Rule2021-23446
Tip Regulations Under the Fair Labor Standards Act (FLSA); Partial Withdrawal
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
October 29, 2021
Effective
December 28, 2021
Issuing agencies
Labor DepartmentWage and Hour Division
Abstract
In this final rule, the Department of Labor (Department) finalizes its proposal to withdraw one portion of the Tip Regulations Under the Fair Labor Standards Act (FLSA) (2020 Tip final rule) and finalize its proposed revisions 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 amending 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.
Full Text
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[Federal Register Volume 86, Number 207 (Friday, October 29, 2021)]
[Rules and Regulations]
[Pages 60114-60158]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-23446]
[[Page 60113]]
Vol. 86
Friday,
No. 207
October 29, 2021
Part II
Department of Labor
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Wage and Hour Division
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29 CFR Parts 10 and 531
Tip Regulations Under the Fair Labor Standards Act (FLSA); Partial
Withdrawal; Final Rule
Federal Register / Vol. 86 , No. 207 / Friday, October 29, 2021 /
Rules and Regulations
[[Page 60114]]
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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: Final rule.
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SUMMARY: In this final rule, the Department of Labor (Department)
finalizes its proposal to withdraw one portion of the Tip Regulations
Under the Fair Labor Standards Act (FLSA) (2020 Tip final rule) and
finalize its proposed revisions 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 amending
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: As of December 28, 2021 the Department is withdrawing the
revision of 29 CFR 531.56(e) (in amendatory instruction 11), published
December 30, 2020, at 85 FR 86756, delayed until April 30, 2021, on
February 26, 2021, at 86 FR 11632, and further delayed until December
31, 2021, on April 29, 2021, at 86 FR 22597. This final rule is
effective December 28, 2021.
FOR FURTHER INFORMATION CONTACT: Amy DeBisschop, Director, 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 rule may be obtained in alternative
formats (Large Print, Braille, Audio Tape or Disc), upon request, by
calling (202) 693-0675 (this is not a toll-free number). TTY/TDD
callers may dial toll-free 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 <a href="https://www.dol.gov/agencies/whd/contact/local-offices">https://www.dol.gov/agencies/whd/contact/local-offices</a> for a nationwide listing of WHD district and area
offices.
SUPPLEMENTARY INFORMATION:
I. Executive Summary
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 a ``tipped employee'' by
taking a partial credit, known as a ``tip credit,'' toward the minimum
wage based on the amount of tips an employee receives provided that the
employer meets certain requirements. 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. Provided that the
employer meets certain requirements, 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.
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). 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, sec. 101, sec.
602, 80 Stat. 830, 830, 844 (1966).
Since 1967, the Department's dual jobs regulation has recognized
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 Department's regulation also recognized that an employee
employed in a tipped occupation may perform related duties that are not
``themselves . . . directed toward producing tips,'' thus
distinguishing between employees who have dual jobs and tipped
employees who perform ``related duties'' that do not ``themselves''
produce tips.
For several decades, the Department issued guidance interpreting
the dual jobs regulation as it applies to employees who perform both
tipped and non-tipped duties, first through a series of Wage and Hour
Division (WHD) opinion letters, and then through WHD's Field Operations
Handbook (FOH). The 1988 FOH provision stated that the dual jobs
regulation at Sec. 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 Sec. 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 defined 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 (80/
20 guidance) recognized that if a tipped employee performs too much
related, non-tipped work, the employee is no longer engaged in a tipped
occupation. A number of courts deferred to the guidance.\1\
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\1\ 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).
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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
[[Page 60115]]
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 Sec. 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.
Most courts that have considered the 2018-2019 guidance, including one
court of appeals, have declined to defer to the Department's
interpretation of the dual jobs regulation in this guidance. See, e.g.,
Rafferty v. Denny's, Inc., No. 20-13715, 2021 WL 4189698 (11th Cir.
Sept. 15, 2021).
The 2020 Tip final rule would have codified the Department's 2018-
2019 guidance, although it would have used O*NET as a guide rather than
as a definitive tool for determining work related to a tipped
occupation. See 85 FR 86756, 86772 (Dec. 30, 2020). Even though, as
noted above, multiple circuit courts had deferred to the Department's
80/20 guidance, the Department opined 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. at
86767. This final rule was published with an effective date of March 1,
2021, see id. at 86756; however, the Department extended the effective
date for this part of the rule until December 31, 2021, see 86 FR
11632, 86 FR 15811, and proposed to withdraw and re-propose the dual
jobs provision of the 2020 Tip final rule on June 23, 2021, see 86 FR
32818.
In its reproposal, the Department proposed to amend its dual jobs
regulation 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. See 86 FR 32818. The
Department's proposal defined work that ``directly supports'' tip-
producing work as work that assists a tipped employee to perform the
work for which the employee receives tips. The proposed regulatory text
also explained 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.
This final rule withdraws that part of the 2020 rule amending the
Department's dual jobs regulation at Sec. 531.56(e) and updates that
same regulation to incorporate the changes it proposed in its 2021 NPRM
in Sec. 531.56(e) and (f), with slight modifications. In finalizing
this rule, the Department has taken into consideration the need to
ensure that workers do not receive a reduced direct cash wage when they
are not engaged in a tipped occupation, as well as the practical
concerns of employers who must apply this rule in varied workplaces.
The final rule amends Sec. 531.56 to define when an employee is
performing the work of a tipped occupation, and is therefore engaged in
a tipped occupation for purposes of section 3(t) of the FLSA. The
Department has clarified and modified some of the definitions in the
final rule from the proposal in order to ensure that this rule is
broadly protective of tipped employees, and that the test set forth in
the rule is one that employers can comply with and that the Department
can administer.
As the Department stated above, the goal of this final rule is to
protect tipped employees, while also providing clarity and flexibility
to employers to address the variable situations that arise in tipped
occupations. The Department finalizes its test providing that work
performed for which a tipped employee receives tips is part of the
tipped occupation, as well as a non-substantial amount of work that
assists the tip-producing work. The final rule recognizes that when a
tipped employee performs a substantial amount of directly supporting
work that does not itself produce tips they cease to be engaged in a
tipped occupation. An employer cannot take a tip credit when a tipped
employee performs work that is not part of the tipped occupation.
However, the Department recognizes that a tipped employee's tip-
producing services to customers are multi-faceted. In response to
comments about the administrability of the Department's proposal, the
Department has modified the rule's definitions. In the final rule, the
Department clarifies that its definition of tip-producing work was
intended to be broadly construed to encompass any work performed by a
tipped employee that provides service to customers for which the tipped
employee receives tips and provides more examples illustrating the
scope of this term. The final rule also amends the definition of
directly supporting work to explain that this category includes work
that is performed by the tipped employee in preparation for or
otherwise assists in the provision of tip-producing customer service
work, and also provides more examples illustrating the scope of this
term. The final rule also modifies the definition of work that is not
part of the tipped occupation to reflect the changes to these two
definitional categories. Additionally, the final rule modifies the 30-
minute limitation in order to treat it uniformly with the 20 percent
tolerance.
Consistent with its revisions to Sec. 531.56(e) and (f), the
Department also amends the portions of its regulations that address the
payment of tipped employees under Executive Order 13658, Establishing a
Minimum Wage for Contractors, to incorporate the Department's
explanation of when an employee performing non-tipped work is still
engaged in a tipped occupation.
The Department estimates this final rule could result in costs to
employers, consisting of rule familiarization costs, adjustment costs,
and managerial costs. The Department also expects that this rule could
result in transfers from employers to employees in the form of
increased wages. For more information on the economic impacts of this
rule, please see Section V.
The Office of Information and Regulatory Affairs designated this
rule as a `major rule,' as defined by 5 U.S.C. 804(2), under the
Congressional Review Act (5 U.S.C. 801 et seq.).
II. Background
A. 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). Under section 3(m)(2)(A) an employer may satisfy a
portion of its minimum wage obligation to any ``tipped employee'' by
taking a partial credit, referred to as a ``tip credit,'' toward the
minimum wage based on tips an employee receives, provided that the
employer meets certain requirements. 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 among other criteria.
Section 3(t) defines ``tipped employee'' as ``any employee engaged
in
[[Page 60116]]
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). On the other hand, the legislative
history 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, including barbacks and
certain sushi chefs, as tipped occupations. See, e.g., Field Operations
Handbook (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, sec. 101, sec. 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 before the
establishment was open to the public. See WHD Opinion Letter FLSA-895
(Aug. 8, 1979) (``1979 Opinion Letter''). Citing the dual jobs
regulation and the legislative history distinguishing between tipped
occupations, such as servers, and non-tipped occupations, such as
chefs, 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 after the restaurant was
closed. 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, the dual jobs
regulation at Sec. 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
[[Page 60117]]
time cleaning and setting tables, making coffee, and occasionally
washing dishes or glasses,'' the same examples included in Sec.
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 defined a ``substantial'' amount of time
spent performing general preparation or maintenance work as being ``in
excess of 20 percent,'' creating a significant 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 court 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 Sec. 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 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.
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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 <a href="https://www.onetcenter.org/overview.html">https://www.onetcenter.org/overview.html</a>.
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The Eleventh Circuit recently considered the 2018 Opinion Letter
and 2019 FAB and declined to grant deference to the Department's
interpretation of the dual jobs regulation in this guidance. See
Rafferty v. Denny's, Inc., No. 20-13715, 2021 WL 4189698 at *18 (11th
Cir. Sept. 15, 2021). The Court determined that the Department's
interpretation of the dual jobs regulation in this guidance was not a
reasonable one, concluding that ``the removal of any limit on the time
a tipped employee may perform [related] non-tipped duties flatly
contradicts . . . the ceiling on related duties'' imposed by the
regulation's use of the terms ``occasional'' and ``part of the time.''
Id. at *15. The Court also criticized the 2018-2019 guidance's use of
O*NET to define related duties, concluding that it risked creating ``a
fox-guarding-the-henhouse situation'' whereby employers could
``effectively render . . . untipped duties `related,' '' by ``requiring
tipped employees to perform'' them, ``whether [such] duties are, in
fact, related or not to their tipped duties.'' Id. Pointing to
statements in the NPRM for the 2020 Tip final rule and the NPRM for
this final rule in which the Department noted that the removal of time
limits on related work could lead to a loss of earnings for tipped
employees, the Court also concluded that the 2018-2019 guidance
``tramples the reasons for the dual-jobs regulation's existence and is
inconsistent with the FLSA's policy of promoting fair conditions for
workers.'' Id. at *16.
The Eleventh Circuit went on to conclude that a 20 percent
limitation on the amount of related non-tipped duties that an employee
can perform and still be considered a tipped employee was a reasonable
interpretation of the dual jobs regulation and section 3(t) of the
FLSA. Id. at *18. After reviewing section 3(t), the court stated ``we
must construe the dual-jobs regulation to ensure that the reduced
direct wage for tipped employees is available to employers only when
employees are actually engaged in a tipped occupation that will allow
them to earn the remainder of at least the minimum wage.'' Id. The
court further concluded that ``[t]he plain language of [the definition
of a tipped employee in 3(t)] tells us that for the employer to qualify
to take the tip credit, the employee's job must, by tradition and in
reality, be one where she consistently earns tips.'' Id. (emphasis
added). The Court also concluded that a 20 percent threshold ``aligns
with the general meaning'' of ``infrequently'' in the dual jobs
regulation; noted that ``the Department
[[Page 60118]]
often invokes a'' 20 percent limitation in ``distinguishing substantial
and nonsubstantial work in different contexts within the FLSA''; and
noted that a 20 percent limitation on related duties ``is consistent
with [30] years of DOL interpretation of the dual jobs regulation--
through administrations of both political parties.''
A large number of district courts have also considered and declined
to defer to the 2018-2019 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,
like the Eleventh Circuit, independently concluded that the 80/20
approach is reasonable, and applied a 20 percent tolerance to the cases
before them.\5\
---------------------------------------------------------------------------
\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).
One district court has followed the guidance. See 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.
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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 2019 NPRM.
The 2020 Tip final rule amended Sec. 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 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 2020 Tip final rule, a non-tipped duty is
presumed to be related to a tip-producing occupation if it is listed as
a task of the tip-producing occupation in O*NET. 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. The 2020 Tip final
rule was published with an effective date of March 1, 2021, see id. at
86756; however, the Department extended the effective date for this
part of the rule until December 31, 2021, 86 FR 22597.
E. Legal Challenge to the 2020 Tip Final Rule
On January 19, 2021, while the 2020 Tip final rule was pending,
Attorneys General from eight states and the District of Columbia (``AG
Coalition'') 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).\6\
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).\7\ According to the complaint, ``when
employees `spend more than 20 percent
[[Page 60119]]
of their time performing untipped related work' they are no longer
`engaged in an occupation in which [they] customarily and regularly
receive[] . . . tips.' '' \8\
---------------------------------------------------------------------------
\6\ See Compl., Pennsylvania v. Scalia, No. 2:21-cv-00258 (E.D.
Pa. Jan. 19, 2021).
\7\ Id., ]] 87-89.
\8\ Id. ] 87 (citing Belt, 401 F. Supp. 3d at 526).
---------------------------------------------------------------------------
The complaint also alleges 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'' \9\--which some district courts have also
found to be unclear when construing the 2018-2019 guidance.\10\
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.' '' \11\ 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.\12\ 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.\13\
---------------------------------------------------------------------------
\9\ Id. ] 128.
\10\ See, e.g., Belt, 401 F. Supp. 3d at 533; Flores, 2019 WL
5454647, at *6.
\11\ Compl. ] 131, Pennsylvania (No. 2:21-cv-00258); 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.' '')
\12\ See id. ] 127; see also id. ] 41 (noting that many courts
awarded Auer deference to the 80/20 guidance).
\13\ Id. ]] 127-28.
---------------------------------------------------------------------------
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.'' \14\ 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.'' \15\ 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.\16\ The complaint claims that these asserted
flaws in the Department's economic analysis are evidence of a ``lack of
reasoned decision-making.'' \17\
---------------------------------------------------------------------------
\14\ Id. ] 115.
\15\ Id. ]] 114-15.
\16\ Id. at Sec. I(C)(i), ]] 108-9.
\17\ Id. ] 105.
---------------------------------------------------------------------------
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. On March
25, 2021, the Department proposed to further delay the effective date
of three portions \18\ 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. 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.
---------------------------------------------------------------------------
\18\ The Department withdrew the two delayed portions of the
2020 Tip final rule addressing civil money penalties and finalized
changes to those portions on September 24, 2021. See 86 FR 52973.
---------------------------------------------------------------------------
Delaying the effective date of the dual jobs provision of the 2020
Tip final rule provided the Department the opportunity to consider
whether Sec. 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 also allowed the Department to further evaluate
the legal concerns with this portion of the rule that were raised in
the Pennsylvania complaint.
G. The Department's Proposal
The Department proposed in the Dual Jobs NPRM to withdraw and
repropose the portion of the 2020 Tip final rule related to the
determination of when a tipped employee is employed in dual jobs. See
86 FR 32818. Specifically, the Department proposed to amend its
regulations at Sec. 531.56 to clarify that an employee is only engaged
in a tipped occupation pursuant to 29 U.S.C. 203(t) when the employee
performs work that is part of the tipped occupation and that an
employer may only take a tip credit when tipped employees perform work
that is part of the tipped occupation. The Department proposed to
define work that is part of the tipped occupation as 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. The NPRM explained that ``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.''
See 86 FR 32820.
The Department explained that an employee has performed work that
directly supports tip-producing work for a substantial amount of time
if that 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 further proposed that 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. Additionally, the Department proposed that 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 the entire period of time that
was spent on such directly supporting work. The Department also
proposed to clarify that an employer cannot take a tip credit for any
time that a tipped employee spends performing work that is not part of
the tipped occupation, defined as any work
[[Page 60120]]
that does not generate tips and does not directly support tip-producing
work.
Finally, the Department proposed to amend the provisions of the
Executive Order 13568 regulation, which address the hourly minimum wage
paid by contractors to workers performing work on or in connection with
covered Federal contracts, to reflect the proposed revisions made to
Sec. 531.56.
