide the Department additional
opportunity to review and consider the
questions of law, policy, and fact raised
by the rule, as contemplated by the
Regulatory Freeze Memorandum and
OMB Memorandum M–21–14. See 86
FR 11632. Commenters who supported
the proposed 60-day delay of the 2020
Tip final rule, including numerous
advocacy organizations and the
Attorneys General who filed the
Pennsylvania lawsuit, urged the
Department to specifically reconsider
the portion of the 2020 Tip final rule
that revised the Department’s dual jobs
regulations. Id. at 11633. EPI supported
the proposed delay because it would
give the Department time to reassess the
Department’s economic analysis of this
portion of the 2020 Tip final rule, which
it argued was flawed. Id. On March 25,
2021, the Department proposed to
further delay the effective date of three
portions of the 2020 Tip final rule,
including the portion of the rule that
amended the Department’s dual jobs
regulations to address the FLSA tip
credit’s application to tipped employees
who perform tipped and non-tipped
duties, until December 31, 2021. See 86
FR 15811 (Partial Delay NPRM). The
Department received comments on the
merits of the delay and on the merits of
the 2020 Tip final rule itself. On April
29, 2021, the Department finalized the
proposed partial delay. See 86 FR 22597
(Partial Delay final rule).
III. Discussion of Comments on the
Partial Delay Rule
A. Comments Regarding the 2020 Tip
Final Rule’s Revisions to the Dual Jobs
Regulations
Commenters who supported the
Partial Delay NPRM raised multiple
concerns with the substance of the dual
jobs portion of the 2020 Tip final rule.
In their comments in support of the
Partial Delay NPRM, the Attorneys
General who filed the Pennsylvania
complaint and worker advocacy
organizations raised legal and policy
concerns similar to those raised in the
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WHD–2019–0004–0420.
21
WHD–2019–0004–0453.
22
WHD–2019–0004–0504.
23
WHD–2019–0004–0519.
24
WHD–2019–0004–0515.
25
WHD–2019–0004–0524.
26
WHD–2019–0004–0516.
27
WHD–2019–0004–0520.
28
WHD–2019–0004–0523.
Pennsylvania lawsuit: That the new test
for when an employer can take a tip
credit for related, non-tipped duties will
encourage employers to shift more non-
tipped work to tipped employees,
depressing tipped employees’ wages
and possibly eliminating non-tipped
jobs, that the new test does not reflect
the statutory definition of a tipped
employee, that the terms used in the
new test are so amorphous that they will
lead to extensive litigation, and that
O*NET is not an appropriate tool to
determine related duties. See 86 FR
22600. In its comment supporting the
Partial Delay NPRM, EPI stated that the
2020 Tip final rule’s revision to the dual
jobs regulations created a ‘‘less
protective’’ standard for tipped wages,
replacing a firm 20 percent limitation on
the amount of related, non-tipped duties
that tipped employees could perform
while being paid the tipped wage of
$2.13 per hour with ‘‘vague and much
less protective’’ language. Id. EPI noted
that because these new regulatory terms,
such as ‘‘reasonable time,’’ are not
defined, they create an ‘‘ambiguity that
would [be] difficult to enforce’’ and
would create ‘‘an immense loophole
that would be costly to workers.’’ Id.
Commenters who supported the
Partial Delay NPRM also raised
concerns with how the dual jobs portion
of the 2020 Tip final rule was
promulgated, specifically, that the
economic analysis may not have
adequately estimated the impact of this
portion of the rule. EPI suggested that
the 2020 Tip final rule’s economic
analysis was flawed because it did not
sufficiently estimate the economic
impact on workers—as EPI did in a
comment it submitted in the 2020 Tip
rulemaking, which concluded that the
rule ‘‘would allow employers to capture
more than $700 million annually from
workers.’’ See id. at 22600–01. The
Attorneys General
20
and the National
Employment Law Project (NELP)
21
also
argued in their comments in support of
the Partial Delay NPRM that the
Department’s failure to quantitatively
estimate the impact of the dual jobs
portion of the 2020 Tip final rule or to
consider the estimates of the rule’s
impact submitted by EPI and other
groups in the course of that rulemaking
is evidence that the rulemaking process
was flawed. See id. at 22601.
The Department also received
comments on the substance of the 2020
Tip final rule from organizations that
opposed the Partial Delay NPRM. The
NRA
22
and Littler Mendelson’s
Workplace Policy Institute (WPI)
23
argued that the 2020 Tip final rule
reflects a better interpretation of the
statutory term ‘‘tipped employee’’ than
the 80/20 guidance because the FLSA
refers to tipped employees being
‘‘engaged in an occupation’’ in which
they receive tips, 29 U.S.C. 203(t), and
therefore does not create any distinction
between the tipped and non-tipped
duties of the employee. See id. at 22602.
WPI also argued that the 2020 Tip final
rule, by removing the 20 percent
limitation on related duties and using
O*NET to define related duties, would
be easier for employers to administer,
and both WPI and the NRA argued that
the 2020 Tip final rule would avoid the
litigation that the 80/20 guidance
generated. See id. Additionally, the
NRA argued that EPI’s criticism of the
2020 Tip final rule was flawed because
its impact analysis used the
Department’s 80/20 guidance as its
baseline instead of the Department’s
2018–2019 guidance. See id. More
generally, the NRA noted that the
restaurant industry has been ‘‘uniquely
hurt’’ by the pandemic and stated that,
in this challenging economic
environment, restaurants need ‘‘clear
guidelines’’ and ‘‘predictability.’’ See
NRA.
In the Partial Delay final rule, the
Department stated that it shares the
concerns of commenters who supported
the proposed partial delay that the new
test articulated in the 2020 Tip final rule
for when an employer can take a tip
credit for a tipped employee who
performs related, non-tipped work may
be contrary to the FLSA. Specifically,
the Department stated that it shared
commenters’ concerns that the new test
may not accurately identify when a
tipped employee who is performing
non-tipped duties is still engaged in a
tipped occupation under section 3(t) of
the statute. See 86 FR 22606.
Additionally, the Department stated that
it shares commenters’ concerns that the
economic analysis may not have
adequately estimated the impact of this
portion of the rule and that allowing
this portion of the rule to go into effect
without further consideration of its
impact could potentially lead to a loss
of income for workers in tipped
industries. See id. at 22606–07.
B. Recommendations for Future
Rulemaking
Commenters who supported the
Partial Delay NPRM also urged the
Department to engage in further
rulemaking to better address the issue of
when an employer can continue to take
a tip credit for tipped employees who
perform tipped and non-tipped work.
All of the advocacy organizations that
supported the Partial Delay NPRM
urged the Department to withdraw the
portion of the 2020 Tip final rule that
revised its dual jobs regulations and to
re-propose revisions no less protective
of workers than the 80/20 guidance. See,
e.g., NELP;
24
Restaurant Opportunities
Center United (ROC United);
25
National
Urban League;
26
National Women’s Law
Center;
27
One Fair Wage.
28
EPI also
encouraged the Department to create a
rule that is ‘‘stronger’’ than the previous
80/20 guidance ‘‘that further clarifies,
and limits, the amount of non-tipped
work for which an employer can claim
a tip credit.’’ See 86 FR 22600. EPI
suggested that the Department could,
among other things, consider tightening
the definitions of related and unrelated
duties, propose to adopt standards such
as those adopted in states such as New
York that, for example, bar an employer
from taking a tip credit on any day
during which a tipped employee spends
more than 20 percent of their time in a
non-tipped occupation, and/or
promulgate enhanced notice and
recordkeeping requirements. See id.
In its comments supporting the Partial
Delay, NELP also stated that a delayed
effective date of the dual jobs portion of
the rule would give the Department the
opportunity to consider how the rule
‘‘improperly narrows the protections of
the FLSA for tipped workers in a variety
of fast-growing industries including
delivery, limousine and taxi, airport
workers, parking, carwash, valet,
personal services and retail, in addition
to restaurants and hospitality.’’ See id.
at 22601.
Although WPI opposed the proposed
delay of the dual jobs portion of the
2020 Tip final rule, it included some
recommendations for the Department to
consider in the event that it ultimately
proposed to withdraw and revise this
portion of the rule. WPI stated that any
alternative should include ‘‘concrete
guidance on where the lines are to be
drawn,’’ adding that, in its view, ‘‘there
has been no clear definition of what
duties are ‘tipped’ as opposed to merely
‘related’ or ‘non-tipped.’’ See id. at
22602. WPI further stated that any
‘‘quantitative limit’’ on duties that a
tipped employee can perform ‘‘must
precisely identify which duties fall on
either side of the line,’’ recognize that
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Commonwealth of Pennsylvania v. Scalia, at
¶128.
30
More detailed information about O*NET’s data
collection can be found at https://
www.onetcenter.org/ombclearance.html.
occupations can evolve over time, and
draw upon O*NET as a resource. See id.
IV. Need for Rulemaking
Delaying the effective date of this
portion of the 2020 Tip final rule has
provided the Department the
opportunity to consider whether
§ 531.56(e) of the 2020 Tip final rule
accurately identifies when a tipped
employee who is performing non-tipped
duties is still engaged in a tipped
occupation, such that an employer can
continue to take a tip credit for the time
the tipped employee spends on such
non-tipped work, and whether the 2020
Tip final rule adequately considered the
possible costs, benefits, and transfers
between employers and employees
related to the adoption of the standard
articulated therein. It has also allowed
the Department to further consider the
comments it received on this portion of
the rule in response to its February 5,
2021 proposal to delay the effective date
of the 2020 Tip final rule and its March
25, 2021 proposal to delay the effective
date of this portion of the rule and to
evaluate the legal concerns with this
portion of the rule that were raised in
the Pennsylvania complaint.
In light of the comments received on
both delay NPRMs and the allegations
raised in the Pennsylvania complaint, as
well as a review and reconsideration of
questions of law, policy, and fact, the
Department believes that it is necessary
to revisit that portion of the 2020 Tip
final rule addressing whether an
employee who is performing non-tipped
duties is still engaged in a tipped
occupation. Specifically, the
Department is concerned that the lack of
clear guidelines in the 2020 Tip final
rule both failed to achieve its goal of
providing certainty for employers and
created the potential for abuse of the tip
credit to the detriment of low-wage
tipped workers. In this NPRM, the
Department has further reviewed data
provided by commenters, including
conducting a thorough analysis on
transfer estimates using that data. The
Department requests comment on
withdrawing the dual jobs portion of the
2020 Tip final rule.
A. The 2020 Tip Final Rule Did Not
Define Its Key Terms
As noted above, the Department
stated that one of its reasons for
departing from the 80/20 guidance in
the 2020 Tip final rule was that it
‘‘generated extensive, costly litigation.’’
85 FR 86761. In their comments in
opposition to the Partial Delay NPRM,
the NRA and WPI argued that the 2020
Tip final rule created a standard that
was less susceptible to litigation than
the 80/20 guidance. 86 FR 22606.
However, the Pennsylvania litigants
noted that the 2020 Tip final rule does
not clearly define either
‘‘contemporaneously’’ or the phrase ‘‘for
a reasonable time immediately before or
after’’ and thus is ‘‘certain to cause a
flood of new litigation.’’
29
Commenters
who supported the Partial Delay NPRM
echoed this concern. See 86 FR 22600.
After consideration, the Department
believes that the lack of clear definitions
of these key terms may undermine the
stated goals of the 2020 Tip final rule.
For example, although the 2020 Tip
final rule posited that the requirement
that related duties be performed
‘‘contemporaneously’’ is ‘‘not difficult
to administer in practice,’’ the
Department now believes that the rule’s
failure to provide a clear definition of
the term may undermine the utility of
the rule. See 85 FR 86768. Instead, as
the Pennsylvania litigants noted, the
2020 Tip final rule both stated that the
term ‘‘contemporaneously’’ means
‘‘during the same time as’’ and also that
it ‘‘does not necessarily mean that the
employee must perform tipped and non-
tipped at the exact same moment in
time.’’ Id. These potentially conflicting
definitions may have caused confusion
for employers and tipped employees
alike. Additionally, by stating that a task
that is performed ‘‘contemporaneously’’
does not have to be performed at the
same time, the Department blurred the
distinction between tasks performed
contemporaneously and those
performed ‘‘for a reasonable time
immediately before or after’’ the
performance of tipped duties. See, e.g.,
id. at 86769 (describing a scenario in
which a bellhop works 48 minutes of
every hour on tipped duties and 12
minutes of every hour on related, non-
tipped duties as illustrating the new
regulatory concept of work that is
performed ‘‘for a reasonable time
immediately before or after’’ the
performance of tipped duties).
Although the 2020 Tip final rule
stated that related duties could be
performed ‘‘for a reasonable time
immediately before or after’’ performing
tipped duties, the rule also did not
provide a specific definition for the term
‘‘reasonable.’’ In justifying the
Department’s decision to use the term,
the 2020 Tip final rule stated that ‘‘the
concept of reasonableness is a
cornerstone of modern common law and
is familiar to employers in a variety of
contexts.’’ See 85 FR 86768. Even if
employers are familiar with the general
concept of ‘‘reasonableness,’’ it is not
clear from the 2020 Tip final rule how
reasonableness would be defined in the
context of that rule—determining how
long a tipped employee could perform
non-tipped, related duties—and the
reference to common law implicitly
acknowledged that those boundaries
would be left to the courts to draw.
The Department believes that because
the 2020 Tip final rule did not define
these key terms, the 2020 Tip final rule
will invite rather than limit litigation in
this area, and thus may not support one
of the rule’s stated justifications for
departing from the 80/20 guidance.
Furthermore, a key justification for the
2020 Tip final rule was that it would be
easier for employers to administer—but
the absence of clear guidelines regarding
the boundaries of ‘‘reasonable’’ means
that employers would still face
uncertain litigation risk. As noted
above, the Department seeks comments
on the merits of withdrawing the dual
jobs portion of the 2020 Tip final rule;
in particular, it seeks comments on the
extent to which definitions of the key
terms used in the dual jobs portion of
the 2020 Tip final rule provide clarity
and certainty, as compared with the
proposed terminology the Department
proposes herein.
B. Concerns About Using O*NET To
Identify ‘‘Related’’ Duties
In addition to not specifically
defining key terms, the Department is
concerned that the 2020 Tip final rule’s
reliance on O*NET to identify ‘‘related’’
duties may be flawed. As discussed
above, the 2020 Tip final rule uses
occupational task listings from O*NET
to identify which non-tipped duties,
when performed for a limited or at a
certain time, are part of an employees’
tipped occupation. O*NET, however, is
a tool for career exploration. See
www.onetonline.org. It was not created
to identify employer’s legal obligations
under the FLSA. The Department now
believes that O*NET may not be an
appropriate instrument to delineate the
duties that are part of a tipped
occupation for which an employer may
take a tip credit.
O*NET uses data obtained in part by
asking employees which duties their
employers are requiring them to
perform.
30
As a result, when employers
require tipped employees to perform the
work of a non-tipped occupation,
O*NET may reflect these duties on the
task list for their tipped occupation even
though they are not the tasks of the
tipped occupation. For example, the
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31
WHD–2019–0004–0456.
32
WHD–2019–0004–0438.
33
WHD–2019–0004–0491.
34
Specifically, the Pennsylvania litigants noted
that according to the BLS’s May 2020 Occupational
Employment and Wages Statistics (OEWS) survey,
average annual incomes for servers in
Massachusetts, Pennsylvania, and Illinois were
$32,970, $25,380, and $23,340, respectively; for nail
technicians, average annual incomes were $28,620,
$21,630, and $24,580. See Commonwealth of
Pennsylvania v. Scalia, ¶150. According to the May
2020 OEWS, average annual incomes in
Massachusetts, Pennsylvania, and Illinois were
$70,010, $53,950, and $58,070, respectively. See
BLS, May 2020 State Occupational Employment
and Wage Estimates Massachusetts, https://
www.bls.gov/oes/current/oes_ma.htm#00-0000;
May 2020 State Occupational Employment and
Wage Estimates Pennsylvania, https://www.bls.gov/
oes/current/oes_pa.htm; May 2020 State
Occupational Employment and Wage Estimates
Illinois, https://www.bls.gov/oes/current/oes_
il.htm#00-0000. BLS notes that its ‘‘May 2020
estimates do not fully reflect the impact of the
COVID–19 pandemic.’’ Technical Notes for May
2020 OES Estimates, https://www.bls.gov/oes/
current/oes_tec.htm.
35
WHD–2019–0004–0515.
36
WHD–2019–0004–0503.
37
WHD–2019–0004–0520.
38
WHD–2019–0004–0524.
39
WHD–2019–0004–0516.
Pennsylvania litigants noted that, at the
time of their complaint, O*NET
included cleaning bathrooms as tasks of
servers, notwithstanding the
Department’s longstanding position that
these duties are not part of the tipped
occupation of a server. See Complaint,
Commonwealth of Pennsylvania et al. v.
Scalia et al., No. 2:21–cv–00258, ¶ 117
(E.D. Pa., Jan. 19, 2021); see also Br. for
Department of Labor as Amicus, at 18,
18 n.6, Fast v. Applebee’s Int’l, Inc., 638
F.3d 872 (8th Cir. 2011). At the same
time, as commenters on the 2019 NPRM
noted, O*NET may not reflect all of the
duties that are part of a tipped
occupation. See Inspire Brands;
31
National Restaurant Association.
32
In response to concerns that O*NET
may not accurately capture the non-
tipped duties that are part of tipped
occupations, the 2020 Tip final rule
provided that a non-tipped duty is
merely presumed to be related to a tip-
producing occupation if it is listed as a
task of the tip-producing occupation in
O*NET. See 85 FR 86771. Regarding
this presumption, the Department
specified that when ‘‘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’’ in that case.
See id. at 86772. As a result, the
Department acknowledged, the
regulation in the final rule does not
afford the ‘‘certainty’’ that the
Department sought to provide when it
proposed to codify its subregulatory
guidance in the 2019 NPRM. Id.
After further consideration, the
Department has determined that this
uncertainty could potentially harm both
employers and employees. Although
WPI noted in its comment to the Partial
Delay NPRM that employers can simply
review O*NET’s task lists to determine
if a particular non-tipped duty is related
to a tipped occupation, this is not
necessarily the case under the 2020 Tip
final rule; as noted above, ‘‘industry-
wide practices and trends’’ may show
that a task not listed on O*NET is a
related duty. See id. at 86722. The
Department now believes, however, that
the rule’s reference to ‘‘industry-wide
practices and trends’’ is insufficient
guidance for employers or employees to
determine whether a duty is ‘‘actually
related to the tipped occupation,’’
notwithstanding its inclusion in (or
absence from) O*NET. As a result, the
Department believes that the 2020 Tip
final rule may not provide clarity in
defining ‘‘related duties,’’ and fails to
support the rule’s stated justification for
departing from the previous 80/20
guidance because it was ‘‘difficult to
administer’’ due to the problems with
‘‘categorizing of tasks.’’ See id. at 86770.
Given this, the Department is proposing
a new functional test for identifying
which non-tipped duties, when
performed for a limited time, can be part
of an employee’s tipped occupation.
The Department seeks comments on the
use of O*NET in the dual jobs portion
of the 2020 Tip final rule.
C. Harm to Workers
The Department shares the concerns
raised in comments to the Partial Delay
that enacting the dual jobs portion of the
2020 Tip final rule could harm tipped
employees and non-tipped employees in
industries that employ significant
numbers of tipped workers. The
Department is particularly concerned
that the lack of clearly defined limits
regarding when employers can continue
to take a tip credit for tipped employees
who perform related, non-tipped work
could lead to employers shifting more
non-tipped work to employees in tipped
occupations. This concern is
particularly acute during the COVID–19
pandemic, when, as ROC United noted
in its comment on the Partial Delay
NPRM, many restaurants may have
shifted a significant portion of their
tipped employees to perform more non-
tipped work.
33
In their complaint, the
Pennsylvania litigants cited to data from
the Bureau of Labor Statistics (BLS)
showing that servers in Massachusetts,
Pennsylvania, and Illinois earn less than
half the average annual income of
workers in each state; for nail
technicians, annual incomes were
between 40 and 43 percent of the state
average.
34
If employers require tipped
workers to perform more non-tipped
work outside their tipped occupation,
these low-wage workers’ earnings could
be reduced even further. As NELP and
other advocacy organizations noted, if
employers shift non-tipped work to
tipped employees for whom they take a
tip credit, this could also harm
employees in non-tipped occupations.
Specifically, this could ‘‘drive down
wages for—or even eliminate—back-of-
house positions in restaurants, and
related maintenance and prep jobs in
other workplaces like hotels, carwashes
and parking lots, and service
establishments.’’ See NELP;
35
see also
Oxfam;
36
NWLC;
37
ROC United;
38
National Urban League.
39
As the NRA noted in its comment on
the Partial Delay NPRM, employers in
the restaurant industry have also been
hit hard by COVID–19. The Department
appreciates the strong desire of
restaurants, particularly small and
independently-owned restaurants, for
certainty as they recover from the
impact of the pandemic. However, as
noted above, the Department is
concerned that the 2020 Tip final rule’s
test for when an employer can continue
to take a tip credit for related, non-
tipped duties did not provide such
certitude: The rule uses terms that may
not be sufficiently clearly defined and
may have failed to provide certainty
when defining ‘‘related duties.’’ Upon
consideration of the comments received
regarding the Partial Delay NPRM, the
Department believes that revisions to
the dual jobs portion of the 2020 Tip
final rule are needed to better protect
workers and to provide clarity to
employers and workers alike. The
Department seeks additional comments
on the potential economic impact of the
dual jobs portion of the 2020 Tip final
rule on workers. The Department also
seeks comments on whether the dual
jobs portion of the 2020 Tip final rule
provides enough clarity to employers
and workers regarding when employers
can continue to take a tip credit for non-
tipped duties performed by tipped
employees.
V. Proposed Regulatory Revisions
The Department proposes to
withdraw and amend the dual jobs
regulation at § 531.56(e) to define when
an employee is engaged in a tipped
occupation for purposes of section 3(t)
of the FLSA. As explained above,
section 3(t) of the FLSA defines a
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WHD–2019–0004–0504.
41
See supra note 4.
42
See supra note 3.
‘‘tipped employee’’ for whom an
employer may take a tip credit as ‘‘any
employee engaged in an occupation in
which he customarily and regularly
receives more than $30 a month in
tips.’’ 29 U.S.C. 203(t). As also
explained above, since it was first
promulgated in 1967, § 531.56(e) has
recognized that an employee may be
employed by the same employer in both
a tipped occupation and in a non-tipped
occupation.
A straightforward dual jobs scenario
exists when an employee is hired by the
same employer to perform more than
one job, only one of which is in a tipped
occupation: For example, when an
employee is employed by the same
employer to work both as a server and
a maintenance person. A dual jobs
scenario also exists when an employee
is hired to do one job but is required to
do work that is not part of that
occupation: For example, when an
employee is hired as a server but is
required to do building maintenance.
Yet another dual jobs scenario exists
where an employee is hired to work in
a tipped occupation but is assigned to
perform non-tipped work that directly
supports the tipped producing work for
such a significant amount of time that
the work is no longer incidental to the
tipped occupation and thus, the
employee is no longer employed in the
tipped occupation. From 1988 to 2018,
the Department’s guidance, in
recognition of the fact that every tipped
occupation usually includes a limited
amount of related, non-tipped work,
provided a tolerance whereby
employers could continue to take a tip
credit for a period of time when a tipped
employee performed non-tipped work
that was related to the tipped
occupation. The Department’s guidance
also recognized, however, that it was
necessary to cap the tolerance at a
certain amount of non-tipped work,
because at some point, if a tipped
employee performs too much non-
tipped work, even if that work were
related to the tipped occupation, the
work was no longer incidental to the
tipped work and thus the employee was
no longer engaged in a tipped
occupation. As the Department
explained in legal briefs defending its
80/20 guidance, particularly where the
FLSA permits employers to compensate
their tipped employees as little as $2.13
an hour directly, providing protections
to ensure that this reduced direct wage
is only available to employers when
employees are actually engaged in a
tipped occupation within the meaning
of section 3(t) of the statute is essential
to prevent abuse.
As noted above, past criticisms of the
Department’s 80/20 guidance from
employer representatives included that
the policy was contrary to the FLSA,
and that it was difficult for employers
to administer because it required
employers to monitor employees’ duties
and did not provide sufficient guidance
for employers to determine whether a
particular non-tipped duty was
‘‘related’’ to the tip-producing
occupation. In comments received on
the Partial Delay Rule, for instance, the
NRA expressed its support for the 2020
Tip final rule’s revision to the dual jobs
regulation because, in its view, the new
test avoided this problem and was
consistent with the plain statutory text
of the FLSA, which permits employers
to take a tip credit based on whether an
employee is employed to work in a
tipped occupation, not whether the
employee is performing certain kinds of
duties within the tipped occupation.
40
However, as the Eighth Circuit
recognized in Applebee’s, Congress did
not define ‘‘occupation’’ or what it
means to be ‘‘engaged in an occupation’’
in section 3(t), leaving that for the
Department to interpret. See Applebee’s,
638 F.3d at 879. In other enforcement
contexts, the Department recognizes that
job titles alone cannot be determinative,
see, e.g., 29 CFR 541.2; thus, merely
because someone is hired to work as a
server does not mean that they are
always ‘‘engaged in the occupation’’ of
a server. Furthermore, as explained
above, the dual jobs test set forth in the
2020 Tip final rule also distinguished
between related and unrelated duties,
and therefore did not fully address the
concern advanced by the NRA about the
kinds of duties a tipped employee
performs.
Additionally, many courts upheld the
80/20 guidance because it provided an
essential backstop to prevent abuse of
the tip credit and, conversely, criticized
the dual jobs test set forth in the
Department’s 2018–2019 guidance,
which was largely codified by the 2020
Tip final rule, as being more difficult to
administer than the 80/20 guidance.
41
Like some commenters that supported
the Partial Delay rule and the
Pennsylvania litigants, courts have
found that the parameters of the 2020
Tip final rule’s test are so broad and
indeterminate that they do not
sufficiently define when an employee is
employed in a tipped occupation within
the meaning of section 3(t) of the FLSA,
and that O*NET is not an appropriate
tool to use to identify related duties
because it catalogues the duties that
employees have been required to
perform rather than the duties that fall
within the definition of an occupation.
42
The Department believes that it is
important to retain the longstanding
regulatory dual jobs language addressing
a straightforward dual jobs situation,
where one employee is employed to
perform two separate jobs, only one of
which is in a tipped occupation. The
Department also believes that it is
important for its regulations to address
the dual jobs scenario where a tipped
employee is performing so much non-
tipped work even though that non-
tipped work is performed in support of
the tipped work, that the work is no
longer incidental and thus the employee
is no longer employed in a tipped
occupation. The Department rejects the
argument put forth by the NRA and WPI
that a regulation that analyzes a tipped
employee’s duties and determines when
a tip credit should be permitted and not
permitted is inconsistent with the
statutory language of 3(t), which says
that an employer can take a tip credit for
an employee who is employed in a
tipped occupation. This argument fails
to take into account the multiple
scenarios outlined above, where an
employer hires someone into a tipped
occupation but then requires them to
perform work outside of the occupation
or requires the employee to perform so
much non-tipped work that it can no
longer be considered part of the tipped
occupation.
Because concerns about its dual jobs
tests have been identified over the
years—both with its prior subregulatory
guidance and the 2020 Tip final rule—
the Department in this rulemaking is
proposing a new test that the
Department believes will address the
concerns articulated about its prior
tests, will be easier to administer,
provide employers with more certainty,
reduce litigation, and will protect
tipped workers against abusive pay
practices. In developing this proposed
test, the Department also took into
consideration the recommendations of
organizations that commented on the
Partial Delay NPRM, including the
recommendation of numerous advocacy
organizations that the Department re-
propose a test no less protective than
the 80/20 guidance and WPI’s
recommendation that the Department
‘‘precisely identify’’ the duties for
which employers can and cannot take a
tip credit if it engages in further
rulemaking. The Department believes
that its proposed test will better identify
when an employer can continue to take
a tip credit for the time tipped
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employees spend on tasks that do not
themselves produce tips but support the
tip-producing work, and when an
employer cannot take a tip credit for
this work because the time spent
performing these tasks is so great that
work is no longer incidental and thus
the employee is no longer engaged in a
tipped occupation. Congress delegated
to the Department the authority to
determine what it means to be ‘‘engaged
in an occupation’’ that customarily and
regularly receives tips. See Fair Labor
Standards Amendments of 1966, Public
Law 89–601, § 101, §602, 80 Stat. 830,
830, 844 (1966). The Department has
decades of outreach, compliance
assistance, stakeholder engagement, and
enforcement experience in this area and
has relied on that experience to develop
a proposed test that provides clarity in
determining what work an employer
may take a tip credit for and also the
flexibility to address unique workplaces
and changing occupations.
Additionally, the Department believes
the proposed test, because it provides
clear and specific guidance, will ensure
fair and consistent application of the tip
credit in instances where tipped
employees perform non-tipped duties in
support of their tipped work.
The new test proposed in this
rulemaking permits an employer to
continue to take a tip credit for its
tipped employees when they are
performing work that is part of the
tipped occupation. Work that is part of
the tipped occupation includes any
work that produces tips, as well as any
work that directly supports the tip-
producing work, provided the directly
supporting work is not performed for a
substantial amount of time. To address
the criticisms of its past rules that the
Department has used largely undefined
terms such as ‘‘related duties’’, or used
unhelpful tools such as O*NET, to
determine the sorts of duties that fall
within the tipped occupation, the new
test proposed in this rulemaking
provides a number of examples to
illustrate the kinds of tasks that would
be included in each category of work
covered by the regulation: Work that is
part of the tipped occupation, which
includes a non-substantial amount of
directly supporting work, as well as
work that is not part of the tipped
occupation.
A. Proposed § 531.56(e)—Dual Jobs
Proposed § 531.56(e) would retain the
longstanding regulatory dual jobs
language which provides that when an
individual is employed in a tipped
occupation and a non-tipped
occupation, the tip credit is available
only for the hours the employee spends
working in the tipped occupation. The
Department also proposes to make this
section gender-neutral by using terms
such as ‘‘server’’ and ‘‘maintenance
person.’’
B. Proposed § 531.56(f)
Proposed § 531.56(f) defines what it
means for an employee to be engaged in
a tipped occupation under section 3(t)
of the FLSA. Specifically, an employee
is engaged in a tipped occupation when
they either perform work that produces
tips, or perform work that directly
supports the tip-producing work,
provided the directly supporting work is
not performed for a substantial amount
of time. Because an employer may not
take a tip credit for work that is not part
of the tipped occupation, proposed
§ 531.56(f) defines the relevant term
‘‘tipped occupation’’ specifically and
provides examples of tasks that fall into
those categories.
The Department believes that these
examples will assist employers and
employees in understanding the
parameters of those terms and will help
ensure consistent application of the test.