The 60-day comment period for the NPRM ended on August 23, 2021.
The Department received over 1,860 comments from various constituencies
including tipped employees, small business owners, worker advocacy
groups, employer and industry associations, non-profit organizations,
law firms, attorneys general, and other interested members of the
public. All timely received comments may be viewed on the
<a href="http://regulations.gov">regulations.gov</a> website, docket ID WHD-2019-0004. The Department has
considered the timely submitted comments addressing the proposed
changes and discusses significant comments below.
The Department also received some comments on issues that are
beyond the scope of this rulemaking. These include, for example,
comments suggesting that the FLSA should be amended to eliminate the
tip credit or comments asking the Department to add new recordkeeping
requirements. The Department does not address those issues in this
final rule.
III. Final Regulatory Revisions
Having considered the comments, the Department finalizes its
proposal with some modifications. The sections below respond to
commenter feedback on specific aspects of the rule, and address the
regulatory revisions adopted in the final rule.
A. Overview
As discussed above, the Department received over 1,860 comments on
the Dual Jobs NPRM. Commenters representing employees, including the
National Employment Lawyers Association (NELA), National Employment Law
Project (NELP), National Women's Law Center (NWLC), the Center for Law
and Social Policy (CLASP), Restaurant Opportunity Center United (ROC),
Texas RioGrande Legal Aid, Community Legal Services (CLS) of
Philadelphia, William E. Morris Institute for Justice, Institute for
Women's Policy Research (IWPR), Women's Law Project (WLP), Fish Potter
Bola[ntilde]os, Leadership Conference on Civil and Human Rights,
NETWORK Lobby for Catholic Social Justice, and the Economic Policy
Institute (EPI), generally supported the proposal. Chairman of the
Committee on Education of Labor Bobby Scott and Representatives Alma
Adams, Mark Takano, Suzanne Bonamici, and Pramila Jayapal (``Scott
letter''), Attorneys General from eight states and the District of
Columbia (``AG Coalition''), and hundreds of tipped workers, some
service industry managers and small business owners, and many other
members of the public also supported the proposal. NWLC stated that it
``appreciate[d] the Department's efforts to ensure that the rules it
promulgates and administers protect tipped workers' wages to the
maximum extent possible in keeping with its charge to improve working
conditions and to `foster, promote, and develop the welfare of the wage
earners . . . of the United States.' '' Other commenters noted that
because ``the Department routinely identifies significant wage
violations in industries with large concentrations of tipped workers .
. . [s]trengthening protections for people working in tipped jobs
should thus be a priority for the Department'' and that the proposed
rule ``takes important steps to do so.''
Commenters representing employers, including the National
Federation of Independent Businesses (NFIB), Restaurant Law Center and
National Restaurant Association (RLC/NRA), Center for Workplace
Compliance (CWC), Littler Mendelson's Workplace Policy Institute (WPI),
the Florida Restaurant and Lodging Association (FRLA), Hospitality
Maine, Missouri Restaurant Association (MRA), the Central Florida
Compensation and Benefits Association (CFCBA), the American Hotel and
Lodging Association (AHLA), the National Retail Federation and the
National Council of Chain Restaurants (NRF/NCCR), Franchise Business
Services (FBS), Landry's, Seyfarth Shaw, and the Chamber of Commerce,
as well as many, but not all, the hundreds of individual restaurant and
small business owners who commented, and Representative Gregory Murphy,
however, generally urged the Department to allow the 2020 Tip final
rule go into effect instead of adopting the new test proposed in the
NPRM. These commenters argued that the 2020 Tip final rule ``set forth
a clear, workable standard'' for employers, and that it is ``more
practical to implement.'' In particular, these commenters argued that
the Department's proposal would oblige employers to carefully
distinguish between and monitor the time employees spend performing
tip-producing work and directly supporting work, and that doing so
would be impracticable and burdensome. Many commenters representing
employers noted the impact of the COVID-19 pandemic on the service
industry, and opposed new regulations while the pandemic is ongoing.
See AHLA; NRA/RLC; WPI.
The Department also received many comments from individual tipped
employees. Many individual commenters who worked as tipped employees
stated that their employers frequently required them to perform non-
tipped, directly supporting work and were paid as little as $2.13 for
that time, despite being unable to earn tips while performing such
work. For example, one commenter who worked as a server described an
employer sending other staff home and ``hav[ing] the servers (myself
included as a server) finish washing the floors [because] we, as
servers, are making a fraction of what the kitchen and dishwashers get
paid.'' Another individual stated ``at my job me and my fellow servers
are required to clean and break down the entire restaurant . . . . This
process can take hours even after the last c[u]stomer has left the
building. It's quite clear that restaurants are abusing the ability to
push extra labor on the ones th[e] corporation only has to pay their
pocket change on.'' Likewise, ROC quoted one of their members as saying
``The sub-minimum [tipped] wage already allows owners to get away with
not paying their employees and having guests make up the difference,
but why does that extend to the parts of the shift where the guest
isn't picking up the slack?'' CLS of Philadelphia, which provides legal
assistance to low-income workers, described representing workers who
were employed as bussers in a restaurant but for over half of their day
they performed work for which they did not receive tips, such as
cleaning the restaurant, washing dishes, and preparing food, and ``for
many days, the little they received in tips did not even bring their
hourly rate for their tipped work up to the minimum wage.''
In part because tipped employees can receive as little as $2.13 per
hour in direct cash wages, they are among the most vulnerable workers
that the Department protects. As NELP commented, ``Tipped work is
precarious work; workers' take-home pay fluctuates widely depending on
the seasons, the weather, the shift they are given, and the generosity
of customers.'' The median hourly wages, including tips, for servers,
bartenders, bussers, and bartender helpers is $12.03 or less.\19\
[[Page 60121]]
Other tipped workers earn similarly low wages.\20\ Like their
employers, tipped employees have also been adversely affected by the
COVID-19 pandemic, see, e.g., NELP, NWLC, and ROC and other commenters
stated that the pandemic led to ``shifts in employer and consumer
behavior'' that has led to some tipped employees being asked to perform
significantly more work for which they do not receive tips, despite
being paid the reduced direct cash wage.
---------------------------------------------------------------------------
\19\ Bureau of Labor Statistics, May 2020 National Occupational
Employment and Wage Estimates, <a href="https://www.bls.gov/oes/current/oes_nat.htm">https://www.bls.gov/oes/current/oes_nat.htm</a>. The median hourly wage, including tips, for waiters and
waitresses is $11.42, while bartenders earn $12.03 and dining room
and cafeteria attendants and bartender helpers earn $12.03. The
Department believes that median earnings data is most appropriate
because mean data is more likely to be skewed towards high earners.
\20\ According to the BLS National Occupational and Employment
Wage Estimates, maids and housekeeping cleaners earn $12.61 per
hour; baggage porters and bellhops earn $13.00; parking attendants
earn $13.02, and manicurist and pedicurists earn $13.41. <a href="https://www.bls.gov/oes/current/oes_nat.htm">https://www.bls.gov/oes/current/oes_nat.htm</a>.
---------------------------------------------------------------------------
In finalizing this rule, the Department has taken into
consideration the need to ensure that workers do not receive a reduced
direct cash wage when they are not engaged in a tipped occupation, as
well as the practical concerns of employers. The final rule clarifies
some of the definitions from the proposal in order to ensure that this
rule is functional, broadly protective of tipped workers, and that the
test set forth in the rule is one that employers can comply with and
that the Department can administer. The Department believes that the
final rule protects tipped employees by limiting the amount of non-
tipped work that employers can shift to tipped workers while still
relying on tips to cover their minimum wage obligations, while also
providing clarity to employers to address the variable situations that
arise in tipped occupations.
B. Sec. 531.56(e)--Dual Jobs
The Department proposed that Sec. 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 proposed
to make this section gender-neutral by using terms such as ``server''
and ``maintenance person.''
The Department received only one comment regarding proposed Sec.
531.56(e), from the AG Coalition, which supported the Department's
proposal to make its longstanding regulatory dual jobs language more
inclusive by making it gender-neutral.\21\ Accordingly, the Department
finalizes the revisions to Sec. 531.56(e) as proposed.\22\
---------------------------------------------------------------------------
\21\ The Department's revisions to Sec. 531.56(e) are also
consistent with general practice for Federal government
publications. For example, guidance from the Office of the Federal
Register advises agencies to avoid using gender-specific job titles.
See Office of the Federal Register, Drafting Legal Documents:
Principles of Clear Writing Sec. 18 (last reviewed March 2021).
\22\ As discussed below, NRA/RLC argued that ``the dual jobs
concept,'' in which ``an employee performs two clearly distinct and
separate jobs,'' a tipped job and a non-tipped job, ``has no
relevance to the restaurant industry.'' However, it did not make any
comments on the Department's proposed revisions to Sec. 531.56(e).
---------------------------------------------------------------------------
C. Engaged in a Tipped Occupation--Sec. 531.56(f).
In Sec. 531.56(f), the Department proposed that ``[a]n employee is
engaged in a tipped occupation when the employee performs work that is
part of the tipped occupation'' and that ``[a]n employer may only take
a tip credit for work performed by a tipped employee that is part of
the employee's tipped occupation.'' The Department finalizes this
language as proposed.
Few commenters opined specifically on the premise that an employee
must be performing the work of a tipped occupation to be engaged in a
tipped occupation, and therefore as a ``tipped employee'' for whom the
employer may take a tip credit. RLC/NRA asserted, however, that the
Department's proposal ``furthers no legitimate statutory purpose under
the FLSA'' because if ``a worker receives at least the minimum required
cash wage'' plus sufficient tips to bring their hourly earnings above
the minimum wage ``over the course of the workweek . . . the employee
has . . . received wages in compliance with the FLSA's minimum wage.''
As explained above, Congress delegated to the Department the
authority to define what it means to be ``engaged in an occupation'' in
which an employee customarily and regularly receives tips within the
meaning of section 3(t) of the FLSA. In turn, section 3(t) defines what
it means to be a ``tipped employee'' for whom an employer may take a
tip credit under section 3(m). When Congress created the tip credit
provision in the 1966 amendments to the FLSA, it left the terms
``occupation'' and ``engaged in an occupation'' in section 3(t)
undefined. The 1966 amendments also authorized the Secretary ``to
promulgate necessary rules, regulations, or orders with regard to the
amendments.'' Public Law 89-601, sec. 602, 80 Stat. at 844; see Long
Island Care at Home, Ltd. v. Coke, 551 U.S. 158, 165 (2007)
(interpreting effectively identical authorizing language in amendments
made to the FLSA in 1974 as ``provid[ing] the Department with the power
to fill . . . gaps through rules and regulations.'').
Under the Department's interpretation of section 3(t) in Sec.
531.56(f) of the final rule, an employee must be performing the work of
a tipped occupation in order to be ``engaged in'' a tipped occupation,
and therefore to be a tipped employee for whom an employee may take a
tip credit under FLSA section 3(m)(2)(A). The Department rejects the
RLC/NRA's argument that so long as tipped employees receive enough in
direct cash wages and tips to equal the Federal minimum wage, the
statutory requirement has been met. This circular logic fails to
acknowledge that an employer is permitted to take a tip credit only
when an employee is engaged in a tipped occupation, that is, when the
employee is actually performing work that is part of the tipped
occupation.
Section 531.56(f) adopted in this final rule affects only whether
and when an employer may take a tip credit against its minimum wage
obligations for an employee performing non-tipped work. The provision
does not impact long-established understandings of what occupations are
and are not ``customarily and regularly'' tipped occupations. See,
e.g., S. Rep. No. 93-690, at 43 (Feb. 22, 1974); Field Operations
Handbook (FOH) 30d04(b).
D. Defining Work That Is and Is Not Part of a Tipped Occupation--
Sec. Sec. 531.56(f)(1)-(3), (5)
The Department proposed to define work that is part of a tipped
occupation to encompass tip-producing work and work that directly
supports tip-producing work, provided that the directly supporting work
is not performed for a substantial amount of time. The Department
proposed to define tip-producing work broadly to mean ``[a]ny work for
which employees receive tips.'' The Department proposed to define
directly-supporting work--which is part of the tipped occupation so
long as it is not performed for a substantial amount of time--to mean
``work that assists a tipped employee to perform the work for which the
employee receives tips.'' Finally, the Department proposed to define
work that is not part of the tipped occupation as that work that is
neither tip-producing nor directly supporting. In the NPRM, the
Department also proposed examples of each type of work.
[[Page 60122]]
1. Comments
Many commenters generally supported the Department's proposed
definitions of work that is and is not part of a tipped occupation. See
NELP; NWLC; ROC. The Scott letter stated that ``there must be a clear
standard for when an employee is no longer engaged in a tipped
occupation. Without such a limitation, Congress's intent to only make a
tip credit available for employees engaged in a tipped occupation would
be circumvented.'' The AG Coalition stated that, in defining the work
that is part of a tipped occupation, the Department ``aims to establish
a clearer test for employers to determine when they can take the tip
credit.''
Many commenters who worked as tipped employees shared their
experiences with performing a substantial amount of non-tipped work
when they did not have the opportunity to receive tips during this
time. These workers described being required to perform non-tipped work
for substantial amounts of time, such as filling condiments and
sweeping an assigned section of the restaurant for 30-45 minutes before
and after the restaurant is open, rolling silverware for an hour after
a long shift, or moving chairs to and from an outdoor patio for an hour
before and an hour after service.
For example, one commenter described working as a server spending
``2-3 hours of my shift setting up the dining room and bar, stocking
the kitchen, sweeping, washing bar dishes, doing my own prep work, and
then doing it all again at the end of the night,'' and noting that ``I
was not making . . . additional tips during this time.'' An individual
stated that performing non-tipped, directly supporting works affects
the tips that servers can receive, because they cannot provide ``a
warm, welcoming experience for the guests,'' when they are ``consumed
with sidework.''
NELP commented that ``[w]hile employers are required to top up
tipped workers whose tips are not enough to bring them up to the full
minimum wage, many employers do not maintain accurate and complete
records of tips earned by their tipped employees, and require too much
side work while still paying subminimum wages.'' One Fair Wage (OFW)
expressed concern that employers ``simultaneously use tips to reduce
their wage obligations while also requiring their workers to perform
work that does not allow them to earn the tips that subsidize their
wages.''
Some employee representatives emphasized that the FLSA authorizes
the Department to limit the amount of non-tipped work that an employee
can perform and still be considered to be engaged in a tipped
occupation, and argued that it in fact authorizes stricter limits on
non-tipped work than those proposed in the NPRM. See OFW; Fish Potter
Bola[ntilde]os; Network; IWPR. OFW, for instance, argued that while the
Department's proposal is permitted by the FLSA, the Department has
``the power to craft a rule that is more protective for workers.''
Specifically, OFW urged the Department to require employers to pay the
full minimum wage for any ``side work'' that does not generate tips.
Noting that section 3(t) defines a tipped employee as an employee
engaged in an occupation in which they customarily and regularly
receive tips, OFW argued that a tipped employee ``must be conducting
duties that generate tips'' to ``receive tips `customarily' and
`regularly.''' OFW further noted that ``[t]he tip credit functions only
by allowing tipped workers to make up the difference between the
subminimum wage [the direct cash wage of at least $2.13] and the
regular [full] minimum wage through earning tips from customers'';
however, ``[w]hen workers are performing side work their time spent
doing such work is by definition not tip-generating work.''
Fish Potter Bola[ntilde]os, Network, and IWPR also argued that
``the vague definition of `tipped occupation' in the FLSA could permit
a more stringent threshold for the tasks for which an employer can pay
a worker just $2.13 an hour.'' Consistent with OFW, these organizations
urged the Department ``to revise its proposal to provide that an
employer cannot take a tip credit for any time during which a tipped
worker is not earnings tips''; alternatively, they asked the Department
to ``consider reducing the threshold'' for non-tipped, directly
supporting work ``to, for example, 5 [percent] or 10 [percent]'' of an
employee's workweek.
NWLC also encouraged the Department to consider other alternatives
that would clarify ``the amount of non-tipped work for which an
employer can pay employees anything less than the full minimum wage.''