The proposed regulation lists tasks in
three occupations—servers, bartenders,
and nail technicians—that would fall
within the three categories of work set
out in the regulations. For example, the
proposed regulations explain that a
server’s tip-producing work includes
waiting on tables, work that directly
supports the server’s tip-producing
work includes cleaning the tables to
prepare for the next customers, and
work which is not part of a server’s
occupation includes food preparation
and cleaning bathrooms. A bartender’s
tip-producing work includes making
and serving drinks and talking to
customers, work that directly supports
the work includes preparing fruit to
garnish the prepared drinks, and work
that is not part of a bartender’s
occupation includes preparing food and
cleaning the dining room. Finally, the
proposed rule explains that a nail
technician’s tip-producing work
includes performing manicures and
pedicures, work that directly supports
the work of a nail technician includes
cleaning pedicure baths between
customers, and work that is not part of
the nail technician’s occupation
includes ordering supplies for the nail
salon. While not an exhaustive list, the
Department believes that these
examples set clear parameters for how
those three categories of work are
defined and applied.
Proposed § 531.56(f)(1)(i) would
permit an employer to take a tip credit
for the employee’s performance of work
that is part of the tipped occupation,
defined as work that produces tips. As
explained above, the proposed
regulation provides specific examples of
tip-producing work for three specific
occupations, which illustrate that tip-
producing work in many instances is
work which requires direct service to
customers. In addition to the tasks listed
in the proposed regulation, other
examples of tip-producing work would
include a parking attendant’s work
parking and retrieving cars, and
accepting payment for the same, a hotel
housekeeper’s work cleaning hotel
rooms, and bussers’ tip-producing work
would include filling water glasses and
clearing dishes from tables. However,
not all tip-producing work involves
direct customer service. A busser’s tip-
producing work, for example, would
also include work, such as putting new
linens on tables that is done in support
of other tipped employees, such as
servers. The Department recognizes that
tipped employees in different
occupations may have different tip-
producing work and requests comment
on its definition of tip-producing work
and these examples, and seeks input on
other occupations and examples that the
Department should consider.
Proposed § 531.56(f)(1)(ii) and (1)(iii)
would address when and to what extent
an employer can continue to take a tip
credit for a tipped employee’s work that
does not itself generate tips but that
supports the tip-producing work of the
tipped occupation because it assists a
tipped employee to perform the work
for which the employee receives tips. As
proposed, § 531.56(f)(1)(ii) defines this
supportive work as work that directly
supports tip-producing work, and
explains that this work can be
considered to be part of the tipped
occupation provided that it is not
performed for a substantial amount of
time.
The Department believes that defining
this as work that ‘‘directly supports’’ the
tip-producing work is more specific and
therefore more helpful than referring to
these tasks as duties that are related to
the tipped occupation. The Department
believes that the ‘‘related duties’’
terminology used in past tests may have
inadvertently caused confusion because
it could be interpreted to encompass
duties that are only remotely related to
the tipped occupation, particularly
because the Department provided only a
few examples of the type of work the
Department intended to include in this
term. In contrast, the proposed new
rule’s limited tolerance for non-tipped
work that ‘‘directly supports’’ tip-
producing work, which in turn is
defined as work that assists a tipped
employee to perform the work for which
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43
See, e.g., 29 U.S.C. 213(c)(6) (permitting 17-
year-olds to drive under certain conditions,
including that the driving be ‘‘occasional and
incidental,’’ and defining ‘‘occasional and
incidental’’ to, inter alia, mean ‘‘no more than 20
percent of an employee’s worktime in any
workweek’’); 29 CFR 786.100, 786.150, 786.1,
786.200 (nonexempt work for switchboard
operators, rail or air carriers, and drivers in the
taxicab business will be considered ‘‘substantial if
it occupies more than 20 percent of the time worked
by the employee during the workweek’’); 29 CFR
552.6(b) (defining ‘‘companionship services’’ that
are exempt from FLSA requirements to include
‘‘care’’ only if such ‘‘care . . . does not exceed 20
percent of the total hours worked per person and
per workweek’’).
44
See, e.g., Alverson v. BL Rest. Operations LLC,
No. 16–849, 2017 WL 3493048, at *5–6 (W.D. Tex.
Aug. 8, 2017), rep. & rec. adopted, 2018 WL
1057045 (W.D. Tex. Feb. 22, 2018); White v. NIF
Corp., No. 15–322, 2017 WL 210243, at *4 (S.D. Ala.
Jan. 18, 2017); Romero v. Top-Tier Colorado LLC,
274 F. Supp. 3d 1200, 1206 (D. Colo. 2017); Knox
v. Jones Group, 201 F. Supp. 3d 951, 960–61 (S.D.
Ind. 2016); Langlands v. JK & T Wings, Inc., No. 15–
13551, 2016 WL 2733092, at *3 (E.D. Mich. May 11,
2016); Irvine v. Destination Wild Dunes Mgmt., Inc.,
106 F. Supp. 3d 729, 733–34 (D.S.C. 2015); Flood
v. Carlson Restaurants Inc., 94 F. Supp. 3d 572,
582–84 (S.D.N.Y. 2015); Schaefer v. Walker Bros.
Enters., No. 10–6366, 2014 WL 7375565, at *3 (N.D.
Ill. Dec. 17, 2014); Holder v. MJDE Venture, LLC,
No. 08–2218, 2009 WL 4641757, at *3–4 (N.D. Ga.
Dec. 1, 2009).
45
The courts reasoned that this limitation is
consistent with the qualifiers ‘‘occasionally,’’ ‘‘part
of [the] time,’’ found in §531.56(e). See, e.g., Belt,
401 F. Supp. 3d at 536–37; Rorie, 485 F. Supp. 3d
at 1042; Berger, 430 F. Supp. 3d at 412; Roberson,
2020 WL 7265860, at *7–*8.
the employee receives tips, provides a
more concrete and specific definition of
the term.
The examples included in the
proposed regulatory text are not the
only tasks that the Department would
consider to be directly supporting work
under the new test. For example, work
that directly supports the work of a
server would also include folding
napkins, preparing silverware, and
garnishing plates before serving the food
to customers. Sweeping under tables
would be considered to be directly
supporting work if it is performed in
and limited to the dining room because
keeping the serving area clean assists
the performance of a server’s tip-
producing work. Likewise, work that
directly supports the work of a
bartender would also include wiping
down the surface of the bar and tables
in the bar area, cleaning bar glasses and
implements used to make drinks behind
the bar, arranging the bottles behind the
bar, and briefly retrieving from a
storeroom a particular beer, wine, or
liquor, and supplies such as ice and
napkins. Work that directly supports the
work of a nail technician would also
include cleaning manicure tools,
cleaning the floor of the nail salon, and
scheduling client appointments and
taking customer payments. Work that
directly supports the tip-producing
work of a parking attendant would
include moving cars in a parking lot or
parking garage to facilitate the parking
of patrons’ cars. Work that directly
supports the tip-producing work of a
hotel housekeeper would include
stocking the housekeeping cart. These
examples illustrate the nexus between
the tip-producing work and the
supporting work that is required to
conclude that the supporting work
directly supports the tip-producing
work within the meaning of the
proposed regulation. The proposed test
allows for some flexibility in
determining the nexus between the tip-
producing work and the directly
supporting work. The Department seeks
comment on these examples and seeks
input on other occupations and
examples that the Department should
consider.
Proposed § 531.56(f)(1)(iii) would
define substantial amount of time to
include two categories of time. Under
proposed § 531.56(f)(1)(iii), an employee
has performed work that directly
supports tip-producing work for a
substantial amount of time if the tipped
employee’s directly supporting work
either (1) exceeds 20 percent of the
hours worked during the employee’s
workweek or (2) is performed for a
continuous period of time exceeding 30
minutes. Under proposed
§ 531.56(f)(1)(iii)(A), if a tipped
employee spends more than 20 percent
of their workweek performing directly
supporting work, the employer cannot
take a tip credit for any time that
exceeds 20 percent of the workweek.
Under proposed § 531.56(f)(1)(iii)(B), if
a tipped employee spends a continuous,
or uninterrupted, period of time
performing directly supporting work
that exceeds 30 minutes, the employer
cannot take a tip credit for that entire
period of time that was spent on such
directly supporting work. The
Department believes that these two
measurements of time reflect the
manner in which tipped employees are
most likely to conduct non-tipped,
directly supporting work: On the one
hand, tipped employees may do an
incidental amount of non-tipped,
directly supporting work that is
interspersed with their tip-producing
work throughout the workday, and on
the other hand, tipped employees may
be assigned non-tipped, directly
supporting work for distinct blocks of
time. The Department believes that
measuring a ‘‘substantial amount of
time’’ in this way provides a uniform
and accurate measure of when a tipped
employee is still engaged in a tipped
occupation such that an employer can
pay a reduced cash wage for the time
spent on that work, but requests
comment on this proposed test.
The first prong of the Department’s
proposed test provides a tolerance that
permits an employer to continue taking
a tip credit for some part of the work
that its tipped employees perform
which directly supports their tip-
producing work. However, the
Department is proposing in its test to
limit the amount of this non-tipped
work, in recognition that if a tipped
employee engages in a substantial
amount of such work, the employee is
no longer employed in a tipped
occupation. The Department has thus
proposed, in part, to define ‘‘substantial
amount of time’’ as meaning more than
20 percent of the hours worked in a
workweek. A 20 percent limitation is
consistent with various other FLSA
provisions, interpretations, and
enforcement positions setting a 20
percent tolerance for work that is
incidental to but distinct from the type
of work to which an exemption
applies.
43
The Department believes this
tolerance is also reasonable and
consistent with the Department’s
previous practice under the 80/20
guidance.
As explained above, prior to 2018,
federal courts deferred to the
Department’s 80/20 guidance, including
both the Eighth and the Ninth Circuits.
See Applebee’s, 638 F.3d at 879–81;
Marsh, 905 F.3d at 623; see also Driver
v. AppleIllinois, LLC, 739 F.3d 1073,
1075 (7th Cir. 2014) (describing
underlying substantive legal issues by
relying on Department’s 80/20 guidance
and Applebee’s). District courts also
deferred to and relied on the
Department’s interpretation of the dual
jobs regulation.
44
Even after the
Department rescinded the 80/20
guidance, most federal courts to
consider the issue have declined to
defer to the new interpretation. As
explained above, many of those district
courts independently determined that a
20 percent tolerance is a reasonable
interpretation of the dual jobs
regulation.
45
The Department thus
believes that 20 percent of an
employee’s workweek is an appropriate
tolerance for non-tipped work that is
part of the tipped employee’s
occupation. The Department seeks
comments, however, on whether a
different portion of the employee’s
workweek would be appropriate or if
another metric would be more
appropriate.
In addition to the 20 percent
limitation, the proposed regulation also
defines ‘‘substantial amount of time’’ to
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include any continuous period of time
that exceeds 30 minutes. This proposal
addresses concerns with the 80/20
guidance, which the Department
identified in the 2020 Tip final rule, that
the guidance did not adequately address
the scenario where an employee
performs non-tipped, directly
supporting work for an extended period
of time, and thus essentially ceases to be
employed in the tipped occupation for
that entire block of time. See 85 FR
86769. The 2020 Tip final rule provided
an example of a bellhop who performed
tipped duties for 8 hours, and worked
for an additional 2 hours ‘‘cleaning,
organizing, and maintaining bag carts.’’
The Department noted that under the
80/20 guidance, the employer could
potentially take a tip credit for the entire
2 hour block of time, even though the
bellhop was ‘‘engaged in a tipped
occupation (bellhop) for 8 hours and a
non-tipped occupation (cleaner) for 2
hours.’’ Id. The proposed regulation
addresses this concern by requiring
employers to pay employees the full
cash minimum wage whenever they
perform non-tipped work, albeit work
that directly supports tipped work, for
a continuous block of time that exceeds
30 minutes. The Department’s proposal
that an employer cannot take a tip credit
for the entire block of time spent on
non-tipped work when the work is
performed for more than 30 minutes,
rather than time that exceeds the 30
minute standard, is premised on the
concept that the work is being
performed for such a significant,
continuous period of time that the
tipped employee’s work is no longer
being done in support of the tip-
producing work, such that the employee
is not engaged in a tipped occupation
for that entire period.
Particularly because the FLSA’s tip
credit provision permits employers to
compensate their tipped employees as
little as $2.13 an hour in direct cash
wages, it is important to ensure that this
reduced direct wage is available to
employers only when employees are
actually engaged in a tipped occupation
within the meaning of section 3(t) of the
statute. The tip credit provision allows
employers to pay a reduced cash wage
based on the assumption that a worker
will earn additional money from
customer-provided tips—at least $5.12
per hour in tips. When an employer
assigns an employee to perform non-
tipped duties continuously for a
substantial period of time, such as more
than 30 minutes, however, the
employee’s non-tipped duties are not
being performed in support of the
tipped work, and the employee is no
longer earning tips during that time.
Therefore, the employee is not engaged
in a tipped occupation.
Under the Department’s proposed
§ 531.56(f)(1)(iii)(B), if a tipped
employee performs non-tipped, directly
supporting work for a continuous period
of time that exceeds 30 minutes, the
employer cannot take a tip credit for the
entire period of time the non-tipped
work is performed. Thus, an employer
may take a tip credit for time a server
performs directly supporting work such
as cleaning the dining room at the end
of the day and preparing the tables for
the next day’s service, but only if that
time does not exceed 30 minutes. An
employee who performs non-tipped,
directly supporting work for more than
30 minutes does so for a substantial
amount of time. The Department
believes that a threshold of 30 minutes,
the majority of any given work hour, is
an appropriate time marker for
determining when an employee
continuously performing non-tipped
work is no longer performing incidental
work but instead has ceased to be
engaged in their tipped occupation for
that entire period. The Department
seeks comments, however, on whether a
different period of time would better
approximate this transition, and on how
to best define a substantial amount of
time for which the employer should no
longer be permitted to pay a cash wage
as low as $2.13 an hour.
The proposed rule also recognizes the
different situation where an employee
performs incidental, non-tipped work
for shorter periods of time. As described
above, when an employee performs non-
tipped work that directly supports the
tip-producing work for 30 minutes or
less, proposed § 531.56(f)(1)(iii)(A)
provides a general tolerance that
permits the employer to take a tip credit
for that work before it exceeds 20
percent of the workweek. This tolerance
is provided for ease of administration,
and in recognition of the fact, as noted
above, that most tipped occupations
involve an incidental amount of non-
tipped work that supports the tip-
producing activities and is interspersed
with those activities. Such work may
also be less foreseeable than when an
employer assigns an employee to
perform non-tipped directly supporting
work continuously for a period of more
than 30 minutes, further justifying the
tolerance.
The proposed regulation addresses
concerns raised in the 2020 Tip final
rule that the timeframe used to
determine compliance under the
Department’s previous 80/20 guidance
was unclear. See 85 FR 86770. The 20
percent tolerance applies to increments
of directly supporting work spanning 30
continuous minutes or less, and is
calculated on a workweek basis. Once
an employee spends more than 20
percent of the workweek on directly
supporting work, the employer cannot
take a tip credit for any additional time
spent on directly supporting work in
that workweek and must pay the full
minimum wage for that time. If an
employee spends more than 30
continuous minutes on work that
directly supports the tip-producing
work, the employer may not take a tip
credit and must pay the full minimum
wage for that entire continuous period
of time. Any time paid at the full
minimum wage would not count
towards the 20 percent workweek
tolerance. For example, if a server is
required to perform an hour of directly
supporting work at the end of each of
her five 8-hour shifts, each of those
hours spent performing directly
supporting work must be paid at the full
minimum wage and would not count
towards the 20 percent workweek
tolerance. If that same server also
performs 20 minutes of directly
supporting work three times each shift,
for a total of 1 hour per day, the
employer could take a tip credit for the
rest of the server’s supporting work
because the 5-hour total did not reach
the 20 percent tolerance for a 40-hour
workweek.
The Department believes that the
requirement limiting employer’s ability
to pay a reduced cash wage for non-
tipped, directly supporting work to less
than a substantial amount of time, as
discussed above, will not be onerous for
employers to implement. The preamble
to the 2020 Tip final rule criticized the
previous 80/20 guidance, discussing the
perceived need for employers to
‘‘precisely’’ track employees’ time spent
on non-tipped related duties in order to
comply with a percentage-of-time
limitation on those duties, and
employer’s concerns that such tracking
was difficult. See 85 FR 86769–70.