For example, NWLC asked the Department to amend its proposal to
prohibit employers from claiming a tip credit ``for time when the
employer's establishment is not open for service to customers.''
In general, commenters representing employers did not support the
Department's proposed definitions of work that is and is not part of
the tipped occupation. RLC/NRA and several business owners and managers
who submitted similar comments argued that the Department lacks the
authority to place any limits on the amount of non-tipped work that a
restaurant worker may perform and still be considered to be engaged in
a tipped occupation. See, e.g., NRA/RLC (``the dual jobs concept simply
has no relevance to the restaurant setting''). According to these
commenters, the FLSA ``provides no basis for carving up a tipped
restaurant job into tipped and non-tipped segments.'' Rather, ``so long
as an employer assigns a tipped employee to perform the core functions
of an occupation during a shift . . . that employee does not cease to
be engaged in the tipped occupation by virtue of performing side work
during a shift[.]'' NRA/RLC; see also Seyfarth Shaw.
NRA/RLC asserted that ``most tipped occupations involve a mix of
tasks that directly and immediately generate tips and tasks that do not
directly and immediately generate tips''; thus, ``[a] server does not
cease to be a server'' based on the amount of time they spend on ``non-
tipped tasks.'' Some individual restaurant owners also criticized the
Department because it did not explain what non-tipped occupation a
tipped employee engages in when they perform more than a substantial
amount of directly supporting work.
The Department also received many comments from employers raising
concerns about the practical application of the definition of work that
is part of the tipped occupation, particularly when tipped employees
perform work that the commenters stated would be directly supporting
work according to the Department's proposal, but that is performed in
the course of performing their tip-producing customer service work.
Additionally, some commenters stated that tipped employees may perform
work that would be considered directly supporting under the
Department's proposal when they are also actively engaged in work that
would be considered tip-producing. These comments, discussed in more
detail in Section E, asserted the Department's proposal would oblige
employers to carefully distinguish between and monitor the time
employees spend performing tip-producing work and directly supporting
work, and that doing so would be difficult and burdensome. See, e.g.,
AHLA; CWC; Chamber of Commerce; Franchise Business Services; WPI; NFIB;
Landry's.
As an alternative to the Department's proposal, some commenters
representing employers asked that the Department eliminate the proposed
[[Page 60123]]
limits on directly supporting work entirely, and define work that is
part of the tipped occupation to include all tip-producing and directly
supporting work. See Chamber; NFIB. The Chamber of Commerce, for
instance, asserted that ``[t]ip-supporting work is tip-supporting work,
regardless of how long it occurs, and constitutes a legitimate aspect
of a tipped occupation.'' Employer representatives argued that the
limits on related duties in the Department's 80/20 guidance led to
significant litigation for employers in the past, and that the
limitations on directly supporting work in the proposal will lead to
more litigation in the future. See, e.g., WPI, Seyfarth.
Seyfarth Shaw and CFCBA urged the Department to create an exception
from its proposed limitation on directly supporting work for employees
who regularly earn tips that bring their total earnings above the
Federal minimum wage. Seyfarth recommended that the Department create a
presumption of compliance with the FLSA's minimum wage requirements for
employees who earn at least $29.00 per hour in cash wages plus tips.
CFCBA stated that employers that are required by State law to or
otherwise ``guarantee to bring the tipped employees' average pay,
inclusive of tips, for the week up to 25% more than Federal minimum
should be exempt from this extra administrative burden'' of ensuring
that they pay employees who perform as substantial amount of non-
tipped, directly supporting work a direct cash wage equal to the full
minimum wage.
In addition, commenters representing employers generally asserted
that the Department's proposed test distinguishing between work that is
and is not part of the employee's tipped occupation failed to provide
clear guidance about the types of work that would fall into each
definitional category and as a result would prompt significant
litigation over the scope of the terms. See, e.g., AHLA, Chamber,
Seyfarth. For example, Seyfarth commented that the proposed rule
``lacks clear guidance defining and distinguishing [the three
categories of work],'' and that ``[a]bsent clear guidance as to each
category, it will be difficult to reliably structure, schedule, and
supervise tipped employees' job duties to ensure that they do not run
afoul of the proposed time-based limitations on the amount of `directly
supporting' work that may be performed when the tip credit is
claimed.'' RLC/NRA challenged the Department's basis for distinguishing
between these categories of work, and commented that WHD does not have
any evidentiary support for its conclusion that certain tasks are
either tip-producing, directly supporting, or not part of a tipped
occupation. A number of groups representing employers, such as the
Chamber of Commerce, criticized the proposed rule's test, and
particularly its definitions, as being ``administratively unworkable''
and said that the uncertainty would lead to litigation over the scope
of the terms used within the test. Groups such as the AG Coalition, on
the other hand, commented that because the rule did not identify every
tipped occupation, such as delivery drivers and baristas, employers
with workers in such ``unidentified tipped occupations'' may believe
that DOL's revised regulation does not apply to its employees. The AG
Coalition urged the Department to preface the rule, if finalized as
proposed, with a disclaimer that the regulatory list of tipped
occupations and list of tasks within those occupations under each
definitional category are illustrative, not exhaustive.
Commenters that opposed the proposed rule also generally preferred
the 2020 rule's use of O*NET to identify duties related to a particular
tipped occupation. See Seyfarth, CFCBA, WPI. Landry's, for example,
argued that DOL should retain the 2020 rule and its use of O*NET
because O*NET is a list of tipped duties compiled by surveying
employees in the restaurant industry and reflects the tasks that they
perform. RLC/NRA similarly argued that DOL's line-drawing between
categories of work in the proposed rule was arbitrary compared to
O*NET. Seyfarth noted that the 2020 Tip Rule's incorporation of O*NET
offers employers an ``objective and consistent up-front tool for
managing tip credit compliance.'' See also AHLA.
Landry's stated that ``[i]f the DOL finds O*NET imperfect, it
should convene subject matter experts to refine those duties.''
Similarly, RLC/NRA asserted that ``[t]he Department has never
undertaken a factual examination or study of the tasks performed by
these occupations[.]'' Employer groups also made various suggestions
for alternative ways of using O*NET. CFCBA suggested that DOL ``freeze
the responsibilities [on O*NET] that the DOL currently agrees with,''
and proposed that ``[t]he list can be updated since jobs can evolve.''
The Chamber of Commerce suggested that the final rule allow employers
and employees to use O*NET as a resource for determining whether work
performed by an employee is part of a tipped occupation.
On the other hand, NELP and NWLC argued that the 2020 rule is
problematic because it used O*NET as a tool for identifying duties
related to a particular tipped occupation. Those groups argued, among
other things, that O*NET improperly reflects some duties as tip-
producing but for which the full minimum wage should be paid, and
endorsed the decision to not use it in the proposed rule. As Texas
RioGrande Legal Aid commented, ``the folly of relying on O*NET for
determining related duties is graphically illustrated by O*NET's
inclusion of bathroom cleaning as a task for servers. Certainly, the
DOL should not promulgate rules that incentivize restaurants to have
servers contemporaneously cleaning bathrooms and carrying food to
tables.''
A few commenters challenged what they perceived as the proposed
rule's specific assignment of tasks to certain definitional categories.
MRA, for example, said that the proposed examples of work that fall
within the various categories were ``profoundly unhelpful and
internally contradictory,'' and asked ``[i]f nail technicians can clean
pedicure baths between customers to avoid customer waits, why cannot
servers clean tables, dishes, and glasses to avoid customers having to
wait for those items[?]'' Hospitality Maine offered a variation of this
argument, noting that the type of work performed by a tipped employee
might depend on which shift they are working, such as a server toasting
bread during a breakfast shift.
Several commenters representing employers, such as WPI, Seyfarth,
AHLA, NRF/NCCR, Landry's, and CFCBA, included specific examples of work
performed by tipped employees that they believed were not addressed by
the proposed rule and in some cases asked the Department to address
those scenarios in a final rule. CFCBA noted that the rule might not
address evolving occupations and tasks; as CFCBA observed, tasks now
performed by servers and bussers, such as verifying that a patron does
not have food allergies, are somewhat new in the industry.
Also, in response to the statement in the NPRM that food
preparation is not part of a server's tipped occupation but that
garnishing a plate can be, commenters identified a number of basic,
non-cooking tasks regularly performed by servers in the kitchen, and
asked whether those tasks are sufficiently similar to garnishing plates
such that they can be considered part of the tip producing work,
including toasting bread to accompany prepared eggs, adding dressing to
pre-made salads, scooping ice cream to add to a pre-made dessert,
ladling pre-made
[[Page 60124]]
soup into bowls, placing coffee into the coffee pot for brewing, and
assembling bread and chip baskets.
Commenters such as CFCBA, AHLA, RLC/NRA and WPI also expressed
confusion about application of the definitions in specific
circumstances, including how they would apply to employees such as
bussers and barbacks who receive tips from other tipped employees for
the customer service support that they provide to them. Hospitality
Maine observed that the rule could be read to state that a busser's
tip-producing activity might exclude cleaning tables, and asked
``[w]hat is a busser for if not to clean tables and reset them.''
Comments submitted by restaurant owners alleged that the proposed rule
would limit employers' ability to take a tip credit for those employees
who work in a supporting role because under the proposed rule all of
their work would be categorized as directly supporting, rather than
tip-producing. Several commenters, including WPI and AHLA, asked how
employees in positions that both prepare and serve food, such as
counterpersons and certain sushi chefs, would be treated under the
proposed rule.
Several commenters, including some that opposed the rule, said that
their concerns would be somewhat alleviated and that the Department's
test would be strengthened if the Department added more examples of
tasks that fall within each of the definitional categories. See, e.g.,
Seyfarth, CWC, NWLC, Scott letter. The Chamber of Commerce, for
example, commented that if the Department finalized the rule, it should
broaden and make clearer the distinction between ``tipped work and tip
supporting work.'' The commenters said that additional clarification of
tasks that fit within each definitional category would reduce the
likelihood of litigation over that issue and provide the clarity
promised by the Department in the proposed rule. CWC urged the
Department to include regulatory language or specific examples in the
final rule showing how employers could comply in a more practical way
and that would not create a significant disincentive toward use of the
tip credit. Seyfarth urged the Department to provide clearer
definitions and more specific examples regarding what does and does not
constitute tip-producing work, and what constitutes the proposed
temporally limited category of work that `directly supports' tip-
producing work, and noted that ``[w]ithout such objective guidance,
each employer will, in effect, be forced inappropriately to gamble that
courts will accept their interpretations and wage payments based on
them.''
2. Discussion of Comments and Explanation of Final Rule Modifications
a. Work That Is Part of the Tipped Occupation--Sec. 531.56(f)(1).
The Department proposed in Sec. 531.56(f) to clarify that an
employer may take a tip credit only for time when the employee performs
work that is part of the tipped occupation. Under the Department's
proposal, an employee performs the work of their 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.
After careful consideration of all of the comments and the practical
realities of work in tipped industries, the Department finalizes this
definition as proposed.
Since 1967, the Department has recognized in its dual jobs
regulation, Sec. 531.56(e), 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.
The Department has also recognized another dual jobs scenario,
which is the main focus of this rulemaking, in which 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 engaged in the
tipped occupation. From 1988 to 2018, in recognition of the fact that
every tipped occupation usually includes a limited amount of related,
non-tipped work, the Department interpreted Sec. 531.56(e) to provide
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 80/20 guidance
interpreting Sec. 531.56(e) also recognized, however, that it was
necessary to limit the amount of time that an employer could require a
tipped employee to perform non-tipped work, because at some point, if a
tipped employee performs too much non-tipped work, even if that work is
related to the tipped occupation, the work is no longer incidental to
the tipped work and thus the employee is 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.
Multiple circuit courts have deferred to the 1967 dual jobs
regulation and the 80/20 guidance, upholding the Department's
determination that an employee is not engaged in a tipped occupation
when they perform any non-tipped work that is outside of a tipped
occupation or when they perform so much non-tipped work that is
typically involved in their occupation that the employee is unable to
earn tips for a substantial portion of their time. See Marsh, 905 F.3d
at 633; Fast, 638 F.3d at 879; see also Rafferty, 2021 WL 4189698 at
*18 (independently affirming the reasonableness of a 20 percent limit
on related non-tipped duties). The necessity of limiting employers'
ability to take a tip credit to those times when an employee has an
opportunity to earn tips was recently affirmed by the Eleventh Circuit,
which, as noted in the Background section above, declined to defer to
the Department's 2018-2019 guidance and concluded independently that a
20 percent limit on related duties was a reasonable interpretation of
the dual jobs regulation and section 3(t). See Rafferty, 2021 WL
4189698 at *18. As the court stated, the key is ``to ensure that the
reduced direct wage for tipped employees is available to employers only
when employees are actually engaged in a tipped occupation'' such that
they can ``earn the remainder of at least the minimum wage.'' \23\ The
Department therefore disagrees with commenters asserting that the FLSA
[[Page 60125]]
precludes the Department from placing limits on the amount of non-
tipped work that an employee may perform and still be considered to be
engaged in a tipped occupation. See, e.g., NRA/RLC.\24\
---------------------------------------------------------------------------
\23\ Some commenters representing employers argued that a
circuit split on this issue--referencing the earlier unpublished
Eleventh Circuit Pellon decision--caused confusion for employers.
See, e.g., Seyfarth; Landry's. Any confusion stemming from the
unpublished Pellon decision should be resolved by the publication of
the Rafferty decision, which reaches the same conclusion as the
Eighth and Ninth Circuits, concluding that a 20 percent limitation
on related duties is a reasonable interpretation of Sec. 531.56(e).
\24\ The RLC/NRA argued that ``Congress has already spoken to
how the law should treat a worker's status as a tipped employee'' in
a dual jobs situation, quoting the 1974 Senate Report as saying
``[W]here the employee performs a variety of different jobs, the
employee's status as one who `customarily and regularly receives
tips' will be determined on the basis of the employee's activities
over the entire workweek.'' See S. Rep. No. 93-690, at 43 (Feb. 22,
1974). However, the sentence cited by RLC/NRA addresses which
employees can participate in traditional tip pools under (now)
section 3(m)(2)(A), not how to determine whether an employee is
engaged in a tipped occupation pursuant to section 3(t). The Ninth
Circuit rejected the RLC/NRA's precise argument in Marsh, noting
that ``the legislation accompanying the 1974 report did not make any
changes to section 203(t). Further, the report expressly recognized
`the ethical question involved in crediting tips toward the minimum
wage' and emphasized that tipped employees `should have stronger
protection to ensure the fair operation' of the tip credit
provision. S. Rep. No. 93-690 at 42-43.'' Marsh, 905 F.3d at 622.
---------------------------------------------------------------------------
As the Department stated in the NPRM, an employer may take a tip
credit only for time when an employee performs work that is part of the
employee's tipped occupation, because the tip credit provision allows
employers to pay reduced direct cash wages based on the assumption that
a worker will earn additional money from customer-provided tips. If
tipped employees spend a substantial amount of time performing work in
which they cannot earn tips, they have ceased to perform the work of a
tipped occupation and are therefore not engaged in a tipped occupation.
An employer cannot take a tip credit when a tipped employee performs
work that is not part of the tipped occupation.
Accordingly, the Department declines to modify its definition of
work that is part of a tipped occupation to remove any limitations on
directly supporting work whatsoever. The final rule permits an employer
to take a tip credit only for time spent performing directly supporting
work if it is not performed for a substantial amount of time. The
Department believes that this limitation on directly supporting work
performed when an employee does not have the ability to earn tips is an
essential backstop to prevent abuse of the tip credit.
The Department also disagrees with restaurant commenters' argument
that the proposal is flawed because the Department failed to explain
what non-tipped occupation tipped employees engage in when they perform
a substantial amount of non-tipped, directly supporting work. When an
employee performs a substantial amount of non-tipped directly
supporting work, it will sometimes be clear that they have become
engaged in a well-established non-tipped occupation with a distinct
title. This is the case, for example, when a bellhop spends several
hours of a shift cleaning the hotel lobby. In such a scenario, the
employee has stepped into the occupation of a hotel janitor. Other
times, an employee may have performed so much non-tipped work that they
have ceased to be engaged in their tipped occupation, but a well-
established non-tipped occupational title may not exist to describe the
work in which they are engaged. This is the case, for example, when a
server spends several hours of a shift rolling silverware. If an
employer hires someone solely to roll silverware, there would not be a
well-established occupational title to describe that position, but it
would defy common sense to suggest that the employee is engaged in an
occupation that customarily and regularly receives tips. The Department
is determining when an employee is engaged in a tipped occupation and
when that employee has ceased to be engaged in the tipped occupation
for which they were hired, not identifying which additional occupation
the employee is now performing.