Upon further review and consideration,
however, the Department believes that
the limitations on performing non-
tipped work included in the proposed
rule allow employers ample ability to
assign to their tipped employees a non-
substantial amount of non-tipped duties
that directly support the tip-producing
work, without needing to account for
employees’ duties minute-by-minute.
Twenty percent of an employee’s
workweek is a significant amount of
time—equal to a full 8 hour workday in
a 5-day, 40-hour workweek. Particularly
because the proposed guidance provides
examples illustrating the type of work
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46
See 58 FR 51735, 51741 (Oct. 4, 1993).
that is part of the tipped occupation,
including work that is tip-producing
and work that directly supports the tip-
producing work, employers should be
able to proactively identify work that
counts toward the tolerance and assign
work to tipped employees accordingly,
to avoid going over this tolerance.
Similarly, a continuous, uninterrupted
block of 30 minutes or more is a
significant amount of time, and does not
require the minute-by-minute
micromanaging with which the 2020
Tip final rule expressed concern. In
addition, as noted above, employers are
likely to assign such work in a
foreseeable manner. As a general matter,
‘‘since employers, in order to manage
employees, must assign them duties and
assess completion of those duties, it is
not a real burden on an employer to
require that they be aware of how
employees are spending their time.’’
Irvine v. Destination Wild Dunes Mgmt.,
Inc., 106 F. Supp. 3d 729, 734 (D.S.C.
2015); see also Marsh, 905 F.3d at 631
(‘‘[I]t is not impracticable for an
employer to keep track of time spent on
related tasks.’’). Far from being an
arbitrary burden, showing that a tipped
employee does not perform a substantial
amount of non-tipped work is how an
employer can properly justify claiming
a tip credit rather than directly paying
the full minimum wage.
Finally, proposed § 531.56(f)(2) would
clarify that an employer cannot take a
tip credit for the time a tipped employee
spends performing work that is not part
of the tipped occupation, defined as any
work that does not generate tips and
does not directly support tip-producing
work. In addition to the work identified
in the examples, work that is not part of
the tipped occupation of a hotel
housekeeper would include cleaning
non-residential parts of a hotel, such as
a spa, gym, or the restaurant. Work that
is not part of the tipped occupation of
a busser would include, for example,
cleaning the kitchen of the restaurant.
Under the proposed rule, all time
performing any work that is not part of
the tipped occupation must be paid at
the full minimum wage. The
Department seeks comment on this part
of its proposed test, including whether
the list of examples appropriately
identify work that is not part of the
tipped occupation.
The Department requests comments
on its proposed revisions to § 531.56(e)
and all aspects of the new proposed
§ 531.56(f).
C. Proposed § 10.28(b)
The Department also proposes to
amend the provisions of the Executive
Order 13658 regulations, which address
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. The Department
proposes to amend § 10.28(b) consistent
with its proposed revisions to
§ 531.56(e) and (f) and seeks comment
on these proposed revisions.
VI. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(PRA) and its attendant regulations
require an agency to consider its need
for any information collections, their
practical utility, as well as the impact of
paperwork and other information
collection burdens imposed on the
public, and how to minimize those
burdens. The PRA typically requires an
agency to provide notice and seek
public comments on any proposed
collection of information contained in a
proposed rule. This proposed rule does
not contain a collection of information
subject to Office of Management and
Budget approval under the PRA.
VII. Executive Order 12866, Regulatory
Planning and Review; and Executive
Order 13563, Improved Regulation and
Regulatory Review
Under Executive Order 12866, OMB’s
Office of Information and Regulatory
Affairs (OIRA) determines whether a
regulatory action is significant and,
therefore, subject to the requirements of
the Executive Order and OMB review.
46
Section 3(f) of Executive Order 12866
defines a ‘‘significant regulatory action’’
as a regulatory action that is likely to
result in a rule that may: (1) Have an
annual effect on the economy of $100
million or more, or adversely affect 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) create
serious inconsistency or otherwise
interfere with an action taken or
planned by another agency; (3)
materially alter the budgetary impact of
entitlements, grants, user fees or loan
programs or the rights and obligations of
recipients thereof; or (4) raise novel
legal or policy issues arising out of legal
mandates, the President’s priorities, or
the principles set forth in the Executive
Order. OIRA has determined that this
proposed rule is economically
significant under section 3(f) of
Executive Order 12866.
Executive Order 13563 directs
agencies to, among other things, 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 obtaining the regulatory
objectives; and that, in choosing among
alternative regulatory approaches, the
agency has selected those approaches
that maximize net benefits. Executive
Order 13563 recognizes that some costs
and benefits are difficult to quantify and
provides 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. The analysis below outlines
the impacts that the Department
anticipates may result from this
proposed rule and was prepared
pursuant to the above-mentioned
executive orders.
A. Background
In 2018 and 2019, the Department
issued new guidance providing that the
Department would no longer prohibit an
employer from taking a tip credit for the
time an employee performs related, non-
tipped duties—as long as those duties
are performed contemporaneously with,
or for a reasonable time immediately
before or after, tipped duties. See WHD
Opinion Letter FLSA2018–27 (Nov. 8,
2018); FAB 2019–2 (Feb. 15, 2019);
WHD FOH 30d00(f). This guidance thus
removed the 20 percent limitation on
related, non-tipped duties that existed
under the Department’s prior 80/20
guidance. On December 30, 2020, the
Department published the 2020 Tip
final rule to largely incorporate this
2018–2019 guidance into its regulations.
The Department uses the 2018–2019
guidance as a baseline for this analysis
because this is what WHD has been
enforcing since the 2018–2019 guidance
was issued and is similar to the policy
codified in the 2020 Tip final rule.
In this NPRM, the Department
proposes to withdraw the dual jobs
portion of the 2020 Tip final rule and to
re-propose new regulatory language that
it believes will provide more clarity and
certainty for employers, and will better
protect employees. Specifically, the
Department is proposing to amend its
regulations to clarify that an employer
may not take a tip credit for its tipped
employees unless the employees are
performing work that is part of their
tipped occupation. This includes work
that produces tips, as well as work that
directly supports the tip-producing
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47
Jones, Maggie R. (2016), ‘‘Measuring the Effects
of the Tipped Minimum Wage Using W–2 Data,’’
CARRA Working Paper Series, U.S., Census Bureau,
Working Paper 2016–03, https://www.census.gov/
content/dam/Census/library/working-papers/2016/
adrm/carra-wp-2016-03.pdf.
48
Department of Labor, Wage and Hour Division,
‘‘Minimum Wages for Tipped Employees,’’ Updated
January 1, 2021. https://www.dol.gov/agencies/
whd/state/minimum-wage/tipped.
49
An establishment is a single physical location
where one predominant activity occurs. A firm is
an establishment or a combination of
establishments, and can operate in one industry or
multiple industries. See BLS, ‘‘Quarterly Census of
Employment and Wages: Concepts,’’ https://
www.bls.gov/opub/hom/cew/concepts.htm.
work, provided that the directly
supporting work is not performed for a
substantial amount of time. Under the
Department’s proposal, work that
‘‘directly supports’’ tip-producing work
is work that assists a tipped employee
to perform the work for which the
employee receives tips. In the proposed
regulatory text, the Department explains
that an employee has performed work
that directly supports tip-producing
work for a substantial amount of time if
the tipped employee’s directly
supporting work either (1) exceeds, in
the aggregate, 20 percent of the hours
worked during the employee’s
workweek or (2) is performed for a
continuous period of time exceeding 30
minutes. In order to analyze this
regulatory change, the Department has
quantified costs, provided an analysis of
transfers, and provided a qualitative
discussion of benefits. These impacts
depend on the interaction between the
policy proposed in this NPRM and any
underlying market failure—perhaps
most notably in this case, the
monopsony power created for
employers if their workers receive a
substantial portion of their
compensation in the form of tips.
47
B. Costs
The Department believes that this
proposed rule would result in three
types of costs to employers: Rule
familiarization costs, adjustment costs,
and management costs. Rule
familiarization and adjustment costs
would be one-time costs following the
promulgation of the final rule.
Management costs would likely be
ongoing costs associated with
complying with the rule.
1. Potentially Affected Entities
The Department has calculated the
number of establishments that could be
affected by this proposed rule using
2019 data from the Bureau of Labor
Statistics (BLS) Quarterly Census of
Employment and Wages (QCEW).
Because this rule relates to the
situations in which an employer is able
to take a tip credit under the FLSA, it
is unlikely that employers in states
without a tipped minimum wage or
employers in states with a direct cash
wage of over $7.25 would be affected by
this proposal, because they are already
paying their staff the full FLSA
minimum wage for all hours worked.
Therefore, the Department has dropped
the following states from the pool of
affected establishments: Alaska,
Arizona, California, Colorado,
Connecticut (Drinking Places (Alcoholic
Beverages) only), Hawaii, Minnesota,
Montana, Nevada, New York, Oregon,
and Washington.
48
Because the QCEW data only provides
data on establishments, the Department
has used the number of establishments
for calculating all types of costs. The
Department acknowledges that for some
employers, the costs associated with
this proposed rule could instead be
incurred at a firm level, leading to an
overestimate of costs.
49
Presumably, the
headquarters of a firm could conduct
the regulatory review for businesses
with multiple locations, but could also
require businesses to familiarize
themselves with the proposed rule at
the establishment level. The Department
welcomes comments on whether these
costs would be incurred at a firm or
establishment level.
The Department limited this analysis
to the industries that were
acknowledged to have tipped workers in
the 2020 Tip final rule, along with a
couple of other industries that have
tipped workers, which is consistent
with using the 2018–2019 guidance as
the baseline. These industries are
classified under the North American
Industry Classification System (NAICS)
as 713210 (Casinos (except Casino
Hotels)), 721110 (Hotels and Motels),
721120 (Casino Hotels), 722410
(Drinking Places (Alcoholic Beverages)),
722511 (Full-Service Restaurants),
722513 (Limited Service Restaurants),
722515 (Snack and Nonalcoholic
Beverage Bars), and 812113 (Nail
Salons). See Table 1 for a list of the
number of establishments in each of
these industries. The Department
understands that there may be entities
in other industries with tipped workers
who may review this rule, and
welcomes data and information on other
industries that should be included in
this analysis.
The Department has calculated that in
states that allow employers to pay a
lower direct cash wage to tipped
workers and in the industries
mentioned above, there are 470,894
potentially affected establishments.
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Table
1.
Number
of
Establishments in Affected Industries
Industry Establishments
NAICS 713210 (Casinos (except Casino Hotels)) 211
NAICS 721110 (Hotels and Motels) 41.768
NAICS 721120 (Casino Hotels) 175
NAICS 722410 (Drinking Places (Alcoholic Beverages)) 30,313
NAICS 722511 (Full-Service Restaurants) 171.296
NAICS 722513 (Limited Service Restaurants) 173.509
NAICS 722515 (Snack and Nonalcoholic Beverage Bars) 39,698
NAICS 812113 (Nail Salons) 13,924
Total 470,894
Source: BLS Quarterly Census
of
Employment and Wages, 2019
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50
BLS Occupational Employment and Wage
Statistics (OEWS), May 2019 National Occupational
Employment and Wage Estimates, https://
www.bls.gov/oes/2019/may/oes_nat.htm. Data for
2020 are now available, but the Department believes
that it is more appropriate to use 2019 data for the
analysis, because wages could have been affected by
structural changes associated with the COVID–19
pandemic. The Department has aligned the year of
the cost data with the pre-pandemic data used in
the transfer analysis discussed later.
51
The benefits-earnings ratio is derived from the
Bureau of Labor Statistics’ Employer Costs for
Employee Compensation data using variables
CMU1020000000000D and CMU1030000000000D.
2. Rule Familiarization Costs
Regulatory familiarization costs
represent direct costs to businesses
associated with reviewing the new
regulation. The Department believes one
hour per entity, on average, to be an
appropriate review time for this
proposed rule. This estimate does not
include any time employers spend
adjusting their business or pay
practices; that is discussed in the
adjustment cost section below. Many
employers are familiar with a 20 percent
tolerance, which is part of what is being
proposed in this rule, since the
Department enforced a 20 percent
tolerance for 30 years prior to the 2018–
2019 guidance, albeit in a different way.
The Department believes that some
employers in the industries listed above
do not have any tipped employees, or
do not take a tip credit, and would
therefore not review the rule at all. This
review time therefore represents an
average of employers who would spend
less than one hour or no time reviewing,
and others who would spend more time.
The Department welcomes comments
on how much time employers would
spend reviewing this proposed rule.
The Department’s analysis assumes
that the rule would be reviewed by
Compensation, Benefits, and Job
Analysis Specialists (Standard
Occupational Classification (SOC) 13–
1141) or employees of similar status and
comparable pay. The median hourly
wage for these workers was $31.04 per
hour in 2019.
50
The Department also
assumes that benefits are paid at a rate
of 46 percent and overhead costs are
paid at a rate of 17 percent of the base
wage, resulting in a fully loaded hourly
rate of $50.60.
51
The Department
estimates that regulatory familiarization
costs would be $23,827,236 (470,894
establishments × $50.60 × 1 hour). The
Department estimates that all regulatory
familiarization costs would occur in
Year 1.
3. Adjustment Costs
The Department expects that
employers may incur adjustment costs
associated with this rule. They may
adjust their business practices and
staffing to ensure that workers do not
spend more than 20 percent of their
time on directly supporting work, and
that directly supporting work does not
exceed more than 30 minutes
continuously. Additionally, as a result
of this proposed rule, some duties that
are currently considered related, non-
tipped duties of a tipped employee, for
which employers may take a tip credit
under certain conditions, could now be
considered duties that are not part of a
tipped occupation, for which employers
cannot take a tip credit. Accordingly,
some employers may also adjust their
business practices and staffing to
reassign such duties from tipped
employees to employees in non-tipped
occupations. Some employers may also
adjust their payroll software to account
for these changes, and may also provide
training for managers and staff to learn
about the changes. The Department
welcomes comments on the types of
adjustment costs that employers could
incur as a result of this rule.
The Department uses the same
number of establishments (470,894) as
discussed in the rule familiarization
section above, and also assumes that the
adjustments would be performed by
Compensation, Benefits, and Job
Analysis Specialists (SOC 13–1141) or
an employee of similar position and
comparable pay, with a fully loaded
wage of $50.60 per hour. The
Department estimates that these
adjustments would take an average of
one hour per entity. For employers that
would need to make adjustments, the
Department expects that these
adjustments could take more than one
hour. However, the Department believes
that many employers likely would not
need to make any adjustments at all,
because either they do not have any
tipped employees, do not take a tip
credit, or the work that their tipped
employees perform complies with the
requirements set forth in this proposed
rule. Therefore, the hour of adjustment
costs represents the average of the
employers who would spend more than
one hour on adjustments, and the many
employers who would spend no time on
adjustments. The Department welcomes
data on the amount of time employers
who need to make adjustments would
spend. The Department also welcomes
information about how many businesses
already manage their staff in a manner
that is in compliance with the
requirements set forth in this proposed
rule, and would therefore not need to
make any adjustments. The Department
estimates that adjustment costs would
be $23,827,236 (470,894 establishments
× $50.60 × 1 hour). The Department
estimates that all adjustment costs
would occur in Year 1.
4. Management Costs
The Department also believes that
some employers may incur ongoing
management costs, because in order to
make sure that they can continue to take
a tip credit for all hours of an
employee’s shift, they will have to
ensure that tipped employees are not
spending more than 20 percent of their
time on directly supporting work per
workweek, or more than 30 minutes
continuously performing such duties.
The Department does not believe that
these costs will be substantial, because
if employers are able to make the
upfront adjustments to scheduling, there
is less of a need for ongoing monitoring.
For example, if employers stop
assigning work to tipped employees that
will no longer be considered part of the
tipped occupation under this proposed
rule, this will be a one-time change that
does not necessitate ongoing
monitoring. Additionally, employers
may have also incurred similar
management costs under the 2018–2019
guidance, because in order to take a tip
credit for all hours, they would have
had to ensure that tipped employees did
not perform duties not related to their
tipped occupation, and that employees’
related, non-tipped work was
contemporaneous with or for a
reasonable time before or after the
tipped work.
The Department estimates that
employers would spend, on average, 10
minutes per week on management costs
in order to comply with this proposed
rule. The Department expects that many
employers will not spend any time on
management tasks associated with this
rule, because they do not claim a tip
credit for any of their employees, or
their business is already set up in a way
where the work their tipped employees
perform complies with the requirements
set forth in this proposed rule (such as
a situation where the tipped employees
perform minimal directly supporting
work). Therefore, this estimate of 10
minutes is an average of those
employers who would spend more time
on management tasks, and the many
employers who would spend no time on
management tasks. The Department
welcomes comments on how much time
employers would spend per week
managing their employees to ensure that
they comply with this proposed rule.
The Department therefore calculates
that the average annual time spent will
be 8.68 hours (0.167 hours × 52 weeks).
The Department’s analysis assumes
that the management tasks would be
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52
BLS Occupational Employment and Wage
Statistics (OEWS), May 2019 National Occupational
Employment and Wage Estimates, https://
www.bls.gov/oes/2019/may/oes_nat.htm.
53
Shierholz, H. and D. Cooper. 2019. ‘‘Workers
will lose more than $700 million annually under
proposed DOL rule.’’ Available at https://
www.epi.org/blog/workers-will-lose-more-than-700-
million-dollars-annually-under-proposed-dol-rule/.
54
As explained above, the 2020 Tip final rule—
which is not yet in effect—provided that a non-
tipped duty is merely presumed to be related to a
tip-producing occupation if it is listed as a task of
the tip-producing occupation in O*NET.
55
This methodology of estimating an outside
wage option was used in the Department’s 2020 Tip
Regulations under the Fair Labor Standards Act
(FLSA) final rule to determine potential transfer of
tips with the expansion of tip pooling.
performed by Food Service Managers
(SOC 11–9051) or employees of similar
status and comparable pay. The median
hourly wage for these workers was
$26.60 per hour in 2019.
52
The
Department also assumes that benefits
are paid at a rate of 46 percent and
overhead costs are paid at a rate of 17
percent of the base wage, resulting in a
fully loaded hourly rate of $43.36
($26.60 + $12.24 + $4.52). The
Department estimates that management
costs would be $177,227,926 (470,894
establishments × $43.36 × 8.68 hours).
The Department estimates that these
management costs would occur each
year.
5. Cost Summary
The Department estimates that costs
for Year 1 would consist of rule
familiarization costs, adjustment costs,
and management costs, and would be
$224,882,399 ($23,827,236 +
$23,827,236 + $177,227,926). For the
following years, the Department
estimates that costs would only consist
of management costs and would be
$177,227,926. Additionally, the
Department estimated average
annualized costs of this proposed rule
over 10 years. Over 10 years, it would
have an average annual cost of $183.6
million calculated at a 7 percent
discount rate ($151.1 million calculated
at a 3 percent discount rate). All costs
are in 2019 dollars.
C. Transfers
1. Introduction
As previously discussed, the
Department recognizes the concerns that
it did not adequately assess the impact
of the dual jobs provision of the 2020
Tip final rule. Therefore, for this
proposed rule, the Department provides
the following analysis of the transfers
associated with the proposed changes to
its dual jobs regulations, pursuant to
which employers would not be able to
take a tip credit for a substantial amount
of directly supporting work, defined as
20 percent of a tipped employee’s
workweek or a continuous period of
more than 30 minutes. The Department
has performed two different transfer
analyses for this proposed rule. The first
analysis refines a methodological
approach similar to the one described
by the Economic Policy Institute (EPI) in
response to the Department’s NPRM for
the 2020 Tip final rule, which proposed
to codify the Department’s 2018–2019
guidance, which replaced the 80/20
approach with a different related duties
test. See 84 FR 53956.
53
This analysis
helps demonstrate the range of potential
transfers that may result from this
proposed rule. The second analysis is a
retrospective analysis that looks at
changes to total hourly wages following
the 2018–2019 guidance to help inform
whether changes would occur in the
other direction following this proposed
rule.
Both of the Department’s analyses
discuss the transfers from employees to
employers that may have occurred from
the removal of the 80/20 approach, and
assumes that the direction of these
transfers would be reversed under this
proposed rule, which, similar to the 80/
20 guidance, includes a 20 percent
tolerance on directly supporting work.
The proposed rule would also preclude
employers from taking a tip credit for a
continuous period of more than 30
minutes of directly supporting work.
2. Potential Transfer Analysis
Under the approach outlined in the
2020 Tip final rule, and as originally put
forth in the 2018–2019 guidance,
employers can take a tip credit for
related, non-tipped duties so long as
they are performed ‘‘contemporaneously
with’’ or for ‘‘a reasonable time
immediately before or after tipped
duties.’’ Additionally, the 2018–2019
guidance uses the Occupational
Information Network (O*NET) to
determine whether a tipped employee’s
non-tipped duties are related to the
employee’s tipped occupation.
54
As
explained above, the Department is
concerned that the terms
‘‘contemporaneously with’’ and ‘‘a
reasonable time immediately before or
after tipped duties’’ do not provide clear
limits on the amount of time workers
can spend on non-tipped tasks for
which an employer is permitted to take
a tip credit. Under the 2018–2019
guidance, transfers would have arisen if
employers required tipped employees
for whom they take a tip credit, such as
servers and bartenders, to perform more
related, non-tipped duties, such as
cleaning and setting up tables, washing
glasses, or preparing garnishes for plates
or drinks, than they would have under
the prior 80/20 guidance. Because
employers would be taking a tip credit
for these additional related, non-tipped
duties instead of paying the full
minimum wage, tipped employees
would earn less pay because they would
be spending less time on tip-producing
duties, such as serving customers.
However, to retain the tipped workers
that they need, employers would have
needed to pay these workers as much as
their ‘‘outside option,’’ that is, the
hourly wage that they could receive in
their best alternative non-tipped job
with a similar skill level requirement to
their current position. For each tipped
employee, the Department assumed that
by assigning non-tipped work, an
employer could have only lowered the
tipped employee’s total hourly pay rate
including tips if the employee’s current
pay rate was greater than the predicted
outside-option wage from a non-tipped
job.
55
As a measure of the upper bound
of the amount of tips that employers
could have reallocated to pay for
additional hours of work, the
Department estimated the difference
between a tipped worker’s current
hourly wage and the worker’s outside-
option wage.
The Department is specifically
contemplating an example in which,
prior to 2018, a restaurant employed
multiple dishwashers and multiple
bartenders. The dishwashers earned a
direct cash wage of $7.25 per hour and
spent all of their time washing dishes
and doing other kitchen duties. The
bartenders earned a direct cash wage of
$2.13 per hour and spent all of their
time tending bar. Following the removal
of the 80/20 approach in the 2018–2019
guidance, the restaurant decided to
employ fewer dishwashers, and instead
hire one additional bartender and have
the bartenders all take turns washing bar
glasses throughout their shifts, adding
up to more than 20 percent of their time.
In this situation, the bartenders are each
earning fewer tips because they are
spending less time on tip-producing
duties, such as preparing drinks, and
more time on non-tip-producing duties,
such as washing bar glasses. The
employers’ wage costs have also
decreased, as they are paying more
workers a direct cash wage of $2.13
instead of $7.25. This results in a
transfer from employees to employers.
This transfer would be reversed
following the reinstatement of a time
limit on directly supporting work in this
proposed rule. The Department is
requesting comments and data on how
prevalent staffing changes like this were
following the 2018–2019 guidance of
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56
See Current Population Survey, U.S. Census
Bureau, https://www.census.gov/programs-surveys/
cps.html (last visited April 28, 2021); The
Department used the Center for Economic and
Policy Research. 2020. CPS ORG Uniform Extracts,
Version 2.5. Washington, DC, http:\\cedprdata.org/
cps-uniform-data-extracts/cps-outgoing-rotation-
group/cps-org-data/ (last visited April 27, 2021).
57
In the CPS, 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).
58
The Department considered the additional set
of occupations: SOC 39–5090 (Miscellaneous
Personal Appearance Workers), SOC 39–5012
(Hairdressers, hairstylists, and cosmetologists), SOC
39–5011 (Barbers), SOC 53–6021 (Parking
Attendants), SOC 37–2012 (Maids and
Housekeeping Cleaners), and SOC 31–9011
(Massage Therapists). Workers in these occupations
reported usually earning overtime pay, tips, and
commissions (OTTC) less often than in the tipped
occupations that the Department included in its
analysis (15.2 percent compared to 56.1 percent).
Additionally, a considerably lower proportion of
workers in this additional set of occupations
reported earning a direct wage below the federal
minimum wage per hour (1.2 percent compared to
27.8 percent).
59
Workers considered not affected by the 20
percent limitation were those in the following states
that either do not allow a tip credit or require a
direct cash wage of at least $7.25 as of 2019: Alaska,
Arizona, California, Colorado, Connecticut
(Bartenders only), Hawaii, Minnesota, Montana,
Nevada, New York, Oregon, and Washington.
60
The Department made this assumption because
tipped employees are generally paid hourly and
because the CPS does not include information on
tips received for nonhourly workers. 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 10 percent of wait staff and bartenders
in restaurants and drinking places are nonhourly
and the Department believes nonhourly workers
have a lower probability of receiving tips.
61
The Department was unable to determine
whether these workers were earning a direct cash
wage below $2.13 because their employers were not
complying with the minimum wage requirements of
the FLSA, or whether the data was incorrect.
62
According to BLS Current Population Survey
data, in 2018, workers in service occupations
worked an average of 35.2 hours per week. See
https://www.bls.gov/cps/aa2018/cpsaat23.htm.
the 2020 Tip Final Rule. The
Department also requests comments on
whether employers would make staffing
changes following this proposed rule.
a. Defining Tipped Workers
The Department used individual-level
microdata from the 2018 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 Outgoing Rotation Group
(CPS–ORG) and provide more detailed
information about those surveyed.
56
The
Department used 2018 CPS–ORG data to
avoid any unintentional impacts from
the issuance of the 2018–2019 guidance.
Because this analysis first looks at
transfers that could have occurred
following the 2018–2019 guidance, and
uses that estimate to inform what the
transfers would be following this rule,
all data tables in this analysis include
estimates for the year 2018, with dollar
amounts inflated to $2019 using the
GDP deflator and further refinements as
discussed below.
The Department included workers 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
BLS Standard Occupational
Classification (SOC) codes SOC 35–3031
(Waiters and Waitresses) and SOC 35–
3011 (Bartenders).
57
The Department
considered these two occupations
because they constitute a large
percentage of the workers in these
occupations receive tips (see Table 2 for
shares of workers in these occupations
who may receive tips). The Department
understands that there are other
occupations in these industries beyond
servers and bartenders with tipped
workers, such as SOC 35–9011 (Dining
Room and Cafeteria Attendants and
Bartender Helpers) and SOC 35–9031
(Hosts and Hostesses, Restaurant,
Lounge, and Coffee Shop). Additionally,
there may also be some tipped workers
in other industries who may be affected
such as nail technicians, parking
attendants, and hotel housekeepers.
58
The Department welcomes comments
on which occupations would be
affected, and therefore should be
included in the analysis.
Table 2 presents the total number of
bartenders and wait staff in restaurants
and drinking places. The number of
workers is then limited to those
potentially affected by the changes
proposed in this NPRM. This excludes
workers in states that do not allow a tip
credit, workers in states that requires a
direct cash wage of at least $7.25, and
workers in other states who are paid a
direct cash wage of at least the full
FLSA minimum wage of $7.25 (i.e.,
employees whose employers are not
taking a tip credit under the FLSA).
59
As
alluded to above, because this proposed
rule relates to the situations in which an
employer takes a tip credit, it is unlikely
that employees of employers that cannot
or otherwise do not take a tip credit
would be affected by this proposal. Both
of these populations were also excluded
from the analysis of potential transfers.
The Department also assumed that
nonhourly workers are not tipped
employees and excluded these workers
from the potentially affected
population.
60
Lastly, workers earning a
direct wage below $2.13 per hour were
dropped from the analysis.
61
This
results in 630,000 potentially affected
workers in these industries and
occupations.
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. CPS data are not available
separately for overtime pay, tips, and
commissions, but the Department
assumes very few bartenders and wait
staff receive commissions, and the
number who receive overtime pay but
not tips is also assumed to be
minimal.
62
Therefore, the Department
assumed bartenders and wait staff who
responded affirmatively to this question
receive tips. Table 2 presents the share
of potentially affected bartenders and
wait staff in restaurants and drinking
places who reported that they usually
earned OTTC in 2018: Approximately
86 percent of bartenders and 78 percent
of wait staff.
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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.
64
These states are Alaska, Arizona, California,
Connecticut (bartenders only), Hawaii, Minnesota,
Montana, Nevada, New York, Oregon, and
Washington.
65
For a full list of all occupations on O*NET, see
https://www.onetcenter.org/reports/
Taxonomy2010.html.
66
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.
T
ABLE
2—B
ARTENDERS AND
W
AIT
S
TAFF IN
R
ESTAURANTS AND
D
RINKING
P
LACES
Occupation Total
workers
(millions)
Potentially
affected
workers
(millions)
a
Potentially affected workers
who report earning OTTC
Workers
(millions) Percent
Total ................................................................................................................. 2.28 0.63 0.50 79.4
Bartenders ................................................................................................ 0.37 0.09 0.07 85.5
Waiters/Waitresses ................................................................................... 1.91 0.54 0.42 78.4
Source: CEPR, 2018 CPS–ORG.
a
Excludes workers in states that do not allow a tip credit, workers in states that require a direct cash wage of at least $7.25, and workers in
other states who are paid a direct cash wage of at least the full FLSA minimum wage of $7.25 (i.e., employers whose employers are not using a
tip credit). Also excludes nonhourly workers.
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 500,000 bartenders and wait
staff who receive OTTC, only 310,000
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 3, 69 percent of
bartenders’ earnings (an average of $339
per week) and 68 percent of wait staff’s
earnings (an average of $251 per week)
were from overtime pay, tips, and
commissions in 2018. 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 (69 or 68
percent) was applied to their weekly
total income to estimate weekly tips.
T
ABLE
3—P
ORTION OF
I
NCOME FROM
O
VERTIME
P
AY
, T
IPS
,
AND
C
OMMISSIONS FOR
B
ARTENDERS AND
W
AIT
S
TAFF IN
R
ESTAURANTS AND
D
RINKING
P
LACES
Occupation
Those who report the amount earned in OTTC
Workers Average
weekly
earnings
Average
weekly
OTTC
Percent of
earnings
attributable
to OTTC
Total ................................................................................................................. 309,690 $386.44 $262.56 68
Bartenders ................................................................................................ 40,354 491.03 338.67 69
Waiters and waitresses ............................................................................ 269,335 370.77 251.16 68
Source: CEPR, 2018 CPS–ORG, 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).
b. Outside-Option Wage
The Department assumed that
employers only reduce the hourly wage
rate of tipped employees for whom they
are taking a tip credit if the tipped
employee’s total hourly wage, including
the tips the employee retains, are greater
than the ‘‘outside-option wage’’ that the
employee could earn in a non-tipped
job. To model a worker’s outside-option
wage, the Department used a quartile
regression analysis 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.