Finally, the Department also declines to adopt an exception from
its definition of work that is part of the tipped occupation for
employers whose tipped employees' average earnings, inclusive of tips,
exceed 25 percent of the minimum wage, or a broad presumption of
compliance with the FLSA's requirements for highly-tipped
employees.\25\ The Department does not believe that the statute permits
an exception from the wage payment requirements in section 3(m) for
employees who earn a significant amount in tips. As noted above, an
employer may take a tip credit of no more than $5.12 per hour towards
its minimum wage obligation for only tipped employees, defined in
section 3(t) as an employees engaged in a tipped occupation. Otherwise,
employers must pay the full minimum wage of $7.25 per hour. As
explained in this final rule, an employee is not engaged in a tipped
occupation when they perform any work outside of a tipped occupation or
a substantial amount of directly supporting work, notwithstanding the
amount of tips they earn while they are engaged in a tipped occupation.
Permitting employers to pay a direct wage of less than $7.25 per hour
for an employee who performs work outside of their tipped occupation or
performs a substantial amount of directly supporting work would thus be
contrary to section 3(t) and the requirements of the FLSA. This is the
case regardless of the amount of tips the employee earns when they are
engaged in a tipped occupation.
---------------------------------------------------------------------------
\25\ Some commenters asserted that tipped workers are
significantly better off than their non-tipped counterparts. See
RLC/NRA; Chamber of Commerce; WPI. Although this may be true for
some tipped workers at higher-end establishments, the Department
does not believe that is the case at all establishments. The
Department looked at data from the Current Population Survey and
found that in 2020, the median usual weekly earnings (which includes
tips) for waiters and waitresses was $514. Comparing that to non-
tipped restaurant workers, the median usual weekly earnings of
dishwashers was $528 and the median usual weekly earnings of cooks
was $510, while chefs and head cooks earned $696. On average,
waiters and waitresses do not earn more than non-tipped workers in
the same establishment.
---------------------------------------------------------------------------
At the same time, the Department also declines to amend the final
rule, as requested by some commenters representing employees, to state
that an employer cannot take a tip credit for any time during which a
tipped worker is not earnings tips. As explained above, the Department
has long recognized, as far back as the 1967 regulation, that a tipped
occupation usually includes a limited amount of related, non-tipped
work, and therefore, a tipped employee may still be engaged in a tipped
occupation while performing a limited, incidental amount of such work.
The Department believes that the final rule provides strong protections
that prevent tipped employees from performing more than an incidental
amount of non-tipped work.
Finally, the Department also declines to adopt NWLC's
recommendation to define work that is part of the tipped occupation to
exclude any work an employee performs ``when the employer's
establishment is not open for service to customers.'' The Department
declines to make such a change, but notes that, as discussed further
below, because tipped employees cannot be serving customers when the
establishment is not open to customers, they cannot be performing tip-
producing work during that time. Therefore, if a tipped employee is
performing directly supporting work when the establishment is not open
to customers, the employer can only take a tip credit so long as that
directly supporting work is not performed for a substantial amount of
time.
b. Tip-Producing Work and Directly Supporting Work--Sec. 531.56(f)(2)
and (3)
As explained in more detail below, the Final Rule amends the
definitions of tip producing work and directly supporting work in
response to the
[[Page 60126]]
comments received to make the definitions clearer and more distinct
from each other, to better explain the relationship between customer
service and tip-producing work, and to provide more examples of the
tasks that fall within each category of work and for additional
occupations. In particular, the final rule provides that tip-producing
work encompasses all aspects of the customer service for which a tipped
employee receives tips. The Department believes that these amendments
to the regulatory definitions to explain the relationship between
customer service and tip-producing and directly supporting work, as
well as the additional examples of the tasks that fall within each
category of work, will assist employers and employees to make up-front
determinations about the nature of the work. The Department believes
that these clarifications should address many of the concerns raised by
commenters representing employers about the administrability of the
Department's test.
As discussed in greater detail below, the Department modifies the
definition of tip-producing work to be ``any work performed by a tipped
employee that provides service to customers for which the tipped
employee receives tips.'' The final rule also makes clear that the
Department intended tip-producing work to encompass all aspects of the
service to customers for which the tipped employee receives tips.
Therefore, in the proposal's example of ``waiting tables,'' the
Department intended to encompass any task logically included within the
scope of that tip-producing work. This would include a server serving
food and drink, as well as filling water glasses for their table,
verifying whether a customer has food allergies, or cleaning a spill on
their customer's table. However, the Department does not agree with the
assertion made by RLC/NRA that ``[a]ll tasks in a full-service
restaurant . . . produce tips.'' A tipped employee must still be
performing work for which he or she ``customarily and regularly
receives . . . tips.'' 29 U.S.C. 203(t); see Rafferty, 2021 WL 4189698
at *18 (``[F]or the employer to qualify to take the tip credit, the
employee's job must, by tradition and in reality, be one where she
consistently earns tips.''). A server receives tips for waiting on
customers' tables, not for cleaning the restaurant. The Department
believes that the clarifications to the definition of tip-producing
work reflect the necessary nexus between the tipped employee's tip-
producing work and the service to customers that reflects that tipped
employee's customary and regular work.
After considering comments, the final rule also modifies the
definition directly supporting work to better distinguish it from tip-
producing work, to reflect that this category of work is either
performed in preparation of or otherwise assists the tip-producing
customer service work. The Department believes that this modification,
and the illustrative examples included, provide greater clarity and
guidance to employers. The final rule as revised clarifies that ``tip-
producing work'' includes all aspects of the work performed by a tipped
employee when they are providing service to customers. ``Directly
supporting work'' is either performed in preparation of or otherwise
assists such tip-producing customer service work. Directly supporting
work is the kind of work that is generally more foreseeable to
employers and that employers are more likely to specifically assign.
Thus, as explained in greater detail below in Section E, the Department
believes that the clarified definitions of tip-producing and directly
supporting work will address many of the commenters' concerns that it
would be impossible to categorize and monitor the many variable tasks
that tipped employees perform in the course of providing service to
customers under the Department's proposal.
In the proposal, the Department noted that it was particularly
concerned with time tipped employees spend performing tasks that do not
produce tips, such that the employee was ``no longer earning tips
during that time.'' See 86 FR 32830. Many of the comments the
Department received from tipped workers echoed this concern. Thus, when
a tipped employee is not performing tip-producing work, but is instead
performing directly supporting work, there are limitations on the
amount of time the employee can perform that work because the
employee's work is not generating tips. Specifically, employees may not
perform directly supporting work for more than 20 percent of the work
week or 30 continuous minutes.
The dual jobs test set out in this final rule is not, as RLC/NRA
and other commenters asserted, a fixed list of tip-producing and
directly supporting duties, but a functional test to determine when a
tipped employee is engaged in their tipped occupation because they are
performing the work of the tipped occupation, and therefore the
employer may take a tip credit against its minimum wage obligations.
Employers and employees can determine whether an employee's activity is
tip-producing by applying the definition of tip-producing work--that
is, as explained below, by asking whether the task is ``work that
provides service to customers for which tipped employees receive
tips.'' Likewise, employers and employees can determine whether an
employee's activity is directly supporting by applying the definition
of directly supporting work--that is, as explained below, by asking
whether the task ``is either performed in preparation of, or otherwise
assists, the tip-producing customer service work.'' If a task is not
tip-producing or directly supporting, then it is not part of the tipped
occupation.
This functional test applies to all manner of tipped occupations, a
feat that would be difficult, if not impossible, to achieve with a
fixed list of duties for particular tipped occupations. Moreover, as
new duties emerge, this functional test allows for better flexibility
and adaptability to categorize those duties than would a fixed list of
tip-producing and directly supporting duties. For example, some
commenters representing both employers and employees noted that
employees are receiving tips for different activities than they
typically perform because of changes to restaurant's service models in
response to the COVID-19 pandemic. See WPI (commenting that ``a more
robust `to go' business'' in restaurants ``is now part of the new
normal'' and ``significant tips [are] being received from patrons for
`to go' services, even when the guest receives none of the traditional
`waiter-type' services''); see also AHLA; ROC. If the Department were
to publish a fixed list of duties, this list could not reflect such
changes as they developed; likewise there would inevitably be a delay
before a general resource such as O*NET would be updated to accommodate
such changes. The Department's functional test, however, means that
employers and employees can apply the flexible definitions as needed if
and when the landscape of tip-producing work changes. If during the
COVID-19 pandemic, a server receives tips from serving customers by
taking their phone orders and providing them with carry-out meals,
employers can properly categorize those tasks as tip-producing.
Similarly, the Department's functional test is sufficiently flexible to
capture duties that might arise unexpectedly or infrequently in the
course of serving customers, but are tip-producing, such as when a
family checking in for vacation asks a bellhop who has carried
[[Page 60127]]
their luggage to their hotel room to take their photograph.
The Department appreciates the comments from employers that its
dual jobs test should rely on or use O*NET as guidance to determine
what work is part of and not part of, or directly supporting of, a
particular tipped occupation. However, these commenters misapprehended
the nature of the Department's test. As explained above, the dual jobs
test set out in the final rule, including the definitional section
setting out examples for each category of work for various tipped
occupations, is not intended to be a substitute for O*NET's fixed list
of duties that tipped employees are required by their employers to
perform as part of their work. Rather, the final rule creates a
functional test to measure whether a tipped employee is engaged in
their tipped occupation, and uses examples to explain the application
of that functional test. The Department believes that its revised test
allows employers to determine the nature of their tipped employees'
work prior to that work being performed, and, as explained above, is
also is flexible enough to be applied to new variations on tipped work.
As the NPRM noted, O*NET was not created to identify an employer's
legal obligations under the FLSA. See 86 FR 32825. Further, as groups
representing employees also pointed out, O*NET only reflects what
tipped employees are required to do by their employers, not the tasks
that actually make up part of their tipped occupation, and is
consequently not a helpful tool to use in determining whether an
employee is engaged in their tipped occupation, even if, as under the
2020 rule, it is only used as a guide. As the Eleventh Circuit noted in
Rafferty v. Denny's, using O*NET to define what duties are part of a
tipped occupation risks creating ``a fox-guarding-the-henhouse
situation'' whereby employers, by regularly assigning certain non-
tipped duties to their tipped workers, could ``effectively render''
such duties part of a tipped occupation, ``whether those duties are, in
fact, related or not to their [employees'] tipped duties.'' See 2021 WL
4189698 at *18. In addition, unlike the Department's functional test,
O*NET does not distinguish between tip-producing and directly
supporting duties. For these reasons, the Department believes that its
revised test is clearer and more accurate to use than the 2020 rule's
dual jobs test and in particular its use of O*NET.
i. Tip-Producing Work--Sec. 531.56(f)(2) \26\
---------------------------------------------------------------------------
\26\ Proposed Sec. 531.56(f)(1)(i).
---------------------------------------------------------------------------
The NPRM proposed to define tip-producing work as ``[a]ny work for
which tipped employees receive tips,'' and included a number of
examples illustrating the application of this definition to a number of
occupations. The proposed rule explained, for example, that ``[a]
server's tip-producing work includes waiting tables [and] a bartender's
tip-producing work includes making and serving drinks and talking to
customers.'' The final rule adopts the definition of tip-producing work
as proposed with slight modifications to reflect comments received on
the proposed rule and to include additional examples of work that fit
within that definitional category.
(a.) Comments
As explained above, the Department received a number of comments
about the definition of tip-producing work, arguing that it did not
provide enough clarity about the kinds of tip-producing work that are
included within the occupations listed as well as other occupations
that were not listed, and that it was unclear what tasks were
encompassed within the examples of tip-producing work listed in the
NPRM. Several commenters representing employers said that the proposed
rule's references to types of tip-producing work, such as its reference
to ``waiting tables'' as an example of a server's tip-producing work,
were vague, and asked the Department in a final rule to set forth
specific examples of tasks that are encompassed within those broad
categories of work. For example, several commenters noted that the
proposal's example of the tip-producing work of a server, waiting
tables, was insufficiently clear. See, e.g., Littler (``For example,
the Proposed Rule states that `waiting tables' by a server is tip-
producing, but nowhere does it explain what is encompassed by `waiting
tables.' ''); AHLA (``DOL's categorization . . . of servers into a
single duty of `waiting tables' . . . comes with no reference or
explanation''). WPI noted, for example, that tasks logically included
within the scope of table service includes walking to the kitchen or
bar to retrieve prepared food and drink and delivering those items to
the customers; filling and refilling drink glasses; attending to
customer spills or items dropped on the floor adjacent to customer
tables; processing credit card and cash payments; and removing plates,
glasses, silverware, or other items on the table during the meal
service. NELP proposed that the Department should clarify in a final
rule that ``tip producing'' work must ``be customer-facing, to ensure
that workers paid a subminimum wage are truly in a position to earn
tips that would bring them up to the minimum wage,'' arguing that
without such a bright-line clarification, employers could continue to
pay its tipped employees $2.13 an hour for work that is not tip-
producing.
As noted above, commenters stated that tipped employees may perform
work that would be considered directly supporting under the proposal
while they are also actively engaged in work that would be considered
tip-producing, and expressed concern with the difficulty of
categorizing such time. See Landry's; WPI; Small Business
Administration (SBA) Office of Advocacy. For instance, Landry's noted
that bartenders may perform tasks such as cleaning bar glasses and
preparing drink garnishes while they are also taking orders from
customers. See also SBA Advocacy (referring to a bartender serving
drinks while cleaning and stocking the bar area).
As also noted above, commenters asked how the definition of tip-
producing work applies to tipped employees such as bussers and service
bartenders, who do not receive tips directly from customers but from
the tipped employees that they support, such as servers. Relatedly,
commenters asked the Department to identify tip-producing work for
employees such as counterpersons and certain sushi chefs who both
prepare and serve food to customers.
(b.) Discussion of Comments and Final Rule Modifications
In response to the comments received, the final rule modifies the
definition of tip-producing work to clarify that customer service is a
necessary predicate to a tipped employee's receipt of tips. The final
rule defines tip-producing work as ``any work performed by a tipped
employee that provides service to customers for which the tipped
employee receives tips.'' The Department believes that the final rule's
reference to customer service lends additional and important
clarification about the types of work that qualify as tip-producing
work under this test. Also in response to comments, Sec.
531.56(f)(2)(ii) of the final rule includes more examples of tip-
producing work, including for additional occupations, to illustrate the
scope and application of this regulatory term. This list of examples is
illustrative only and is not exclusive. The final rule also clarifies
that the types of tip-
[[Page 60128]]
producing work on the list include all aspects of the service to
customers for which the tipped employee receives tips. Although the
NPRM listed a number of examples of tip-producing work for several
tipped occupations, commenters expressed confusion and concern about
the scope of the tasks encompassed in the tip-producing work identified
in the proposed rule and also asked for examples of additional tip-
producing work for those and additional occupations.
With respect to the scope of the tasks that are included within the
category of work identified as tip-producing, the Department notes, as
it explained above, that it intended this category of work to be
broadly construed to logically include all activity within that
category. The final rule thus clarifies that tip-producing work
``includes all aspects of the service to customers for which the tipped
employee receives tips.'' The Department agrees with commenters who
proposed that the tip-producing work of ``waiting tables,'' which can
also be described as ``providing table service,'' encompasses the many
different tasks in which the server engages in order to provide the
table service, and changes the regulatory text to clarify that a
server's tip-producing work ``includes providing table service, such as
taking orders, making recommendations, and serving food and drink.''