63
The
Department restricted the regression
sample to non-tipped workers earning at
least the applicable state minimum
wage (inclusive of OTTC), and those
who are employed. This analysis
excludes workers in states where the
law prohibits employers from taking a
tip credit or that require a direct cash
wage of at least $7.25.
64
In calculating the outside-option wage
for tipped workers, the Department
defined the comparison sample as non-
tipped workers in a set of occupations
that are likely to represent outside
options. The Department determined
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 O*NET system
for occupations that share important
similarities with wait staff and
bartenders—the occupations had to
require ‘‘customer and personal service’’
knowledge and ‘‘service orientation’’
skills.
65
The list was further reduced by
eliminating occupations that are not
comparable to the wait staff and
bartender occupations in terms of
education and training, as wait staff and
bartender occupations do not require
formal education or training. See
Appendix Table 1 for a list of these
occupations.
The regression analysis calculates a
distribution of outside-option wages for
each worker. The Department used 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.
66
This method
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Predicted overtime pay is calculated as (1.5 ×
base wage) × weekly hours worked over 40.
68
A worker’s reservation wage is the minimum
wage that the worker requires to participate in the
labor market. It roughly represents the worker’s
monetary value of an hour of leisure. If the worker’s
reservation wage is greater than their outside option
wage, the worker may exit the labor market if tips
are reduced.
69
See for example Kahn, S. 1997. ‘‘Evidence of
Nominal Wage Stickiness from Microdata.’’ The
American Economic Review. 87(5): 993–1008.
Hanes, C. 1993. ‘‘The Development of Nominal
Wage Rigidity in the Late 19th Century.’’ The
American Economic Review 83(4): 732–756.
Kawaguchi, D. and F. Ohtake. 2007. ‘‘Testing the
Morale Theory of Nominal Wage Rigidity.’’ ILR
Review 61(1): 59–74. Kaur, S. 2019. ‘‘Nominal Wage
Rigidity in Village Labor Markets.’’ American
Economic Review 109(10): 3585–3616.
70
See Section VI.E. for a more detailed discussion
of the effects of the COVID–19 pandemic.
assumes that a worker’s position in the
wage distribution for wait staff and
bartenders reflects their position in the
wage distribution for the outside-option
occupations.
c. Potential Transfer Calculation
After determining each tipped
worker’s outside-option wage, the
Department calculated the potential
reduction in pay as the lesser of the
following three numbers:
The positive differential between a
worker’s current earnings (wage plus
tips) and their predicted outside-option
wage,
the positive differential between a
worker’s current earnings and the state
minimum wage, and
the total tips earned by the worker.
The second number is included for
cases where the outside-option wage
predicted by the analysis is below the
state minimum wage, because the
worker cannot earn less than their
applicable state minimum wage in non-
tipped occupations. The third number is
included because the maximum
potential tips that can be transferred
from an employee cannot be greater
than their total tips. Total tips for each
worker were calculated from the OTTC
variable in the CPS data. The
Department subtracted predicted
overtime pay to better estimate total
tips.
67
For workers who reported
receiving OTTC, but did not report the
amount they earned, the Department
applied the ratio of tipped earnings to
total earnings for wait staff or bartenders
(see Table 2).
To determine the aggregate annual
potential total tip transfer, the
Department multiplied the weighted
sum of weekly tip transfers by 45.2
weeks—the average weeks worked in a
year for wait staff and bartenders in the
2018 CPS Annual Social and Economic
Supplement. The resulting annual
estimate of the upper bound of potential
transfers from tipped employees to
employers is $714 million). This
estimate is an upper bound, because
following the 2018–2019 guidance, an
employer could have, at most, had a
tipped worker do more related non-
tipped work until their overall earnings
reached their outside option wage. In
order to further refine this estimate, and
adjust down this upper bound, the
Department requests data on how much
related non-tipped work tipped
employees were performing prior to the
2018–2019 guidance and how that
changed with the removal of the 80/20
approach. The Department requests
information on whether employers
increased the number of employees for
which they took a tip credit, and
decreased the number of employees for
which they paid a direct cash wage of
at least $7.25. The Department also
requests data about how the amount of
time that employees spend on directly
supporting work would change
following the requirements proposed in
this rule.
The above analysis looks only at how
the hourly earnings would change. It
may also be informative to see how
weekly earnings would change.
Lowering the total hourly earnings of
employees will either:
1. Lower the weekly earnings of these
employees if their weekly hours worked
remain the same; or
2. Require that these employees work
more hours per week to earn the same
amount per week.
The workers for whom potential pay
reductions could have occurred had
average weekly earnings of $473; on
average, their weekly earnings could
have been reduced by as much as $105,
assuming their hours worked per week
remained the same.
As noted above, this transfer estimate
is based on the Department’s 2019
proposal to codify the 2018–2019
guidance, which removed the 20
percent limitation on related, non-
tipped duties, into the Department’s
regulations. The Department believes
that this transfer analysis both
underestimates and overestimates
potential transfers. This estimate may be
an underestimate because it does not
include all possible occupations and
industries for which there may be
transfers. Additionally, it does not
include workers with tipped jobs that
are not listed as their main job in the
CPS–ORG data. Additionally, the
Department believes that transfers that
would result from this proposed rule
may exceed the transfers that would
occur from reinstating the previous 80/
20 guidance. As noted above, under this
proposal, employers would be
prohibited from taking a tip credit for a
substantial amount of directly
supporting work, defined as 20 percent
of the tipped employee’s workweek or a
continuous period of more than 30
minutes.
The Department believes that these
estimates are also an overestimate,
because they assume that every
employer that takes a tip credit and for
whom it was economically beneficial
would lower the hourly rate (including
tips) of tipped employees to their
outside-option wage. In reality, even
when it is seemingly economically
beneficial from this narrow perspective,
many employers may not have changed
their non-tipped task requirements with
the removal of the 20 percent limitation
because it would have required changes
to the current practice to which their
employees were accustomed. There are
reasons it is not appropriate to assume
that all employers are able to extract all
the earnings above the outside-option
wage of their employees for whom they
take a tip credit. For example,
decreasing workers’ hourly earnings
might reduce morale, leading to lower
levels of efficiency or customer service.
The reduction in workers’ earnings may
also lead to higher turnover, which can
be costly to a company. Part of this
turnover may be due to workers’ wages
falling below their reservation wage and
causing them to exit the labor force.
68
In
support of this, researchers have found
evidence of downward nominal wage
stickiness, meaning that employees
rarely experience nominal wage
decreases with the same employer.
69
Although in this case the direct wage
paid by the employer would not change,
these tipped employees’ total hourly
pay including tips would decrease due
to the employer requiring more work on
non-tipped tasks leading to earning
fewer tips per hour. While some
empirical evidence, such as the Kahn
paper cited above, indicates that
employers are unlikely to make changes
in work requirements that would lower
employees’ nominal hourly earnings,
this evidence may not hold in low-wage
industries such as food service and in
times of structural changes to the
economy, such as during the COVID–19
pandemic.
70
Additionally, even if
employers may be constrained from
having current employees take on more
non-tipped work, they could institute
these changes for any newly hired
employees, so the reduction in average
earnings would be over a longer-term
time horizon.
The Department believes that another
potential reason these transfer estimates
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National Women’s Law Center, ‘‘Women in
Tipped Occupations, State by State,’’ May 2019.
https://nwlc.org/wp-content/uploads/2019/06/
Tipped-workers-state-by-state-2019.pdf.
72
Sylvia A. Allegretto and David Cooper,
‘‘Twenty-three Years and Still Waiting for Change:
Why It’s Time to Give Tipped Workers the Regular
Minimum Wage,’’ July 10, 2014. https://
files.epi.org/2014/EPI-CWED-BP379.pdf.
73
See supra note 3 (identifying cases in which
courts declined to defer to the 2018–19 guidance).
may be an overestimate is because of the
interaction with the tip pooling
provisions of the 2020 Final Rule. The
2020 Tip final rule codified the
Consolidated Appropriations Act (CAA)
amendments from 2018, which allowed
employers to institute mandatory
‘‘nontraditional’’ tip pools to include
both front-of-the-house and back-of-the-
house workers, as long as they paid all
employees a direct cash wage of at least
$7.25. See 85 FR 86765. The portions of
the 2020 Tip final rule addressing tip
pooling went into effect on April 30,
2021. See 86 FR 22598. Following this
change, some employers may have been
incentivized to no longer take a tip
credit, and pay all of their employees
the full minimum wage. For these
employees, the dual jobs analysis is no
longer relevant, because they are already
earning at least $7.25 for all hours
worked. To the extent that employers
responded to the CAA amendments by
electing to stop taking a tip credit in
order to institute a nontraditional tip
pool, the Department believes that the
transfers predicted in this analysis may
be an overestimate.
However, the Department does not
know to what extent this overestimate
has occurred, because data is lacking on
how many employers stopped taking a
tip credit to expand their tip pools
following the CAA amendments.
Employers may not have acted on new
incentives to shift away from their
current tip credit arrangements.
Additionally, some states and local
areas may not allow employer-mandated
tip pooling, so employers in these areas
would not have made adjustments
following the change in tip pooling
provisions. Moreover, there is
uncertainty about the future trajectory of
state employment regulations; if state-
level prohibitions on mandatory tip
pooling were to become more
widespread, the scope of the tip pooling
provisions’ impacts could decrease and,
in turn, the scope for this NPRM’s
impacts could increase (thus potentially
making the $714 million estimate less of
an overstatement farther in the future
than in the near-term). Lastly, the CAA
amendments were enacted in March
2018, so although the Department
expects that it may have taken
employers time to implement changes to
their pay practices, any employers that
stopped taking a tip credit in order to
institute a nontraditional tip pool
directly following the CAA amendments
could have already been excluded from
the transfer calculation. The Department
does not know if employers would have
changed their usage of the tip credit
following the CAA amendments, or
waited to make the change until the
codification of the CAA in the 2020 Tip
final rule. As noted above, the tip
pooling provisions of the 2020 Tip final
rule went into effect on April 30, 2021.
The Department also looked at the
share of workers earning a direct wage
of less than $7.25 in 2018 and 2019, and
found no statistically significant
difference between those two years.
Because of this, and for all of the
reasons discussed above, the
Department has not quantified the
reduction in transfers associated with
the fact that the CAA allowed employers
to institute nontraditional tip pools that
include back-of-the-house workers.
However, it welcomes comments on the
extent to which employers stopped
taking a tip credit in order to expand
their tip pools to include back-of-the-
house workers.
The transfer estimate may also be an
overestimate because it assumes that the
2018–2019 guidance, and the 2020 Tip
final rule, completely lacked a
limitation on non-tipped work. As
discussed above, there was a limit put
forth in this approach, but it was not
clearly defined.
The Department was unable to
determine what proportion of the total
tips estimated to have been potentially
transferred from these workers were
realistically transferred following the
replacement of its prior 80/20 guidance
with the 2018–2019 guidance. The
Department assumes that the likely
potential transfers were somewhere
between a lower bound of zero and an
upper bound of $714million, depending
on interactions between federal and
state-level policies. The Department
believes that the reasons the estimate is
an overestimate outweigh the reasons
the estimate is an underestimate, but
requests comments and data to help
inform this assumption. Therefore, the
Department believes that this proposed
rule would result in transfers from
employers to employees, but at a
fraction of the upper bound of transfers.
The Department does not have data to
determine what percentage of the
maximum possible transfers is likely to
result from this proposed rule, and
welcomes comments and data to help
inform this analysis.
If the proposal results in transfers to
tipped workers, it could also lead to
increased earnings for underserved
populations. Using data from the
American Community Survey, the
National Women’s Law Center found
that about 70 percent of tipped workers
are women and 26 percent of tipped
workers are women of color.
71
Tipped
workers also have a poverty rate of over
twice that of non-tipped workers.
72
3. Retrospective Transfer Analysis
(Extrapolated Forward)
Because the 80/20 guidance was
withdrawn through guidance published
in November 2018 and February 2019,
the Department also looked at whether
employees’ wages and tips changed
following the 2018–2019 guidance to
help inform the analysis of transfers
associated with this proposed rule. If
there was a significant drop in tips, it
could mean that employers were having
employees do more non-tipped work in
response to the guidance.
The Department used the 2018 and
2019 CPS–ORG data to estimate
earnings of tipped workers for whom
their employers are taking a tip credit.
Comparisons were restricted to
observations in the months of February-
November in each year to compare
before and after the guidance. The
Department looked at the difference in
tips per hour, total hourly wages (direct
wages plus tips), and weekly earnings in
2018 and 2019. None of the differences
in values between these two periods
was statistically significant. The
Department also ran linear regressions
on these three variables using the set of
controls used in the outside-option
wage regressions discussed above (state,
age, education, gender, race/ethnicity,
citizenship, marital status, veteran,
metro area) and also found that none of
the differences were statistically
significant.
This lack of a significant decline in
tips and total wages could imply that
employers had not directed employees
to do more non-tipped work following
the guidance, and that there would also
be little to no transfers associated with
the requirement put forth in the
proposed rule. However, it is also
possible that employers had made no
changes in response to the guidance, but
would have shifted employees’ duties
following the 2020 Tip final rule. As
noted above, federal courts largely
declined to defer to the Department’s
2018–2019 guidance, and this may have
influenced employer’s decisions as
well.
73
Additionally, it may be that the
time period is too short to really observe
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74
Jones, Maggie R. (2016), ‘‘Measuring the Effects
of the Tipped Minimum Wage Using W–2 Data,’’
CARRA Working Paper Series, U.S., Census Bureau,
Working Paper 2016–03, https://www.census.gov/
content/dam/Census/library/working-papers/2016/
adrm/carra-wp-2016-03.pdf; Wessels, Walter John
(1997), ‘‘Minimum Wages and Tipped Servers,’’
Economic Inquiry 35: 334–349, April 1997.
75
One Fair Wage, ‘‘Service Workers’ Experience
of Health & Harassment During COVID–19’’,
November 2020. https://onefairwage.site/wp-
content/uploads/2020/11/OFW_COVID_
WorkerExp_Emb-1.pdf.
76
BLS Current Employment Statistics, https://
www.bls.gov/ces/. Series ID CES7072251101.
77
Carolina Gonzales, ‘‘Restaurant Closings Top
110,000 With Industry in ‘Free Fall,’’’ December 7,
2020. https://www.bloomberg.com/news/articles/
2020-12-07/over-110-000-restaurants-have-closed-
with-sector-in-free-fall.
78
Statistics of U.S. Businesses 2017, https://
www.census.gov/data/tables/2017/econ/susb/2017-
susb-annual.html, 2016 SUSB Annual Data Tables
by Establishment Industry.
a meaningful difference. The
Department chose not to examine data
from 2020, as average hourly wages
during that year increased as low-wage
workers in the leisure and hospitality
industry were out of work due to the
COVID–19 pandemic, making
meaningful comparisons difficult.
Furthermore, as noted elsewhere in this
regulatory impact analysis, other tip-
related policy changes occurred in 2018,
thus creating challenges in estimating
impacts attributable to each such policy.
The Department welcomes comments
and data on this analysis, specifically
whether employers made changes in
response to the 2018–2019 guidance, or
whether they were planning to make
changes until after the 2020 Tip final
rule.
D. Benefits and Cost Savings
The Department believes that one
benefit of this proposed rule is
increased clarity for both employers and
workers. In the 2020 Tip final rule, the
Department said that it would not
prohibit an employer from taking a tip
credit for the time a tipped employee
performs related, non-tipped duties, as
long as those duties are performed
contemporaneously with, or for a
reasonable time immediately before or
after, tipped duties. However, the
Department did not define
‘‘contemporaneously’’ or a ‘‘reasonable
time immediately before or after.’’ If the
2020 Tip final rule’s revisions to the
dual jobs regulations had gone into
effect, the Department believes that the
lack of clear definitions of these terms
could have made it more difficult for
employers to comply with the
regulations and more difficult for WHD
to enforce them. The reinstatement of
the historically used 20 percent work
week tolerance of work that does not
produce tips but is part of the tipped
occupation, together with the 30
continuous minute limit on directly
supporting work, along with examples
and explanations, will make it easier for
employers to understand their
obligations under the Fair Labor
Standards Act, and will ensure that
workers are paid the wages that they are
owed.