The Department also agrees with those commenters that suggested that a
server's tip-producing activity of waiting tables, or providing table
service, generally encompasses the activities included within the scope
of that table service: Walking to the kitchen or bar to retrieve
prepared food and drink and delivering those items to the customers;
filling and refilling drink glasses; attending to customer spills or
items dropped on the floor adjacent to customer tables; processing
credit card and cash payments; and removing plates, glasses,
silverware, or other items on the table during the meal service.
The Department agrees with Seyfarth's comment that in the
hospitality industry, tip-producing work for servers, bartenders, and
nail technicians is broader than simply serving food and drinks, or
performing manicures. Thus, the Department agrees with the assessment
that a bartender's tip-producing work of preparing drinks may include
generally talking to the customer seated at the bar and ensuring that a
patron's favorite game is shown on the bar television, a server's tip-
producing work includes bringing a highchair and coloring book for an
infant seated at their table, and a nail technician's tip-producing
work would include helping their customer pick out a complementary
shade of polish, or taking their own customer's payment. In response to
comments asking how to categorize the time that a tipped employee
spends performing directly supporting work when they are also actively
engaged in tip-producing work, such as a bartender who organizes the
bar while preparing drinks and chatting with customers, the Department
notes that this rule does not limit the amount of time for which an
employer may take a tip credit when a tipped employee is performing
tip-producing work. Therefore, an employer may take a tip credit when a
worker is performing tip-producing work even if the worker is also
performing directly supporting work. This situation is in contrast to a
tipped employee who performs directly supporting work while there is a
lull in service, such as a server who folds napkins while waiting for
her last table to pay their bill. In this situation, the server is not
actively engaged in tip-producing work, and thus the time is properly
categorized as directly supporting.
Moreover, as revised and described herein, the tip-producing work
of some tipped employees would also include tasks that were identified
as directly supporting work in the proposed rule, if those tasks are
performed as part of service that the tipped employee is providing to a
customer. The determination is whether the tipped employee can receive
tips because they are performing that task for a customer. For example,
a bartender who retrieves a particular beer from the storeroom at the
request of a customer sitting at the bar, is performing tip-producing
work, even though a bartender who retrieves a case of beer from the
storeroom to stock the bar in preparation for serving customers, would
be performing directly supporting work, as explained in the NPRM. See
86 FR 32829. A server adding a garnish to a plate of food in the
kitchen before serving the prepared food to the customer, or wiping
down a spill on a customer's table, is performing the tip-producing
customer service work of serving tables. In contrast, a server assigned
to clean around the beverage station is performing work in preparation
of or otherwise assisting tip-producing work and thus is performing
directly supporting work.
The Department's longstanding position has been and continues to be
that general food preparation, including salad assembly, is not part of
the tipped occupation of a server.\27\ However, a server's tip-
producing table service may include some work performed in the kitchen
for their customer akin to garnishing plates before they are taken out
of the kitchen and served, such as toasting bread to accompany prepared
eggs, adding dressing to pre-made salads, scooping ice cream to add to
a pre-made dessert, ladling pre-made soup, placing coffee into the
coffee pot for brewing, and assembling bread and chip baskets. The
Department does not consider those tasks to be ``food preparation''
that is not part of the tipped occupation of a server when they are
performed as part of the customer service work for which the tipped
employee receive tips. This work is distinguishable from a server being
assigned to perform general food preparation work in the kitchen, such
as slicing fruits and vegetables, which is not part of the tipped
occupation of a server.
---------------------------------------------------------------------------
\27\ See, e.g., 1979 Opinion Letter.
---------------------------------------------------------------------------
Commenters also asked the Department to explain in the final rule
how its definitional tests applied to tipped employees such as bussers,
whose tip-producing work is performed in assistance of other tipped
employees' work. A busser's tip-producing work includes assisting
servers with their customer service work that produces tips, such as
providing table service, just as a barback's tip-producing work
includes assisting bartenders with their customer work that produces
tips, such as making and serving drinks. As revised, the definition of
tip-producing work clarifies that this category applies to work, such
as bussing tables, performed by tipped employees like bussers who do
not directly receive tips from customers, because this work provides
service to customers for which the tipped employee (i.e., the busser)
receives tips, even though they usually receive the tips from other
tipped employees (i.e., servers).\28\ The tip-producing work of a
busser would include, for example, resetting tables during table
service in between customers, because this work is not done in
preparation of the tip-producing work but is the busser's tip-producing
work, as compared to the busser's work of setting tables, folding
napkins and rolling silverware before the restaurant
[[Page 60129]]
is open to customers, which is done in preparation of the tip-producing
work of resetting tables during table service.\29\ The definition of
tip-producing work also applies to service bartenders, who are tipped
by servers because they prepare drinks for servers to bring to tables
and therefore perform customer service work even if their work is not
customer facing.\30\
---------------------------------------------------------------------------
\28\ Several commenters commented that the proposed rule's test
was flawed because, e.g., it catalogued the same work performed by a
server and a busser in different definitional categories (i.e., tip-
producing and directly supporting). To the extent that this is true
under the revised test, this categorization of tasks merely reflects
the unique nature of some tipped employees' tip-producing work, such
as bussers and service bartenders, who receive tips from other
tipped employees such as servers because they are supporting their
customer service, tip-producing work.
\29\ Further illustrating this point, a housekeeper's work of
cleaning a room to get it ready for a customer is not directly
supporting work done in preparation of the tip-producing work of
cleaning hotel rooms for customers, but is the tip-producing work,
as compared with work that directly supports the room cleaning, such
as stocking the housekeeping cart.
\30\ As noted above, both bussing and service bartending have
long been considered to be occupations that customarily and
regularly receive tips, as opposed to cooks or dishwashers, for
example. See S. Rep. No. 93-690, at 43. This final rule does not
disturb these longstanding understandings.
---------------------------------------------------------------------------
The final rule also expands the list of examples of work that would
meet the definition of tip-producing work, including for additional
occupations, in response to comments asking for more examples to
illustrate the regulatory definition. This list of tasks that are
encompassed within the tip-producing activities identified in the
regulatory definition is not exhaustive and can be fact-specific. As
noted above, the final rule also explains that tip-producing work,
including the types of work on that list, includes all aspects of the
service to customers for which the tipped employee receives tips. The
final rule explains, for example, that a bartender's tip-producing work
of making and serving drinks includes the customer-service work of
talking to customers at the bar and, if the bar includes food service,
serving food to customers. The tip-producing work of a nail technician
at a nail salon includes, for example, the customer service work of
performing manicures and pedicures but would also include customer
service work such as assisting the patron to select the type of
service, including the right shade of polish. The tip-producing work of
a parking attendant includes, for example, the customer service work of
parking and retrieving cars and moving cars in order to retrieve a car
at the request of customers. The tip-producing work of a service
bartender includes, for example, the customer service work of preparing
drinks for table service. The tip-producing work of a hotel housekeeper
includes, for example, the customer service work of cleaning hotel
rooms. The tip-producing work of a busser includes, for example,
assisting servers with their tip-producing work, such as table service,
including filling water glasses, clearing dishes from tables, fetching
and delivering items to and from tables, and bussing tables, including
changing linens and setting tables. The tip-producing work of a hotel
bellhop includes, for example, the customer service work of assisting
customers with their luggage. All of this work is work that provides
service to customers for which tipped employees receive tips. Also in
response to comments, the final rule clarifies that the tip-producing
work of a tipped employee who both prepares and serves food to
customers, such as a counterperson or certain types of sushi chefs,
includes all tasks that are performed in order to provide the customer
service work of preparing and serving the food.
For these reasons, the Department finalizes the definition of tip-
producing work with slight modifications and renumbers that provision
as Sec. 531.56(f)(2).
ii. Directly Supporting Work--Sec. 531.56(f)(3) \31\
---------------------------------------------------------------------------
\31\ Proposed Sec. 531.56(f)(1)(ii).
---------------------------------------------------------------------------
Proposed Sec. 531.56(f)(1)(ii) addressed 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. The NPRM proposed to define this
directly supporting work as work that is part of the tipped occupation
provided it is not performed for a substantial amount of time, and
defined the term as ``work that assists a tipped employee to perform
the work for which an employee receives tips.'' The final rule adopts
the definition of directly supporting work as proposed with slight
modifications to reflect comments received on the proposed rule,
clarify the scope of the definition, and to add additional examples of
work that fit within that definitional category.
(a.) Comments
Chairman Bobby Scott and several other Members commented that the
proposed rule's reference to ``directly supporting'' work was
preferable to the ``related duties'' terminology used in previous
Departmental dual jobs guidance because ``related duties'' potentially
captured work that was only remotely related to the tipped occupation.
As with tip-producing work, commenters criticized the proposed rule's
definition of directly supporting work as unclear, and asked the
Department to either abandon its new test or to make its definitions
clearer and easier to use. A few commenters asked the Department to add
more examples of work that fell within this definition for additional
tipped occupations. MRA asked whether the proposed rule's list of
directly supporting work was finite, such as, for example, whether
``slicing and pitting fruits for drinks'' is the only permissible
``side work'' for bartenders.
Commenters also asked the Department how the proposed rule applied
to down time, where employees do not have any customers to serve. The
CFCBA, for example, provided an example of a server who spends 15
minutes performing directly supporting work before the restaurant opens
and then does no work for the next 30 minutes waiting for her first
table. MRA similarly asked how the test would apply to periods of time
when a tipped employee does not have a customer to serve and is
``sit[ting] or stand[ing] idle.'' See also SBA Advocacy (``Small
restaurants commented that a typical workday there may include a wave
of customers, followed by a slowdown.'').
(b.) Discussion of Comments and Final Rule Modifications
In response to comments, Sec. 531.56(f)(3) of the final rule
modifies the proposed rule's definition of directly supporting work to
clarify the scope of work that fits within this category and adds
additional examples to further illustrate the application of the
definition. The final rule explains that directly supporting work is
work that is part of the tipped occupation, provided it is not
performed for a substantial amount of time. As revised, the final rule
also explains that directly supporting work is work which is performed
by a tipped employee in preparation of, or to otherwise assist tip-
producing customer service work, and the examples illustrate this
concept. Directly supporting work would include, for example, work
performed by a tipped employee such as a server or busser in a
restaurant before or after table service, such as rolling silverware,
setting tables, and stocking the busser station, which is done in
preparation of the tip-producing customer service work.
By clarifying in the final rule that the definition of tip-
producing work is work that provides service to customers--including
all aspects of that service--for which the tipped employee receives
tips, and directly supporting work is performed in preparation for that
work, it is easier to distinguish between tip-producing and directly
supporting work, and it is easier for employers to keep track of work
included in the 20 percent and 30-minute limits. As
[[Page 60130]]
explained above, the tip-producing work of some tipped employees may
also include tasks that are identified as examples of directly
supporting work when those tasks are performed as part of service that
the tipped employee is providing to a customer. For example, a
bartender who in the course of providing tip-producing service to
customers, wipes down the surface of the bar and tables in the bar area
where customers are sitting, and cleans bar glasses and implements used
to make drinks for those customers, is performing tip-producing work
because she is performing service to customers for which the bartender
receives tips. If the bartender performs these same tasks before or
after the restaurant is open, these same tasks would be directly
supporting work because they are not performed as part of service to
customers for which the tipped employee receives tips.
In response to comments asking how to categorize a tipped
employee's down time, when the employee has started their shift and is
waiting for customer service to commence but is otherwise not
performing any customer service work or work in support of customer
service work, the Department notes that this question is answered by
the revised definitions in the final rule. In this circumstance, where
the employee is not providing service to customers for which the tipped
employee receives tips, that time cannot be categorized as tip-
producing work under the revised definition. Because the tipped
employee is available to immediately provide customer service when the
customer arrives, however, the time is being spent in preparation of
the customer service, and is therefore properly categorized as directly
supporting work.
Also in response to comments, the final rule adds examples of
directly supporting work, including for additional occupations, to
illustrate the scope and application of this regulatory term. The
examples illustrate tasks performed by a tipped employee that are
directly supporting work when they are performed in preparation of or
to otherwise assist the tip-producing customer service work and when
they do not provide service to customers. This list is illustrative but
not exhaustive.
The final rule explains, for example, that when performed in
preparation of or to otherwise assist tip-producing customer service
work, a server's directly supporting work includes dining room prep
work, such as refilling salt and pepper shakers and ketchup bottles,
rolling silverware, folding napkins, sweeping or vacuuming under tables
in the dining area, and setting and bussing tables. The final rule also
clarifies that a bartender's directly supporting work, when performed
in preparation of or to otherwise assist tip-producing customer service
work, includes work such as slicing and pitting fruit for drinks,
wiping down the bar or tables in the bar area, cleaning bar glasses,
arranging bottles in the bar, fetching liquor and supplies, and
vacuuming under tables in the bar area. A bartender's directly
supporting work, when performed in preparation of or to otherwise
assist tip-producing customer service work, would also include, for
example, cleaning ice coolers and bar mats, and making drink mixes and
filling up dispensers with drink mixes. If a bartender works at a bar
that includes food service to customers seated in the bar area, the
bartender's directly supporting work would include, for example, work
that is done in preparation of or otherwise assists the bartender's
tip-producing work of providing table service, including the basic food
preparation work identified for servers, above. A nail technician's
directly supporting work includes, for example, cleaning pedicure baths
between customers, cleaning and sterilizing private salon rooms between
customers, and cleaning tools and the floor of the salon. The directly
supporting work for a parking attendant includes, for example, cleaning
the valet stand and parking area, and moving cars around the parking
lot or garage to facilitate the parking of patrons' cars. The directly
supporting work of a service bartender includes, for example, slicing
and pitting fruit for drinks, cleaning bar glasses, arranging bottles,
and fetching liquor or supplies before or after the bar is open to
customers. The directly supporting work of a hotel housekeeper
includes, for example, stocking the housekeeping cart. The directly
supporting work of a busser includes, for example, pre- and post-table
service prep work such as folding napkins and rolling silverware,
stocking the busser station, and vacuuming the dining room, as well as
wiping down soda machines, ice dispensers, food warmers, and other
equipment in the service alley. The directly supporting work of a hotel
bellhop includes, for example, rearranging the luggage storage area and
maintaining clean lobbies and entrance areas of the hotel.
For these reasons, the final rule makes slight modifications to the
definition of Directly supporting work and renumbers that provision as
Sec. 531.56(f)(3).
c. Work That Is Not Part of the Tipped Occupation--Sec. 531.56(f)(5)
\32\
---------------------------------------------------------------------------
\32\ Proposed Sec. 531.56(f)(2).
---------------------------------------------------------------------------
The NRPM proposed to define work that is not part of the tipped
occupation as ``any work that does not generate tips and does not
directly support tip-producing work.'' Consistent with the other
revisions to the definitional section, Sec. 531.56(f)(5) of the final
rule slightly modifies the proposed rule's definition of work that is
not part of the tipped occupation to also reflect its relationship to
customer service. The Department also slightly modifies the definition
of work that is not part of the tipped occupation to reflect the
changes to the definitions of tip-producing work and directly
supporting work. As finalized, the rule explains that work that is not
part of the tipped occupation is any work that does not provide service
to customers for which tipped employees receive tips, and does not
directly support tip-producing work. The final rule also adds examples
of work from additional occupations that fall within this definitional
category to illustrate the scope and application of this regulatory
term. As in the proposal, and consistent with longstanding Department
enforcement, an employer may not take a tip credit for any time spent
on work that is not part of the tipped occupation.
i. Comments
Employees and groups representing employees generally supported the
NPRM, including its definition of work that is not part of the tipped
occupation. As discussed above, some commenters representing employers
commented that the proposed rule's definition of work that is not part
of the tipped occupation was flawed because the Department lacked
statutory authority to limit an employer's ability to take a tip credit
for employees who are engaged in a tipped occupation irrespective of
the type of work those employees are performing. Relatedly, some
commenters representing employers argued that the NPRM's examples of
work that is not part of the tipped occupation improperly included work
that should be categorized as work that is part of the tipped
occupation.
Commenters representing employers also proposed that certain tasks
highlighted by the Department as work that is not part of the tipped
occupation were more nuanced than the Department realized. For example,
the NPRM stated that food preparation is not part of a server's tipped
occupation because it is not tip-producing work and
[[Page 60131]]
does not directly support the tip-producing work, but that garnishing a
plate is directly supporting work for the tipped occupation of server.