Under this proposed rule, employers
will also no longer need to refer to
O*NET to determine whether a tipped
employee’s non-tipped duties are
related to their tipped occupation. The
duties listed in O*NET could change
over time, so an employer would have
had to make sure to regularly review the
site to ensure that they are in
compliance. This proposed rule could
result in cost savings related to
employers’ time referencing O*NET.
The Department welcomes comments
on other cost savings associated with
the clarity provided by this rule.
As noted previously in this regulatory
impact analysis, the phenomenon of
tipping can create monopsony power in
the labor market. As a result, the
relationship between minimum wages
for tipped employees and employment
of such workers has been estimated by
some to be quadratic—with employment
increasing over some range of minimum
wage increases and decreasing over a
further range.
74
Although this NPRM
does not change the minimum direct
cash wage that must be paid when an
employer claims a tip credit, one way
that an employer could comply with the
requirements proposed in this rule is to
pay tipped workers a direct cash wage
of at least $7.25 for all hours worked.
An employer could discontinue taking a
tip credit if they found it more
beneficial not to limit the amount of
directly supporting work performed by
a tipped employee. The Department
welcomes comments on the likelihood
of this outcome and data that would
help facilitate quantification of such
changes.
The Department also welcomes
comments and data on additional
benefits of this proposed rule.
E. Note on the Effects of the COVID–19
Pandemic
The Department notes that this
analysis relies on data from 2018 and
2019, which is prior to the COVID–19
pandemic. Because many businesses
were shut down during 2020 or had to
change their business model, especially
restaurants, the economic situation for
tipped workers likely changed due to
the pandemic. For example, a survey
from One Fair Wage found that 83
percent of respondents reported that
their tips had decreased since COVID–
19, with 66 percent reporting that their
tips decreased by at least 50 percent.
75
This reduction in tips received could
result in a decrease in the amount of
transfers calculated above.
The labor market has likely changed
for tipped workers during the pandemic,
and could continue to change following
the recovery from the pandemic,
especially in the restaurant business.
The full-service restaurant industry lost
over 1 million jobs since the beginning
of the pandemic,
76
and by the end of
2020, over 110,000 restaurants had
closed permanently.
77
These industry
changes could impact workers’ wages,
as well as their ability and willingness
to change jobs. There may also be other
factors such as safety influencing
workers’ choice of workplace, which
could distort labor market assumptions
and behavior. Workers that value the
security and safety of their job could be
less willing to leave for another job,
even if their net earnings decreased, and
this could have an impact on the
outside-option analysis.
The Department welcomes data and
information on how tipped workers
were affected by the pandemic, and how
the analysis discussed in this proposed
rule would be adjusted to account for
these changes.
VIII. Regulatory Flexibility Act (RFA)
Analysis
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 proposals
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
this proposed rule to determine whether
it would have a significant economic
impact on a substantial number of small
entities. The most recent data on private
sector entities at the time this NPRM
was drafted are from the 2017 Statistics
of U.S. Businesses (SUSB).
78
The
Department limited this analysis to the
industries that were acknowledged to
have tipped workers in the 2020 Tip
final rule. These industries are classified
under the North American Industry
Classification System (NAICS) as
713210 (Casinos (except Casino Hotels),
721110 (Hotels and Motels), 721120
(Casino Hotels), 722410 (Drinking
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Places (Alcoholic Beverages)), 722511
(Full-Service Restaurants), 722513
(Limited Service Restaurants), 722515
(Snack and Nonalcoholic Beverage
Bars), and 812113 (Nail Salons). As
discussed in Section IV.B.1, there are
470,894 potentially affected
establishments. The QCEW does not
provide size class data for these detailed
industries and states, but the
Department calculates that for all
industries nationwide, 99.8 percent of
establishments have fewer than 500
employees. If we assume that this
proportion holds true for the affected
states and industries in our analysis,
then there are 469,952 potentially
affected establishments with fewer than
500 employees.
The Year 1 per-entity cost for small
business employers is $477.56, which is
the regulatory familiarization cost of
$50.60, plus the adjustment cost of
$50.60, plus the management cost of
$376.36. For each subsequent year, costs
consist only of the management cost.
See Section IV.B for a description of
how the Department calculated these
costs. The Department has provided
tables with data on the impact on small
businesses, by size class, for each
industry included in the analysis.
BILLING CODE 4510–27–P
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Table
4.
NAICS
713210 -
Casinos
(Except
Casino
Hotels)
Number
of
Firms Average First First Year
Number as Percent
of
Small Total Number Annual Receipts per Year
Cost
per
Firm
of
Firms Firms
of
Employees Receipts
Firm
Cost per as Percent
of
in lndustrv
Firm
Receiots
Firms with 0-4 10 18.9% 18 $5,209,000 $520,900 $478 0.09%
employees
Firms with 5-9 0 0.0% 0 $0 $0 $478 0.00%
employees
Firms with 10-19 0 0.0% 0 $0 $0 $478 0.00%
employees
Firms with <20 12 22.6% 29 $5,419,000 $451,583 $478 0.11%
employees
Firms with 20-99 0 0.0% 0 $0 $0 $478 0.00%
employees
Firms with 100-499 26 49.1% 6,264 $761,372,000 $29,283,538 $478 0.00%
employees
Firms with <500
53
100.0% 6,743 $817,192,000 $15,418,717 $478 0.00%
employees
Firms with >500 24 45.3% 20,148 $4,914,882,000 $204,786,750 $478 0.00%
employees
Source:
U.S.
Census Bureau Statistics
of
U.S.
Businesses, 2017
SUSB
Annual
Data
Tables
by Establishment Industry
Table
5
NAICS
721110 -
Hotels
and
Motels
Number
of
Firms as Average First First Year
Number Percent
of
Small Total Number Annual Receipts per Year
Cost
per Firm
of
Firms Firms
of
Employees Receipts
Firm
Cost
per as Percent
of
in Industrv
Firm
Receiots
Firms with 0-4 10,947 35.1% 17,143 $4,371,463,000 $399,330 $478 0.12%
employees
Firms with 5-9 4,818 15.5% 32,968 $8,336,706,000 $1,730,325 $478 0.03%
employees
Firms with 10-19 7,167 23.0% 100,872 $8,336,706,000 $1,163,207 $478 0.04%
employees
Firms with <20 22,934 73.6% 150,997 $15,921,106,000 $694,214 $478 0.07%
employees
Firms with 20-99 7,160 23.0% 240,673 $20,671,674,000 $2,887,105 $478 0.02%
employees
Firms with 100-499 1,081 3.5% 150,879 $14,128,738,000 $13,070,063 $478 0.00%
emPloYees
Firms with <500 31,175 100.0% 542,549 $50,721,518,000 $1,626,993 $478 0.03%
employees
Firms with >500 1,630 5.2% 512,075 $62,705,672,000 $38,469,737 $478 0.00%
employees
Source:
U.S.
Census Bureau Statistics
of
U.S.
Businesses, 2017
SUSB
Annual
Data Tables by Establishment Industry
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Table 6 NAICS 721120 -Casino Hotels
Number
of
Finns as Average First First Year
Number Percent
of
Small Total Number Annual Receipts per Year Cost per
Frrm
of
Finns Finns
of
Employees Receipts Finn
Cost
per as Percent
of
in
lndustrv Finn Receiots
Firms with 0-4 3 6.5% 0 $0 $0 $478 0.00%
employees
Firms with 5-9 0 0.0% 0 $0 $0 $478 0.00%
employees
Firms with 10-19 0 0.0% 0 $0 $0 $478 0.00%
employees
Firms with <20 8 17.4% 14 $8,215,000 $1,026,875 $478 0.05%
employees
Firms with 20-99 3 6.5% 195 $14,229,000 $4,743,000 $478 0.01%
emolovees
Firms with 100-499 27 58.7% 7,177 $860,044,000 $31,853,481 $478 0.00%
employees
Firms with <500 46 100.0% 8,217 $1,007,450,000 $21,901,087 $478 0.00%
employees
Firms with >500 84 182.6% 118,524 $18,217,851,000 $216,879,179 $478 0.00%
emolovees
Source: U.S. Census Bureau Statistics
of
U.S. Businesses,
2017
SUSB
Annual
Data Tables by Establishment Industry
Table 7 NAICS 722410 -Drinking Places (Alcoholic Beverages)
Number
of
Finns as Average First First Year
Number Percent
of
Small Total Number Annual Receipts per Year Cost per
Frrm
of
Finns Finns
of
Employees Receipts Finn Cost per as Percent
of
in
lndustrv Finn Receiots
Firms with 0-4 13,749 50.8% 26,626 $2,881,174,000 $209,555 $478 0.23%
employees
Firms with 5-9 6,707 24.8% 44,050 $2,715,239,000 $404,837 $478 0.12%
employees
Firms with 10-19 3,729 13.8% 49,361 $2,715,239,000 $728,141 $478 0.07%
employees
Firms
with
<20 24,187 89.3% 120,064 $8,241,853,000 $340,755 $478 0.14%
employees
Firms with 20-99 2,741 10.1% 96,465 $5,063,067,000 $1,847,161 $478 0.03%
employees
Firms
with
100-499 138 0.5% 14,534 $859,303,000 $6,226,833 $478 0.01%
employees
Firms
with
<500 27,088 100.0% 232,886 $14,249,073,000 $526,029 $478 0.09%
emolovees
Firms
with
>500 64 0.2% 4,151 $372,813,000 $5,825,203 $478 0.01%
employees
Source: U.S. Census Bureau Statistics
of
U.S. Businesses,
2017
SUSB
Annual
Data Tables by Establishment Industry
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Table 8 NAICS 722511 -Full-Service Restaurants
Number
of
Fimis as Average First First Year
Number Percent
of
Small Total Number Annual Receipts Receipts per Year Cost per Finn
of
Finns Finns
of
Employees Finn Cost per as Percent
of
in
Industrv Finn Receipts
Firms with 0-4 43,191 30.0% 69,719 $12,037,880,000 $278,713 $478 0.17%
empJoyees
Firms with 5-9 26,370 18.3% 179,617 $23,155,092,000 $878,085 $478 0.05%
employees
Firms with 10-19 30,904 21.4% 429,712 $23,155,092,000 $749,259 $478 0.06%
employees
Firms with <20 100,465 69.7% 679,048 $47,196,499,000 $469,781 $478 0.10%
empJoyees
Firms with 20-99 41,179 28.6% 1,549,506 $72,425,782,000 $1,758,804 $478 0.03%
employees
Firms with 100-499 2,504 1.7% 330,685 $16,855,317,000 $6,731,357 $478 0.01%
employees
Firms with <500 144,148 100.0% 2,559,239 $136,477,598,000 $946,788 $478 0.05%
employees
Firms with >500 2,441 1.7% 1,276,925 $61,492,598,000 $25,191,560 $478 0.00%
empJoyees
Source:
U.S.
Census Bureau Statistics
of
U.S.
Businesses, 2017
SUSB
Annual
Data
Tables
by Establislnnent Industry
Table 9 NAICS 722513 -Limited Service Restaurants
Number
of
Finns as Average First First Year
Number Percent
of
Small Total Number Annual Receipts Receipts per Year Cost per Finn
of
Finns Finns
of
Employees Finn
Cost
per as Percent
of
in
lndustrv Finn Receiots
Firms with 0-4 39,481 37.1% 69,109 $9,918,230,000 $251,215 $478 0.19%
empJoyees
Firms with 5-9 20,041 18.8% 133,363 $14,262,156,000 $711,649 $478 0.07%
empJoyees
Firms with 10-19 20,256 19.0% 276,233 $14,262,156,000 $704,095 $478 0.07%
empJoyees
Firms with <20 79,778 74.9% 478,705 $32,962,211,000 $413,174 $478 0.12%
empJoyees
Firms with 20-99 22,427 21.1% 826,711 $40,270,656,000 $1,795,633 $478 0.03%
employees
Firms with 100-499 4,243
4.0%
659,080 $33,702,776,000 $7,943,148 $478 0.01%
employees
Firms with <500 106,448 100.0% 1,964,496 $106,935,643,000 $1,004,581 $478 0.05%
employees
Firms with >500 2,591
2.4%
1,283,835 $66,321,227,000 $25,596,768 $478 0.00%
employees
Source: U.S. Census Bureau Statistics
of
U.S. Businesses, 2017
SUSB
Annual
Data Tables by Establislnnent Industry
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79
See 2 U.S.C. 1501.
80
Calculated using growth in the Gross Domestic
Product deflator from 1995 to 2019. Bureau of
Economic Analysis. Table 1.1.9. Implicit Price
Deflators for Gross Domestic Product.
BILLING CODE 4510–27–C
As shown in the tables above, costs
for small business entities in these
industries are never more than 0.3
percent of annual receipts. Therefore,
this rule will not have a significant
economic impact on a substantial
number of small entities.
IX. Unfunded Mandates Reform Act of
1995
The Unfunded Mandates Reform Act
of 1995 (UMRA)
79
requires agencies to
prepare a written statement for rules
with a federal mandate that may result
in increased expenditures by state,
local, and tribal governments, in the
aggregate, or by the private sector, of
$165 million ($100 million in 1995
dollars adjusted for inflation) or more in
at least one year.
80
This statement must:
(1) Identify the authorizing legislation;
(2) present the estimated costs and
benefits of the rule and, to the extent
that such estimates are feasible and
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Table
10
NAICS 722515 -Snack and Nonalcoholic Beverage Bars
Number
of
Finns as Average First First Year
Number Percent
of
Small Total Number Annual Receipts per Year Cost per Finn
of
Finns Finns
of
Employees Receipts Finn Cost per as Percent
of
in
lndustrv Finn Receiots
Firms with 0-4 12,657
43.6%
16,075 $2,029,785,000 $160,369 $478
0.30%
emolovees
Firms with 5-9 6,176
21.3%
42,046 $3,772,007,000 $610,752 $478
0.08%
emolovees
Firms with 10-19 6,291
21.7%
83,512 $3,772,007,000 $599,588 $478
0.08%
emolovees
Firms with <20 25,124
86.6%
141,633 $7,833,377,000 $311,789 $478
0.15%
emolovees
Firms with 20-99 3,528 12.2% 107,810 $5,072,661,000 $1,437,829 $478
0.03%
emolovees
Firms with 100-499 362 1.2% 37,996 $2,070,085,000 $5,718,467 $478
0.01%
emolovees
Firms with <500 29,021 100.0% 287,716 $14,984,672,000 $516,339 $478
0.09%
emolovees
Firms with >500 343 1.2% 164,169 $10,774,588,000 $31,412,793 $478
0.00%
emolovees
Source: U.S. Census Bureau Statistics
of
U.S. Businesses, 2017 SUSB
Annual
Data Tables
by
Establishment Industry
Table
11
NAICS 812113 -Nail Salons
Number
of
Finns as Average First First Year
Number Percent
of
Small Total Number Annual Receipts per Year Cost per Finn
of
Finns Finns
of
Employees Receipts Finn Cost per as Percent
of
in
lndustrv Finn Receiots
Firms with 0-4 9,688
74.7%
16,512 $2,059,539,000 $212,587 $478
0.22%
emolovees
Firms with 5-9 2,455 18.9% 15,647 $448,685,000 $182,764 $478
0.26%
emolovees
Firms with 10-19 701
5.4%
8,883 $448,685,000 $640,064 $478
0.07%
emolovees
Firms with <20 12,858
99.1%
41,188 $3,395,814,000 $264,101 $478
0.18%
emolovees
Firms with 20-99 95
0.7%
2,367 $119,640,000 $1,259,368 $478
0.04%
emolovees
Firms with 100-499 0
0.0%
0
$0 $0
$478
0.00%
emolovees
Firms with <500 12,970 100.0% 44,111 $3,532,063,000 $272,326 $478
0.18%
emolovees
Firms with >500 0
0.0%
0
$0 $0
$478
0.00%
emolovees
Source: U.S. Census Bureau Statistics
of
U.S. Businesses, 2017 SUSB
Annual
Data Tables
by
Establishment Industry
32844
Federal Register / Vol. 86, No. 118 / Wednesday, June 23, 2021 / Proposed Rules
81
See 2 U.S.C. 1532(a)(4).