As explained above, commenters identified a number of other basic, non-
cooking tasks regularly performed by servers in the kitchen as part of
their customer service, such as toasting bread to accompany prepared
eggs, and asked whether those tasks are sufficiently similar to
garnishing plates such that they can be considered directly supporting
work.
A few employer-side commenters also asked the Department to
distinguish bathroom cleaning, which WPI identified as work that is not
part of a server's tipped occupation, from the work that those
commenters identified as regularly performed by servers: Monitoring
bathrooms to ensure that they are tidy and stocked with supplies, and/
or to consider such work to be de minimis. RLC/NRA objected to the
Department's statement that the task of cleaning bathrooms is not
related to the tipped occupation of a server, stating that ``[t]ipped
employees, including servers and hosts, can and do spend time cleaning
bathrooms. This does not typically mean conducting a deep clean or
scrubbing toilets during a meal service, but . . . monitoring the
cleanliness and readiness of the bathrooms while the restaurant is
open. This can include wiping up water on the counters, picking up
paper on the floors, quick mopping of the floors to address spills, or
making sure that there is an adequate supply of toilet paper, paper
towels, and hand soap.'' WPI opined that while it is completely
reasonable that cleaning bathrooms should be compensated at the full
minimum wage, the final rule should create a de minimis exception for
servers who might clean up a spill in the restroom or pick up a piece
of paper off the floor. Groups representing employees, on the other
hand, commented that the proposed rule properly concluded that cleaning
bathrooms is not part of a server's tip-producing work.
ii. Discussion of Comments and Final Rule Modifications
Consistent with the revisions to the definitions of tip-producing
work and directly supporting work, Sec. 531.56(f)(5) of the final rule
slightly modifies the proposed rule's definition of work that is not
part of the tipped occupation to also reflect its relationship to
customer service and to reflect the changes in the final rule to a few
of the other definitions. As finalized, the rule explains that work
that is not part of the tipped occupation is any work that does not
provide service to customers for which tipped employees receive tips,
and does not directly support tip-producing work.
In response to comments, the final rule also expands upon its
existing examples of work that is not part of the tipped occupation and
includes additional occupations. This list is illustrative only and is
not exclusive. As explained in more detail above, while the final rule
states that food preparation is not part of the tipped occupation of a
server, it also provides that certain types of work performed by a
server in the kitchen, such as toasting bread to accompany prepared
eggs, is sufficiently similar to garnishing plates such that it can be
considered part of the server's tip-producing table service rather than
food preparation. As revised, the final rule also explains, for
example, that preparing food, including salads, and cleaning the
kitchen and bathrooms, is not part of the tipped occupation of a server
because that work does not provide service to customers for which those
tipped employees receive tips, and does not directly support tip-
producing work. The final rule's conclusion that salad preparation is
food preparation and is therefore not part of the tipped occupation of
a server is consistent with the Department's opinion letters providing
that an employer cannot take a tip credit for any time servers spend
preparing salads, a position that the Department reaffirms here. The
Department appreciates the comments explaining that restaurant
employers typically ask servers to monitor bathrooms for cleanliness.
However, the Department's position for many years was that cleaning
bathrooms is not part of the tipped occupation of a server, and it
reaffirms that position here.\33\ Because cleaning bathrooms is work
for which the employer cannot take a tip credit against its minimum
wage obligations, the Department also declines to adopt the suggestion
that it create a de minimis exception for this limited amount of work
because of concerns that such an exception would be ripe for abuse.
---------------------------------------------------------------------------
\33\ See, e.g., Br. for Department of Labor as Amicus, at 18
n.6, Fast v. Applebee's Int'l, Inc., 638 F.3d 872 (8th Cir. 2011).
---------------------------------------------------------------------------
The final rule also provides the following examples illustrating
work that is not part of the tipped occupation because the work does
not provide service to customers for which tipped employees receive
tips, and does not directly support tip-producing work. Preparing food,
including salads, and cleaning bathrooms, is not part of the tipped
occupation of a server. Cleaning the dining room or bathroom is not
part of the tipped occupation of a bartender. Ordering supplies for the
salon is not part of the tipped occupation of a nail technician.
Servicing vehicles is not part of the tipped occupation of a parking
attendant. Cleaning the dining room and bathrooms is not part of the
tipped occupation of a service bartender. Cleaning non-residential
parts of a hotel, such as the exercise room, restaurant, and meeting
rooms, is not part of the tipped occupation of a hotel housekeeper.
Cleaning the kitchen or bathrooms is not part of the tipped occupation
of a busser. Retrieving room service trays from guest rooms is not part
of the tipped occupation of a hotel bellhop.
For these reasons, the Department finalizes the definition of Work
that is not part of the tipped occupation with slight modifications and
renumbers that provision as Sec. 531.56(f)(5).
E. Substantial Amount of Time--Sec. 531.56(f)(4) <SUP>34</SUP>
---------------------------------------------------------------------------
\34\ Proposed Sec. 531.56(f)(1)(iii).
---------------------------------------------------------------------------
In the NPRM, the Department proposed to limit directly supporting
work that is part of a tipped occupation to less than a substantial
amount of time. The Department proposed to define substantial amount of
time to include two categories of time. The Department proposed that an
employee has performed directly supporting work for a substantial
amount of time if the tipped employee's directly supporting work either
(1) exceeded 20 percent of the hours worked during the employee's
workweek or (2) was performed for a continuous period of time exceeding
30 minutes. Under the first prong, the Department proposed to provide a
tolerance of 20 percent of an employee's workweek, such that an
employer could not take a tip credit for any time spent performing
directly supporting work that exceeded 20 percent of the workweek.
Under the second prong, the Department proposed to establish a
threshold of 30 continuous minutes of directly supporting work, such
that, if an employee performed directly supporting work for a
continuous, or uninterrupted period that exceeded 30 minutes, the
employer could not take a tip credit for that entire continuous period
of time that was spent performing the directly supporting work. As
discussed in greater detail below, the Department finalizes its
definition of substantial amount of time as proposed with
modifications.
[[Page 60132]]
1. Comments
Commenters representing employees were generally supportive of
including specific time limits in the definition of substantial amount
of time and supported this approach over that taken in the 2020 Tip
final rule. Commenters including NELP, Fish Potter Bola[ntilde]os,
Community Legal Services of Philadelphia, and ROC United argued that
``bright-line rules'' such as 20 percent of a workweek or 30 continuous
minutes, would make it easier to comply with and enforce limits on
directly supporting work. And they emphasized that such bright lines
were an improvement over the ``reasonable time'' standard in the 2020
Tip final rule, which, they argued, gave ``unscrupulous employers'' too
much latitude to abuse the tip credit because the term ``reasonable
time'' was not specifically defined.
In contrast, several commenters representing employers expressed
opposition to specific time limits on directly supporting work, urging
``the Department to eschew the 80/20 rule (or any other mathematical
formula) for determining tip credit eligibility for side work.'' See,
e.g., MRA. Many employers and commenters representing employers
expressed concern that it would be too difficult to monitor workers'
directly supporting duties to ensure they do not exceed the 20 percent
tolerance or the 30-minute limit or distinguish such duties from duties
outside the occupation. See AHLA; CWC; Landry's; Chamber. Although the
NPRM did not propose a new recordkeeping requirement, these commenters
maintained that employers would need to track employees' time
performing various tasks in order to comply with the regulation and
also to defend themselves against claims that the employer improperly
took a tip credit when employees performed a substantial amount of
directly supporting work. See, e.g., WPI; RLC/NRA. The CWC warned that
the Department's new test would require ``perpetual surveillance'' of
tipped workers to determine what type of work they were performing and
to track the amount of time spent performing work in each definitional
category. The SBA Office of Advocacy also stated that, according to the
feedback it had received from small businesses, the proposal would
require employers to ``track their workers' tasks minute to minute to
utilize the tip credit wage,'' which would be burdensome for small
employers.\35\
---------------------------------------------------------------------------
\35\ As discussed below, SBA Office of Advocacy also argued that
the Department underestimated the impact of its proposal on small
entities and encouraged the Department to produce an Initial
Regulatory Flexibility Analysis with Regulatory Alternatives.
---------------------------------------------------------------------------
In particular, many commenters representing employers and
individual employers expressed concern about the difficulty of tracking
time when employees perform what the commenters understood to be
directly supporting activities when the employee is also providing
service to customers. See, e.g., WPI (commenting on the
``impracticalities'' of tracking and recording time when employees
``quickly pivot'' between tip-producing and directly supporting work,
or perform such work ``contemporaneously''); RLC/NRA (stating that
during a shift, a tipped employee might ``toggle[ ] dozens or hundreds
of times back and forth'' between tip-producing and directly supporting
activity); Landry's (stating that it is ``nearly impossible to track''
tasks when employees ``switch between them quickly throughout a
shift,'' or ``possibly even perform some of the tasks
simultaneously''). RLC/NRA stated, for example, that ``[i]n a span of
just five minutes, a waitress may take customer orders at a table,
clear dishes from a second table, bring beverages to a third table, run
a tub of dirty dishes back to the kitchen, pick up and deliver the
entr[eacute]es to the first table, and put on a fresh pot of coffee at
the beverage station, before heading back to the second table to take
customer orders.'' RLC/NRA; see also MRA (stating that servers
frequently perform ``one or more'' directly supporting tasks ``between
seating customers and waiting on tables.'').
For such tasks, which ``must be performed on an immediate, time-
sensitive basis,'' Seyfarth Shaw disagreed with the Department's
statement in the NPRM that employers could ``adjust their business
practices and staffing to reassign such duties from tipped employees to
employees in non-tipped occupations,'' see 86 FR 32833. The NRF/NCCR
asserted that because employees can complete many tasks that are
interspersed with customer service in very little time--including
sometimes only a ``few seconds''--it will take employers ``longer to
track, quantify, and record many tasks than it would to actually do
them.'' The Chamber of Commerce and other commenters representing
employers asserted that employees would need to ``constantly enter
their time spent on specific activities into the payroll system,'' in
order to track tasks performed when the tipped employee is providing
service to customers, which would disrupt workflow and productivity.
Because of these stated difficulties in tracking tasks performed
during customer service, some commenters representing employers argued
that the Department's proposal would compel employers to stop taking
advantage of the FLSA's tip credit provision. See e.g., CWC; AHLA. AHLA
and other employer commenters claimed that the proposal would make it
so difficult to use the tip credit as to effectively disallow it,
contrary to Congressional intent. See AHLA (stating that the proposal
``seems to ultimately eliminate the tip credit by regulatory fiat'');
Chamber (``The DOL cannot substitute its [will] for that of
Congress.''); NRF (claiming that the Department's intention was to
eliminate the tip credit ``through the promulgation of a regulation
with which even the best intentioned employer could not possibly
comply''). CWC requested that if the Department maintains time limits
on directly supporting work it include ``regulatory language or
specific examples showing how employers could comply in a more
practical way that would not create a significant disincentive toward
use of the tip credit.'' CWC also suggested that the Department
``consider borrowing concepts from other regulations interpreting the
FLSA focusing on the importance of various job duties rather than
focusing on the time spent performing specific tasks.''
Given concerns about tracking directly supporting work performed
when the tipped employee is providing service to customers, Seyfarth
Shaw urged the Department to adopt a ``safe harbor'' provision
shielding employers from liability for a tip credit violation when an
employee fails to promptly inform the employer that they spent a
substantial amount of time on directly supporting work.
Several commenters also urged the Department to consider retaining
the related duties test from the 2020 Tip final rule, which did not
include bright-line quantitative limits on directly supporting work and
which they asserted would be more workable for employers than the
proposal. See AHLA; CWC; Landry's; Chamber; see also CFCBA (arguing
that ``the average person'' would find the NPRM proposal ``more
confusing'' than the 2020 Tip final rule). As noted above, under the
2020 Tip final rule, an employer could continue to take a tip credit
for ``any hours'' that an employee performed
[[Page 60133]]
related, non-tipped duties either ``contemporaneously'' with their
tipped duties,'' or for ``a reasonable time'' immediately before or
after performing the tipped duties.'' See 85 FR 86790. In the NPRM to
this final rule, the Department explained its concern that the 2020 Tip
final rule failed to provide clear definitions of either
``contemporaneously'' or ``for a reasonable time,'' leaving unresolved
the boundaries on non-tipped work that is part of an employee's tipped
occupation, and employers uncertain and employees unprotected as a
result. 86 FR 32825. The Chamber of Commerce, however, asserted that
``[w]hile some may question whether a `reasonableness' standard would
create greater predictability, a reasonableness standard at least
allows for a less microscopic analysis of records.'' WPI expressed a
preference for the 2020 Tip final rule because it provided that a
tipped employee could perform ``any tasks that are usually and
customarily part of the tipped occupation'' and thus, ``dispensed with
the need to determine which duties count as `tip-producing' or `related
duties'.''
2. Discussion of Comments and Explanation of Final Rule Modifications
The Department has evaluated the comments it received and has
decided to retain the proposed time limits on directly supporting work
in its definition of substantial amount of time, with modifications.
Under Sec. 531.56(f)(4), as finalized, an employee has performed
directly supporting 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.
The Department agrees with commenters representing employees that
it is important to maintain bright-line limits on the amount of time an
employer can pay an employee a cash wage of $2.13 per hour during which
the employee does not have an opportunity to earn tips. The Department
believes, moreover, that the modifications to this final rule resolve
employers' practical concerns about complying with quantitative limits
on directly supporting work. In particular, the Department clarifies in
this final rule that some of the tasks that commenters representing
employers may have understood as ``directly supporting'' tasks--which
count toward the time limits--are tip-producing tasks when a tipped
employee performs the task to serve their own customer--and do not
count toward the time limits. As explained above, the final rule
provides that tip-producing work encompasses all aspects of the service
performed by a tipped employee for their customers, for which the
tipped employee receives tips. Directly-supporting work, in contrast,
is performed either in preparation of or to otherwise assist the tip-
producing customer service work. As explained above, the tip-producing
work of some tipped employees may also include tasks that are
identified as examples of directly supporting work when those tasks are
performed as part of service that the tipped employee is providing to a
customer.
For example, if a server takes customer orders at a table, sets the
table she is serving, brings beverages to a third table, picks up a
slice of pie, adds ice cream, and delivers it to the first table, and
puts on a fresh pot of coffee at the beverage station for all of her
tables, before heading back to the second table to take customer
orders, the server is performing tip-producing work for the entire
time. Accordingly, there is no need for the server's employer to count
any of this work toward the 20 percent or 30-minute limits. Likewise,
if a bartender takes a customer's order and prepares them a drink,
takes a second customer's order and leaves the bar area to retrieve a
particular wine for the customer, returns to the bar area and wipes
down the bar where customers are seated, the bartender is performing
tip-producing work for the entire time and there is no need to count
any of this work toward the 20 percent limit or 30-minute limit.
On the other hand, if a server folds napkins for the dinner rush
after her lunch customers leave, or rolls silverware for 15 minutes at
the end of the night while waiting for their last table to pay their
bill, or if a bartender is assigned to stock the bar generally between
serving customers (as opposed to more specifically retrieving a
particular bottle of alcohol to fulfill a customer's order), such side
work would be categorized as directly supporting work because this work
is not being performed as part of the tipped employee's service to
customers for which they receive tips. Similarly, if a server is
assigned to a general task such as filling condiment containers to be
completed during the breakfast shift during lulls in customer service,
that would be directly supporting work since it is preparatory work and
is not part of providing service to a customer for which the employee
receives tips. As a result, these tasks would count against the 20
percent and 30-minute limits.
But employees do not perform such tasks on an ``immediate, time-
sensitive basis,'' as they might perform tasks for their customers and
for which they receive tips. See Seyfarth. Nor do employees need to
``quickly pivot'' or ``switch'' between such tasks while serving
customers. See WPI; Landry's. To the contrary, as mentioned above in
Section D.1, many of the commenters who are tipped workers stated that
they regularly performed such tasks in scheduled blocks of time. The
Department believes, therefore, that employers can assign directly
supporting work so that employees do not perform this work for more
than a substantial amount of time. Alternatively, employers can monitor
(or even track, if the employer so chooses) such tasks with relative
ease, and without needing to account for employees' duties minute-by-
minute. Thus, by clarifying its definitions of tip-producing and
directly supporting work, the Department believes that it has
substantially alleviated employers' concerns about complying with
quantitative limits on directly supporting duties.