82
According to the Bureau of Economic Analysis,
2019 GDP was $21.43 trillion. https://www.bea.gov/
system/files/2020-02/gdp4q19_2nd_0.pdf.
relevant, its estimated effects on the
national economy; (3) summarize and
evaluate state, local, and Tribal
government input; and (4) identify
reasonable alternatives and select, or
explain the non-selection, of the least
costly, most cost-effective, or least
burdensome alternative.
A. Authorizing Legislation
This final rule is issued pursuant to
the Fair Labor Standards Act, 29 U.S.C.
201, et seq.
1. Assessment of Costs and Benefits
For purposes of the UMRA, this
proposed rule includes a federal
mandate that would result in increased
expenditures by the private sector of
more than $156 million in at least one
year, but will not result in any increased
expenditures by state, local, and Tribal
governments.
The Department determined that the
proposed rule would result in Year 1
total costs for the private sector of
$224.9 million, for regulatory
familiarization, adjustment costs, and
management costs. The Department
determined that the proposed rule
would result in management costs of
$177.2 million in subsequent years.
Furthermore, the Department estimates
that there may substantial transfers
experienced as UMRA-relevant
expenditures by employers.
UMRA requires agencies to estimate
the effect of a regulation on the national
economy if such estimates are
reasonably feasible and the effect is
relevant and material.
81
However, OMB
guidance on this requirement notes that
such macroeconomic effects tend to be
measurable in nationwide econometric
models only if the economic effect of
the regulation reaches 0.25 percent to
0.5 percent of Gross Domestic Product
(GDP), or in the range of $53.6 billion
to $107.2 billion (using 2019 GDP).
82
A
regulation with a smaller aggregate
effect is not likely to have a measurable
effect in macroeconomic terms, unless it
is highly focused on a particular
geographic region or economic sector,
which is not the case with this rule.
The Department’s RIA estimates that
the total costs of the final rule will be
$224.9 million. Given OMB’s guidance,
the Department has determined that a
full macroeconomic analysis is not
likely to show that these costs would
have any measurable effect on the
economy.
X. Executive Order 13132, Federalism
The Department has (1) reviewed this
delay in accordance with Executive
Order 13132 regarding federalism and
(2) determined that it does not have
federalism implications. The rule will
not have substantial direct effects on the
States, on the relationship between the
national government and the States, or
on the distribution of power and
responsibilities among the various
levels of government.
XI. Executive Order 13175, Indian
Tribal Governments
This rule will not have substantial
direct effects on one or more Indian
tribes, on the relationship between the
Federal Government and Indian tribes,
or on the distribution of power and
responsibilities between the Federal
Government and Indian tribes.
A
PPENDIX
T
ABLE
1—L
IST OF
O
CCUPATIONS
I
NCLUDED IN THE
O
UTSIDE
-O
PTION
R
EGRESSION
S
AMPLE
Amusement and Recreation Attendants.
Bus Drivers, School or Special Client.
Bus Drivers, Transit and Intercity.
Cashiers.
Childcare Workers.
Concierges.
Door-To-Door Sales Workers, News and Street Vendors, and Related Workers.
Driver/Sales Workers.
Flight Attendants.
Funeral Attendants.
Hairdressers, Hairstylists, and Cosmetologists.
Home Health Aides.
Hotel, Motel, and Resort Desk Clerks.
Insurance Sales Agents.
Library Assistants, Clerical.
Maids and Housekeeping Cleaners.
Manicurists and Pedicurists.
Massage Therapists.
Nursing Assistants.
Occupational Therapy Aides.
Office Clerks, General.
Orderlies.
Parking Lot Attendants.
Parts Salespersons.
Personal Care Aides.
Pharmacy Aides.
Pharmacy Technicians.
Postal Service Clerks.
Real Estate Sales Agents.
Receptionists and Information Clerks.
Recreation Workers.
Residential Advisors.
Retail Salespersons.
Sales Agents, Financial Services.
Sales Representatives, Wholesale and Manufacturing, Except Technical and Scientific Products.
Secretaries and Administrative Assistants, Except Legal, Medical, and Executive.
Social and Human Service Assistants.
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A
PPENDIX
T
ABLE
1—L
IST OF
O
CCUPATIONS
I
NCLUDED IN THE
O
UTSIDE
-O
PTION
R
EGRESSION
S
AMPLE
—Continued
Statement Clerks.
Stock Clerks, Sales Floor.
Subway and Streetcar Operators.
Taxi Drivers and Chauffeurs.
Telemarketers.
Telephone Operators.
Tellers.
Tour Guides and Escorts.
Travel Agents.
Travel Guides.
List of Subjects
29 CFR Part 10
Administrative practice and
procedure, Construction industry,
Government procurement, Law
enforcement, Reporting and
recordkeeping requirements, Wages.
29 CFR Part 531
Wages.
For the reasons set forth above, the
Department proposes to amend title 29,
parts 10 and 531, of the Code of Federal
Regulations as follows:
PART 10—ESTABLISHING A MINIMUM
WAGE FOR CONTRACTORS
1. The authority citation for part 10
continues to read as follows:
Authority: 4 U.S.C. 301; section 4, E.O
13658, 79 FR 9851; Secretary of Labor’s
Order No. 01–2014 (Dec. 19, 2014), 79 FR
77527 (Dec. 24, 2014).
2. Amend § 10.28 by revising
paragraph (b)(2) and adding paragraph
(b)(3) to read as follows:
§ 10.28 Tipped employees.
* * * * *
(b) * * *
(2) Dual jobs. In some situations an
employee is employed in dual jobs, as,
for example, where a maintenance
person in a hotel also works as a server.
In such a situation the employee, if the
employee customarily and regularly
receives at least $30 a month in tips for
the work as a server, is engaged in a
tipped occupation only when employed
as a server. The employee is employed
in two occupations, and no tip credit
can be taken for the employee’s hours of
employment in the occupation of
maintenance person.
(3) Engaged in a tipped occupation.
An employee is engaged in a tipped
occupation when the employee
performs work that is part of the tipped
occupation. An employer may only take
a tip credit for work performed by a
tipped employee that is part of the
employee’s tipped occupation.
(i) Work that is part of the tipped
occupation. Any work performed by the
tipped employee that produces tips is
part of the tipped occupation. Work that
directly supports tip-producing work is
also work that is part of the tipped
occupation provided it is not performed
for a substantial amount of time.
(A) Tip-producing work. Any work for
which tipped employees receive tips is
tip-producing work. A server’s tip-
producing work includes waiting tables;
a bartender’s tip-producing work
includes making and serving drinks and
talking to customers; a nail technician’s
tip-producing work includes performing
manicures and pedicures.
(B) Directly supports. Work that
directly supports tip-producing work is
also part of the tipped occupation
provided that it is not performed for a
substantial amount of time. Work that
directly supports the work for which
employees receive tips is work that
assists a tipped employee to perform the
work for which the employee receives
tips. Work performed by a server that
directly supports the tip-producing
work includes, for example, preparing
items for tables so that the servers can
more easily access them when serving
customers or cleaning the tables to
prepare for the next customers. Work
that directly supports the work of a
bartender would include slicing and
pitting fruit for drinks so that the
garnishes are more readily available to
bartenders as they mix and prepare
drinks for customers. Work that directly
supports the work of a nail technician
would include cleaning the pedicure
baths between customers so that the nail
technicians can begin customers’
pedicures without waiting.
(C) Substantial amount of time. An
employer can take a tip credit for the
time a tipped employee spends
performing work that is not tip-
producing, but directly supports tip-
producing work, provided that the
employee does not perform that work
for a substantial amount of time. For the
purposes of this section, an employee
has performed work for a substantial
amount of time if:
(1) For any workweek, the directly
supporting work exceeds 20 percent of
the hours worked during the employee’s
workweek. If a tipped employee spends
more than 20 percent of the workweek
on directly supporting work, the
employer cannot take a tip credit for any
time that exceeds 20 percent of the
workweek; or
(2) For any continuous period of time,
the directly supporting work exceeds 30
minutes. If a tipped employee performs
directly supporting work for a
continuous period of time that exceeds
30 minutes, the employer cannot take a
tip credit for any of that continuous
period of time.
(ii) Work that is not part of the tipped
occupation. Work that is not part of the
tipped occupation is any work that does
not generate tips and does not directly
support tip-producing work. If a tipped
employee is required to perform work
that is not part of the employee’s tipped
occupation, the employer may not take
a tip credit for that time. For example,
preparing food or cleaning the bathroom
is not part of a server’s occupation.
Preparing food or cleaning the dining
room is not part of a bartender’s
occupation. Ordering supplies for the
nail salon is not part of a nail
technician’s occupation.
* * * * *
PART 531—WAGE PAYMENTS UNDER
THE FAIR LABOR STANDARDS ACT
OF 1938
3. The authority citation for part 531
continues 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.
4. Amend § 531.56 by revising
paragraph (e) and adding paragraph (f)
to read as follows:
§ 531.56 ‘‘More than $30 a month in tips.’’
* * * * *
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(e) Dual jobs. In some situations an
employee is employed in dual jobs, as,
for example, where a maintenance
person in a hotel also works as a server.
In such a situation if the employee
customarily and regularly receives at
least $30 a month in tips for the
employee’s work as a server, the
employee is engaged in a tipped
occupation only when employed as a
server. The employee is employed in
two occupations, and no tip credit can
be taken for the employee’s hours of
employment in the occupation of
maintenance person.
(f) Engaged in a tipped occupation.
An employee is engaged in a tipped
occupation when the employee
performs work that is part of the tipped
occupation. An employer may only take
a tip credit for work performed by a
tipped employee that is part of the
employee’s tipped occupation.
(1) Work that is part of the tipped
occupation. Any work performed by the
tipped employee that produces tips is
part of the tipped occupation. Work that
directly supports tip-producing work is
also work that is part of the tipped
occupation provided it is not performed
for a substantial amount of time.
(i) Tip-producing work. Any work for
which tipped employees receive tips is
tip-producing work. A server’s tip-
producing work includes waiting tables;
a bartender’s tip-producing work
includes making and serving drinks and
talking to customers; a nail technician’s
tip-producing work includes performing
manicures and pedicures.
(ii) Directly supports. Work that
directly supports tip-producing work is
also part of the tipped occupation
provided that it is not performed for a
substantial amount of time. Work that
directly supports the work for which
employees receive tips is work that
assists a tipped employee to perform the
work for which the employee receives
tips. Work performed by a server that
directly supports the tip-producing
work includes, for example, preparing
items for tables so that the servers can
more easily access them when serving
customers or cleaning the tables to
prepare for the next customers. Work
that directly supports the work of a
bartender would include slicing and
pitting fruit for drinks so that the
garnishes are more readily available to
bartenders as they mix and prepare
drinks for customers. Work that directly
supports the work of a nail technician
would include cleaning all the pedicure
baths between customers so that the nail
technicians can begin customers’
pedicures without waiting.
(iii) Substantial amount of time. An
employer can take a tip credit for the
time a tipped employee spends
performing work that is not tip-
producing, but directly supports tip-
producing work, provided that the
employee does not perform that work
for a substantial amount of time. For the
purposes of this section, an employee
has performed work for a substantial
amount of time if:
(A) For any workweek, the directly
supporting work exceeds 20 percent of
the hours worked during the employee’s
workweek. If a tipped employee spends
more than 20 percent of the workweek
on directly supporting work, the
employer cannot take a tip credit for any
time that exceeds 20 percent of the
workweek; or
(B) For any continuous period of time,
the directly supporting work exceeds 30
minutes. If a tipped employee performs
directly supporting work for a
continuous period of time that exceeds
30 minutes, the employer cannot take a
tip credit for any of that continuous
period of time.
(2) Work that is not part of the tipped
occupation. Work that is not part of the
tipped occupation is any work that does
not generate tips and does not directly
support tip-producing work. If a tipped
employee is required to perform work
that is not part of the employee’s tipped
occupation, the employer may not take
a tip credit for that time. For example,
preparing food or cleaning the bathroom
is not part of a server’s occupation.
Preparing food or cleaning the dining
room is not part of a bartender’s
occupation. Ordering supplies for the
nail salon is not part of a nail
technician’s occupation.
Jessica Looman,
Principal Deputy Administrator, Wage and
Hour Division.
[FR Doc. 2021–13262 Filed 6–21–21; 11:15 am]
BILLING CODE 4510–27–P
DEPARTMENT OF HOMELAND
SECURITY
Coast Guard
33 CFR Part 165
[Docket Number USCG–2021–0416]
RIN 1625–AA00
Safety Zone; Sabine River, Orange, TX
AGENCY
: Coast Guard, DHS.
ACTION
: Notice of proposed rulemaking.
SUMMARY
: The Coast Guard is proposing
to establish a temporary safety zone for
certain navigable waters of the Sabine
River, extending the entire width of the
river, adjacent to the public boat ramp
located in Orange, TX. The safety zone
is necessary to protect persons and
vessels from hazards associated with a
high-speed boat race competition in
Orange, TX. Entry of vessels or persons
into this zone would be prohibited
unless authorized by the Captain of the
Port Marine Safety Unit Port Arthur or
a designated representative. We invite
your comments on this proposed
rulemaking.
DATES
: Comments and related material
must be received by the Coast Guard on
or before July 8, 2021.
ADDRESSES
: You may submit comments
identified by docket number USCG–
2021–0416 using the Federal
eRulemaking Portal at https://
www.regulations.gov. See the ‘‘Public
Participation and Request for
Comments’’ portion of the
SUPPLEMENTARY INFORMATION
section for
further instructions on submitting
comments.
FOR FURTHER INFORMATION CONTACT
: If
you have questions about this proposed
rulemaking, call or email Mr. Scott
Whalen, Marine Safety Unit Port Arthur,
U.S. Coast Guard; telephone 409–719–
5086, email Scott.K.Whalen@uscg.mil.
SUPPLEMENTARY INFORMATION
:
I. Table of Abbreviations
CFR Code of Federal Regulations
DHS Department of Homeland Security
FR Federal Register
NPRM Notice of proposed rulemaking
§ Section
U.S.C. United States Code
II. Background, Purpose, and Legal
Basis
On April 29, 2021, the Coast Guard
published a temporary safety zone to
protect persons and vessels from the
hazards associated with high speed boat
races in Orange, TX (86 FR 22610). That
event was cancelled due to weather. On
May 19, 2021 the City of Orange, TX
notified the Coast Guard that they
rescheduled the races for September 18
and 19, 2021, in the same location,
adjacent to the public boat ramp in
Orange, TX. The Captain of the Port Port
Arthur (COTP) has determined that
potential hazards associated with high
speed boat races would be a safety
concern for spectator craft and vessels
in the vicinity of these race events.
The purpose of this rulemaking is to
ensure the safety of vessels and the
navigable waters of the Sabine River
adjacent to the public boat ramp in
Orange, TX before, during, and after the
scheduled event. The Coast Guard is
proposing this rulemaking under
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