The Department declines to eliminate the time limits on directly
supporting work and retain the qualitative limits on related duties
test in the 2020 Tip final rule, as several commenters representing
employers suggested. As the Department noted in the proposal, and as
the AG Coalition and numerous employee advocates noted in their
comments, the 2020 Tip final rule failed to define the key terms
``contemporaneously'' and ``for a reasonable time immediately before or
after.'' See 86 FR 32855. This led to confusion and also failed to
provide sufficient guidelines to determine when an employee ceased to
be engaged in a tipped occupation. For instance, although the
Department did not specifically define the term ``reasonable time'' in
the 2020 Tip final rule, it stated that the standard still provides a
``sufficiently intelligible'' basis for distinguishing between duties
for which an employer could and could take a tip credit; the Department
also attempted to illustrate the reasonable time principle with an
example. See 85 FR 86768 (comparing a hotel bellhop who spends 2 hours
performing related non-tipped duties after spending their first 8 hours
of their shift continuously performing tipped duties with one who
spends 12 minutes of every hour over a 10-hour shift performing related
duties). However, commenters representing employers and employees alike
interpreted the 2020 Tip final rule's
[[Page 60134]]
``reasonable time'' language not as a means for determining when an
employee has performed so much related non-tipped duties that they may
no longer be paid with a tip credit but as an authorization to
employers to take a tip credit for essentially any related non-tipped
duties. See, e.g., WPI (``The December 2020 Rule dispensed with the
need to determine which duties count as `tip-producing' or `related
duties,' and provided that a tipped employee could perform any tasks
that are usually and customarily part of the tipped occupation.'');
NWLC (arguing that the `` `reasonable time' language'' in the 2020 Tip
final rule ``removed any meaningful temporal restriction on the non-
tipped duties for which an employer may claim a tip credit.'').
The Department did not intend the 2020 Tip final rule to provide no
limits at all on the amount of non-tipped duties that a tipped employee
can perform and for which an employer can a tip credit. However, given
that the 2020 Tip final rule did not specifically define its key terms
and did not have any of the quantitative limitations on non-tipped work
that the Department is adopting in this final rule, the Department
believes that, under the 2020 Tip final rule, employers would have been
able to require tipped employees to perform a substantial amount of
non-tipped work, preventing those employees from either earning tips or
in the alternative, earning the full minimum wage as the cash wage.
Such an outcome is contrary to the Department's longstanding
interpretation of the section 3(t) of the FLSA, affirmed by multiple
circuit courts, pursuant to which an employee is no longer engaged in a
tipped occupation when they perform so much non-tipped work that the
employee is unable to earn tips for a substantial portion of their
time. See Rafferty, 2021 WL 4189698 at *18; Marsh, 905 F.3d at 633;
Fast, 638 F.3d at 881. The Eleventh Circuit has also suggested that, by
removing quantitative limits on non-tipped duties that a tipped
employee can perform, the 2020 Tip final rule is in tension with the
fundamental protective purpose of the FLSA. See Rafferty, 2021 WL
4189698 at *16 (concluding that the 2018-2019 guidance, which the 2020
Tip final rule largely codified, ``tramples the reasons for the dual-
jobs regulation's existence and is inconsistent with the FLSA's policy
of promoting fair conditions for workers'' because, as the Department
acknowledged in the NPRM for the 2020 Tip final rule, it could lead to
a loss of earnings for tipped workers).
By replacing inadequately-defined, qualitative limits on non-tipped
work (``contemporaneous'' and ``reasonable time'') with bright-line
quantitative limits, this rule will ensure that employees compensated
with the tip credit do not perform a substantial amount of non-tipped,
directly supporting work. This rule thus accords with the Department's
longstanding interpretation of section 3(t) and better effectuates the
purpose of the statute. The Department agrees with commenters such as
NELP, WLP, and ROC that clear, bright-line limits on the amount of
directly supporting work that can be performed by a tipped employee
facilitate compliance by helping make employees aware of their rights
and helping make employers aware of their responsibilities. The
Department also believes that bright-line limits on employers' use of
the tip credit are important to protect both protect vulnerable tipped
employees and well-meaning employers from unscrupulous employers that
might abuse the tip credit by shifting significant amounts of non-
tipped work onto tipped workers.
The Department also declines to specifically adopt the proposal by
two commenters that the Department lift any ``temporal limit or cap''
on directly supporting work that is performed ``contemporaneously with
customer service.'' The Department believes that clarifying its
definitions of tip-producing and directly supporting work in the final
rule will address the concerns animating this request.
The Department does not agree with commenters that argued that its
proposal would have effectively eliminated the tip credit. The
Department cannot amend the FLSA, but is tasked with enforcing it. As
the Department stated in the NPRM, because employers can pay as little
as $2.13 in direct cash wages, it is important to ensure that this
reduced direct cash wage is only available to employers when their
employees are actually engaged in a tipped occupation. However, to the
extent that commenters argued that overly burdensome tracking and task-
by-task monitoring would have effectively disallowed the tip credit,
the Department believes that the modifications in the final rule that
more clearly explain and distinguish between tip-producing and directly
supporting work resolve those concerns.\36\ Likewise, the Department
declines to adopt a ``safe harbor'' provision requiring employees to
promptly notify their employers that they have spent a substantial
amount of time on directly supporting work or forfeit their right to be
paid a cash wage equal to the full minimum when they are no longer
engaged in a tipped occupation. Such a policy would improperly place
the burden for compliance with employer's minimum wage obligations on
employees, and is inconsistent with the FLSA. See, e.g., Barrentine v.
Arkansas-Best Freight Sys., 450 U.S. 728, 740 (1981) (quoting Brooklyn
Savings Bank v. O'Neil, 324 U.S. 697, 707 (1945)) (``FLSA rights cannot
be . . . waived because this would `nullify the purposes' of the
statute and thwart the legislative policies it was designed to
effectuate.''). Moreover, the Department believes that the concerns
motivating this request from commenters representing employers--namely,
the difficulty of tracking tasks performed while tipped employees are
serving customers--are ameliorated by the modifications the Department
made described above.
---------------------------------------------------------------------------
\36\ The Department also disagrees with those commenters
representing employers who suggested that the proposal is in tension
with Encino Motorcars, LLC v. Navarro, which provides that the
FLSA's exemptions should be given a fair, rather than narrow,
reading. 138 S.Ct. 1134, 1142 (2018). See AHLA; WPI. The tip credit
is not an exemption to the minimum wage and Encino does not disturb
circuit court precedent affirming that it is within the Department's
broad delegated authority to define when an employee is engaged in a
tipped occupation based on an analysis of the employee's duties, as
it has done here. See Applebee's, 638 F.3d at 876, 879; Marsh, 905
F.3d at 623.
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a. 20 Percent of the Workweek--Sec. 531.56(f)(4)(i)
Multiple commenters representing employees supported the
Department's proposal to apply a 20 percent workweek tolerance to non-
tipped, directly supporting work. See, e.g., IWPR; ROC; WLP (describing
it as a ``crucial limit'' when employers are paid a direct cash wage as
low as $2.13 an hour). In addition, the Scott letter stated that 20
percent of the workweek was ``a reasonable standard for restricting the
use of the tip credit.'' Other commenters representing employees,
however, urged the Department to reduce the tolerance to five or 10
percent, arguing that the FLSA permits ``a more stringent threshold for
the tasks for which an employer can pay a worker just $2.13 an hour.''
See, e.g., Network; CLASP. NWLC asked the Department to consider the
relative share of tipped and non-tipped duties ``on a per-shift, rather
than per-workweek, basis'' or to prohibit an employer from taking a tip
credit on any day in which the employee spends more than 20 percent of
their time in a non-tipped occupation. On the other hand, the RLC/NRA
and some individual restaurant employers argued
[[Page 60135]]
that ``circumstances may dictate that tipped employees spend more than
20'' percent of the workweek on directly supporting work because
``[c]ustomer flow is often unpredictable in full-service restaurants.''
The Chamber of Commerce urged the Department to increase the tolerance
for directly supporting work beyond 20 percent, arguing that this would
reduce litigation and costs by ``avoiding arguments over the specifics
of tasks that were performed during extremely small amounts of time.''
In addition, some commenters asked for further clarification about
how to calculate when directly supporting work has exceeded 20 percent
of the workweek. See CFCBA. WPI asked the Department to clarify whether
the ``hours worked during the workweek'' refers ``only to the hours
worked as a tipped employee,'' or whether it would include, for
example, ``any hours worked as a cook or in another non-tipped
position.''
After considering the comments, the Department finalizes the 20
percent workweek tolerance for identifying a substantial amount of
directly supporting work. The Department continues to believe that a 20
percent tolerance appropriately approximates the point in a given
workweek at which an employee's aggregate non-tipped, directly
supporting work is no longer incidental to the employee's tip producing
work, and thus, the employee is no longer engaged in a tipped
occupation. The 20 percent tolerance is consistent with the
Department's longstanding guidance prior to 2018, the reasonableness of
which both the Ninth and Eighth Circuit Courts of Appeal have upheld.
See Marsh v. J. Alexander's, 905 F.3d 610, 625 (9th Cir. 2018) (en
banc) (``The DOL's interpretation is consistent with nearly four
decades of interpretive guidance and with the statute and the
regulation itself.''); Fast v. Applebee's Int'l, 638 F.3d 872, 881 (8th
Cir. 2011) (describing the 20 percent tolerance as ``reasonable.'') In
addition, even after the Department rescinded the 80/20 guidance in
2018, multiple Federal courts have independently determined that a 20
percent tolerance is reasonable, and applied a 20 percent tolerance to
the case before them. See, e.g., Rafferty, 2021 WL 4189698 at *18. A 20
percent limitation is also 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.\37\
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\37\ 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'').
---------------------------------------------------------------------------
For these reasons, the Department declines to increase the limit on
directly supporting work beyond 20 percent as requested by some
commenters representing employers. First, the Department believes that
by clarifying its definitions of tip-producing and directly supporting
work, it has substantially alleviated employers' concerns about
complying with quantitative limits on directly supporting duties.
Furthermore, 20 percent of an employee's workweek is already a
significant amount of time: Equal to a full 8-hour workday in a 5-day,
40-hour workweek. At the same time, although the Department does not
disagree with commenters representing employees that the FLSA would
permit the Department to adopt a lower tolerance, the Department
declines to do so because the 20 percent workweek tolerance,
particularly when combined with the 30-minute limit, protects workers
from abuse. The Department also declines to apply the 20 percent limit
on daily or per-shift basis as suggested by NWLC, because the proposal
is more consistent with longstanding FLSA enforcement.
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 a direct cash wage equal to the full minimum wage for that
time. As the Department noted in the NPRM, work paid at the full
minimum wage would not count towards the 20 percent workweek tolerance.
See 86 FR 32830. The final rule now states this expressly.
In response to commenters' requests for guidance on how to
determine the workweek for the purposes of calculating the 20 percent
tolerance, the final rule clarifies that the 20 percent workweek
tolerance is calculated by determining 20 percent of the hours in the
workweek for which the employer has taken a tip credit. Thus, when an
employee is employed in dual jobs pursuant to Sec. 531.56(e), such as
being employed as both a hotel janitor--for which she receives a direct
cash wage equal to the full minimum wage--and a bellhop--for which her
employer takes a tip credit for all hours--the employee's hours as a
hotel janitor would not be included in calculating the 20 percent
tolerance for non-tipped directly supporting work. If the employee
works in each role for 20 hours a week, for example, the employee could
perform up to 4 hours (20 hours x 0.20 = 4 hours) of directly
supporting work as a bellhop without exceeding the 20 percent
tolerance. Likewise, as explained further below, any time paid at the
full minimum wage because it exceeds the 30-minute tolerance would also
be excluded from the workweek before calculating the 20 percent
tolerance for non-tipped directly supporting work.
Calculation of 20 percent is made by subtracting the hours in that
workweek for which an employer does not take a tip credit, either
because the employee is engaged in a non-tipped occupation, the
employer decides not to take the tip credit for those hours, or
because, as explained below, those hours exceed the 30-minute
threshold. Any time that is compensated at the full minimum wage
because it exceeds the 20 percent limit, however, is not excluded from
the workweek in calculating the 20 percent tolerance. The employer only
has to calculate the 20 percent tolerance once during the workweek.
To further illustrate these concepts, the Department provides the
following examples:
Example 1. A server is employed for 40 hours a week and performs 5
hours of work that is not part of the tipped occupation, such as
cleaning the kitchen, for which the server is paid a direct cash wage
at the full minimum wage. The server also performs 18 minutes of non-
tipped directly supporting work twice a day, for a total of three hours
a week. The employer may take a tip credit for all of the time the
employee spends performing directly supporting work, because this time
does not exceed 20 percent of the workweek. Because this employee has
been paid the full minimum wage for a total of five hours a week, the
employee could perform up to seven hours of directly supporting work
(35 hours x 20 percent = 7 hours) without exceeding the 20 percent
tolerance.
Example 2. A server is employed for 40 hours a week and performs 5
hours of work that is not part of the tipped occupation, such as
cleaning the kitchen, for which the server is paid a
[[Page 60136]]
direct cash wage at the full minimum wage. The server also performs 10
hours a week of non-tipped directly supporting work, in increments of
time that do not exceed 30 minutes. The 5 hours of work paid at the
minimum wage is excluded from the workweek for purposes of the 20
percent calculation. Therefore, the employer may take a tip credit for
7 hours of the directly supporting work (35 hours x 20 percent = 7
hours), but must pay the server a direct cash wage equal to the minimum
wage for the remaining three hours.
Accordingly, Sec. 531.56(f)(4)(i) of the final rule provides that
an employer can only take a tip credit for directly supporting work for
up to 20 percent of the hours in an employee's tipped workweek. When an
employee performs non-tipped directly supporting work for more than 20
percent of those workweek hours, the employee has performed that work
for a substantial amount of time, and is no longer performing work that
is part of their tipped occupation. If a tipped employee spends more
than 20 percent of those workweek hours on directly supporting work,
the employer cannot take a tip credit for any time that exceeds 20
percent of the hours.
b. 30 Minutes--Sec. 531.56(f)(4)(ii)
In addition to the 20 percent limitation, the Department proposed
to define a ``substantial amount of time'' to include any continuous,
or uninterrupted, period of time exceeding 30 minutes. The Department
explained that the 30-minute limitation on non-tipped, directly
supporting work ``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 their tip-
producing work,'' and therefore the employee is no longer performing
work that is part of the tipped occupation. See 82 FR 32830.
Under the proposal, if an employee spent a continuous, or
uninterrupted, period of time performing directly supporting work that
exceeds 30 minutes, the employer could not take a tip credit for that
entire period of time. The Department finalizes its proposal to treat a
period of continuous non-tipped work exceeding 30 minutes as
``substantial,'' with one modification. Under the final rule, an
employer may no longer take a tip credit once an employee has performed
more than 30 minutes of continuous non-tipped work. However, the final
rule provides a tolerance for the first 30 minutes of non-tipped,
directly supporting work, and the employer may take a tip credit for
this time that does not exceed 30 minutes, subject also to the 20
percent workweek limit.
The Department received several comments on its proposal to add a
30-minute limit on the amount of uninterrupted, non-tipped directly
supporting work that an employee can perform in a continuous block of
time and still be paid with a tip credit. Many commenters supported
this definition of a ``substantial amount of time.'' Commenters
representing employees' interests supported the proposal because
``bright-line rules'' such as the 30-minute limit ``enhance clarity and
compliance with minimum wage and overtime rules.'' See, e.g., NELP,
ROC, Network, CLS of Philadelphia, CLASP, NELA. Chairman Bobby Scott
and other members of the House Committee on Education and Labor stated
that the 30-minute limitation is needed ``to ensure employers are not
paying employees the tipped subminimum wage for an hour of work in
which the employee has limited or no opportunity to actually earn
tips.''
NWLC stated that performing 30 continuous minutes of non-tipped,
directly supporting work is a ``reasonable'' indication that a tipped
employee is no longer engaged in a tipped occupation. NWLC also stated
that it ``appropriately closes [the] loophole'' under which a
restaurant server could ``spend three hours of a six-hour shift
cleaning tables, rolling silver, and performing other such side work
for just $2.13 an hour, so long as their remaining shifts in the week
included enough tipped duties to fall below the 20 percent threshold.''
EPI stated that a 30-minute limit would provide ``protections for
tipped workers' earnings.'' Some commenters who supported the proposal,
however, also suggested that the Department consider a shorter
threshold for non-tipped, directly supporting work, such as 20 minutes.
See NELP, NWLC.
Many individual commenters who worked as tipped employees stated
that their employers frequently scheduled them to perform long
continuous blocks of uninterrupted non-tipped work. These tipped
workers noted that their employers often scheduled them to perform
directly supporting work for periods of an hour or longer both before
and after their establishment was open to customers. For example, one
commenter stated, ``I have spent years working in restaurants and bars
where my `side work' amounted to hours every shift of scheduled labor
when the restaurant or bar was closed. This means I might spend 3 hours
of a 6 hour shift cutting fruit, juicing, setting up the bar, deep
cleaning, sweeping, all while the bar is closed and doors are locked,
meaning I have zero potential to make tips.'' Another commenter
described spending ``hours doing tasks . . . that were not customer-
facing. There have been so many times where I was doing tasks that
workers who do make a full wage should have been doing, but instead it
was cheaper to have the tipped workers such as myself do.''
Other commenters opposed the proposal. RLC/NRA argued that ``there
is no factual basis'' for the Department's proposal, and that ``there
is no industry norm suggesting that . . . 30 minutes is a hard cap . .
. such that side work performed beyond those levels is outside the
standards for tipped occupations.'' The MRA stated that the Department
had ``provide[d] no justification'' for the 30-minute limitation, but
nevertheless acknowledged that ``[i]t is common in the restaurant
industry for servers to assist in `opening' the store before customers
arrive; which often involves 30 minutes or more of non-tip-generating
work.''
Several commenters representing employers argued that it would be
burdensome for employers to implement a 30-minute threshold. See
Seyfarth Shaw (30-minute limitation ``would impose immense compliance
challenges''); CFCBA (stating that [t]his new concern of monitoring 30-
minute blocks of time for multiple servers is a burden''); MRA
(describing the threshold as ``a new and exceptionally burdensome
limitation'' that will require employers to ``police'' employees);
Landry's. These employers expressed particular concern about the
Department's proposal to prohibit employers from paying a reduced
direct cash wage for an entire block of work once the block of work
exceeds 30 minutes. Landry's, for example, noted that if an employee
``performs non-tipped work for 29 minutes . . . the employer has not
violated the law, however, if for some reason the tasks take 31
minutes, now the pay rate must change for the prior half-an-hour,'' or
else the employer will be liable, even if it was unaware that the
employee had worked the extra 2 minutes. Seyfarth Shaw asserted that
``[o]ver time, and multiplied by hundreds of employees,'' such
``inadvertent violations'' of the 30-minute tolerance ``by just a
minute or two'' might ``yield substantial liability.''
After considering all the comments, the Department finalizes the
proposal for a 30-minute limit on periods of continuous non-tipped
directly supporting work, with the modification described above. When
an employer assigns an employee to perform non-tipped duties
continuously for a
[[Page 60137]]
substantial period of time, such as more than 30 minutes, 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. The employee thus ceases to be performing the work of a tipped
occupation, and their employer therefore must pay a direct cash wage
equal to the full Federal minimum wage for the time that exceeds 30
minutes. This will both prevent employers from using tipped employees,
whom the employer pays as little as $2.13 an hour, to perform
substantial periods of non-tipped work, and the displacement of
employees who normally perform this non-tipped work as part of their
non-tipped occupation and who must be paid a higher direct cash wage,
as the individual commenters above described. This also addresses
concerns, which the Department identified in the 2020 Tip final rule,
and reiterated in the NPRM, that the 20 percent limit alone does not
adequately address the scenario where an employee performs non-tipped,
directly supporting work for an extended period of time, but this work
does not exceed 20 percent of their workweek. See 85 FR 86769; 86 FR
32830. Without some limitation on continuous blocks of non-tipped work,
an employer could require a tipped employee to spend an entire 8-hour
shift--20 percent of a 40-hour workweek--performing non-tipped,
directly supporting tasks and no tip-producing work, and still pay the
employee a reduced direct cash wage for the entire shift. 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 final rule addresses this
concern by requiring employers to pay employees the full cash minimum
wage whenever they perform non-tipped directly supporting work for a
continuous block of time that exceeds 30 minutes.
The Department believes that 30 minutes is a reasonable limitation
to set, and agrees with the commenters that stated that bright-line
rules such as this help both employers and employees with compliance.
Many individual commenters who worked as tipped employees, as well as
the MRA, acknowledged that tipped employees are frequently required to
perform non-tipped work for blocks of time 30 minutes or longer. Thirty
minutes is a substantial period of time for a tipped employee to spend
exclusively performing non-tipped, directly supporting work. In the
context of bona fide meal periods, see 29 CFR 785.19(a), the Department
has previously recognized that 30 minutes is a discrete and significant
block of time that can be set apart from the work around it. Similarly
to a meal period, moreover, a 30-minute uninterrupted block of time
during which an employee continuously performs non-tipped work can be
readily distinguished from the work that surrounds it. Because the
Department believes that 30 minutes is reasonable, substantial, and
provides an important protection for tipped employees, the Department
declines to remove the limitation, as some commenters representing
employers requested. The Department also declines to shorten the limit
to 20 minutes, as some commenters representing employees requested.
At the same time, the Department acknowledges commenter's concerns
that employers may find it challenging to comply with the Department's
proposal to prohibit them from taking a tip credit for the entire block
of time spent on non-tipped, directly supporting work, once that block
of time reaches 31 minutes. In light of these concerns, the Department
has decided to provide for a tolerance for the first 30 minutes of non-
tipped, directly supporting work. When an employee performs non-tipped,
directly supporting work for up to 30 minutes, the employer can take a
tip credit for that time, subject to the 20 percent workweek limit.
This modification aligns the 30-minute limit with the 20 percent limit,
which similarly provides a tolerance allowing an employer to pay a
reduced direct cash wage for non-tipped, directly supporting work, up
to 20 percent of the workweek. This uniform application will make it
easier for employers to comply with both limits, and providing a
tolerance for the first 30 minutes of directly supporting work should
alleviate any need employers might feel to ``police'' their employees'
work on a minute-by-minute basis. See MRA.
Under the final rule, employers must begin to pay a direct cash
wage equal to the full minimum wage whenever an employee performs more
than 30 minutes of uninterrupted non-tipped work, or whenever periods
of continuous non-tipped work, along with other non-tipped directly
supporting work in the aggregate, exceed 20 percent of the tipped
workweek. The employer may, however, take a tip credit for the first 30
continuous minutes of work, although that work would count toward the
20 percent workweek tolerance. For example, if a tipped employee is
required to perform directly supporting work continuously for two hours
after the establishment is closed to customers, the employer may take a
tip credit for the first 30 minutes, but must pay the full Federal
minimum wage for the remaining hour and a half. The first 30 minutes of
directly supporting work, for which the employer took a tip credit,
would count toward the 20 percent workweek limit.
Although there is no recordkeeping requirement, some employers may
choose to track periods of uninterrupted non-tipped work to ensure
compliance. The Department believes that such tracking will be
manageable, especially in light of the tolerance provided in the final
rule, and given that the Department has clarified in the final rule
that tip producing work is defined broadly to include all aspects of
the work that a tipped employee performs that provides service to
customers and for which the employee receives tips. Indeed,
uninterrupted blocks of time of 30 minutes or more during which
employees perform non-tipped directly supporting work are likely to be
scheduled or foreseeable to employers, such as when tipped employees
are asked to arrive early to set up, stay late to close up after
customers have left, as described by many individual commenters, or
during slow periods with no or few customers. See Landry's (noting that
30 minutes of directly supporting work performed during ``pre or post
shift . . . could be tracked more readily and paid minimum wage'').
The AG Coalition asked the Department to ``clarify that `continuous
period of time' means more than 30 minutes per hour rather than 30
consecutive minutes.'' The Department also declines to do so. The final
rule is clear that the 30-minute limit for non-tipped, directly
supporting work only applies to continuous blocks of uninterrupted time
spent performing those duties, during which time the employee has no
ability to earn tips. Directly supporting work performed for shorter
amounts of time is counted toward the 20 percent tolerance.
In response to commenters' requests for further explanation about
the interaction between the 30-minute limitation and the 20 percent
tolerance, the final rule expressly states that time for which an
employer does not take a tip credit because the employee has performed
non-tipped work for more
[[Page 60138]]
than 30 minutes is excluded from the workweek used to calculate the 20
percent tolerance. To illustrate, the Department provides an example of
a tipped employee who works five eight-hour shifts (40 hours a week)
and who is required to perform one continuous hour of directly
supporting work at the beginning and end of each shift. The employee
must be paid a direct cash wage of the full minimum wage after the
first 30 minutes of each hour. A total of five hours a week (30 minutes
* 2 blocks * 5 shifts) is excluded from the total hours worked for the
purposes of calculating 20 percent, because the employee has been paid
the full minimum wage for that time. Therefore, the employee may
perform 7 hours of directly supporting work (35 hours * 20 percent = 7
hours) without exceeding the 20 percent tolerance. Because in this
scenario the employee has already performed 5 hours of directly
supporting work for which the employer has taken a tip credit (the
first 30 minutes of each one-hour block), this employee may perform an
additional two hours of directly supporting work (in increments of 30
minutes or less) before she exceeds the 20 percent tolerance.\38\
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\38\ If this employee ultimately performs more than two
additional hours on directly supporting work (in increments of time
that do not exceed 30 minutes), those additional hours are not
excluded in calculating the 20 percent tolerance. This is because,
as explained above in section E.2.a, any time that is compensated at
the full minimum wage solely because it exceeds the 20 percent limit
is not excluded from the workweek for the purposes of calculating
the 20 percent tolerance.
---------------------------------------------------------------------------
While TRLA raised concerns that the 30-minute limit ``may
incentivize restaurant employers to schedule tipped servers for a . . .
half-hour period of cleaning the restaurant at the end of their
shift,'' as the Department noted in the NPRM, see 82 FR 32830,
employers were already able to do so under both the 2018-19 guidance
and the previous 80/20 guidance. The 30-minute limit instead provides a
new protection for tipped employees, meaning they cannot be required to
perform such non-tipped, directly supporting work for more than 30
consecutive minutes while only earning as little as $2.13 an hour.
Therefore, when tipped employees are required to perform non-tipped
work for a substantial amount of time, such as 30 or more consecutive
minutes, such work is no longer supporting the employee's tip-producing
work, and they are no longer engaged in a tipped occupation.
Accordingly, Sec. 531.56(f)(4)(ii) of the final rule provides that an
employee has performed directly supporting work for a substantial
amount of time when the directly supporting work exceeds 30 minutes for
any continuous period of time. If a tipped employee performs directly
supporting work for a continuous period of time that exceeds 30
minutes, the employer must begin to pay the employee a direct cash wage
equal to the full Federal minimum wage. The final rule also clarifies,
as noted above, that time in excess of 30 minutes, which is paid at the
full minimum wage, is excluded from the hours worked in the workweek
before calculating the 20 percent tolerance.
F. Sec. 10.28(b)
The Department also proposed 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 proposed to amend Sec. 10.28(b) consistent
with its proposed revisions to Sec. 531.56(e) and (f). The Department
received no comments specifically addressing proposed Sec. 10.28(b)
and therefore finalizes it with amendments consistent to those made to
Sec. 531.56(e) and (f).
G. Withdrawal of the Dual Jobs Provisions of the 2020 Final Rule
In proposing to revise Sec. Sec. 531.56(e) and 10.28(b) and add a
new Sec. 531.56(f), the Department also proposed to withdraw the dual
jobs portion of the 2020 Tip final rule, the effective date of which
the Department has delayed until December 31, 2021. 86 FR 32818. The
Chamber of Commerce alleged that the Department's ``withdrawal of the
dual jobs provision in the 2020 Tip Final Rule is procedurally
flawed.'' According to the Chamber of Commerce, the Department
``arbitrarily halted the effective date of'' the dual jobs portion of
the 2020 Tip final rule ``simply because the administration has
different policy preferences'' and the Department should have ``let the
rule go into effect and then gather data on its impact and
effectiveness'' rather than undertaking further rulemaking ``without
any evidence of a problem.'' As noted above, several commenters
representing employers also urged the Department to retain the dual
jobs portion of the 2020 Tip final rule rather than finalizing the
proposed revisions to Sec. Sec. 531.56(e) and (f) and 10.28. See AHLA;
CWC; Landry's; Chamber of Commerce; NRA.
Given its concern with the Department's decision to delay the
effective date of the dual jobs portion of the 2020 Tip final rule, it
is unclear if the Chamber of Commerce's comment is directed towards the
Department's final rule delaying the effective date of the 2020 Tip
final rule's dual jobs revisions to December 31, 2021, 86 FR 22597
(April 30, 2021), or its proposal to withdraw these revisions. To the
extent the Chamber's comment is regarding the delay, it is outside of
the scope of this rulemaking. With respect to the proposed withdrawal
of the 2020 dual jobs revisions, the Department has determined, for the
reasons stated above, that revisions to Sec. 531.56(e) and (f) (and
Sec. 10.28) are necessary in order to ensure that there are
protections for tipped employees and limitations on the amount of non-
tipped work that employers can shift to tipped workers while still
relying on tips to cover their minimum wage obligations. And, as
explained above, the Department has made revisions to its proposal to
take into consideration the practical concerns raised by employers in
their comments. Withdrawal of the 2020 Tip final rule's revisions to
Sec. 531.56(e) and Sec. 10.28(b) is necessary in order to finalize
this rule's changes to Sec. Sec. 531.56(e) and (f) and 10.28.
Accordingly, the Department finalizes its withdrawal of the dual jobs
portion of the 2020 Tip final rule.
H. Effective Date
Subtitle E of the Small Business Regulatory Enforcement Fairness
Act of 1996 (also known as the Congressional Review Act or CRA)
requires agencies to publish major rules \39\ in the Federal Register
60 days before they take effect. See 5 U.S.C. 801(a)(3)(A); see also 5
U.S.C. 553(d) (Administrative Procedure Act requires a 30-day delay
between publication and the effective date of a substantive rule). Some
commenters representing employers stated that given the impact of the
COVID-19 pandemic on industries with large numbers of tipped workers,
the Department should consider further delaying the effective date of
any new regulations or postponing its rulemaking. See AHLA; Seyfarth;
Chamber. The Chamber of Commerce recommended that the Department
``[r]efrain from issuing a Final Rule until the pandemic has passed''
or to ``[p]rovide a six-month to twelve-month window between the
publication date and the effective date
[[Page 60139]]
of any Final Rule.'' \40\ Seyfarth Shaw recommended that the Department
delay implementation of the proposal ``until at least 180 days after
the declared end of the COVID-19 pandemic.'' AHLA urged the Department
to ``reconsider its Proposed Rule'' after the end of the pandemic ``or
otherwise return to'' the 2020 Tip final rule.
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\39\ Under the CRA, a major rule includes any rule that the
Office of Information and Regulatory Affairs (OIRA) of the Office of
Management and Budget finds is likely to have an annual impact on
the economy of $100 million or more. 5 U.S.C. 804(2). OIRA has found
that this rule is a major rule.
\40\ The Chamber of Commerce also recommended that the
Department ``make the effective date the first day of a new calendar
year (i.e., on January 1)'' so that it aligns with ``the date when
most adjustments to State tip credit and minimum wage levels become
effective.''
---------------------------------------------------------------------------
These commenters asserted that due to pandemic-related struggles
and uncertainty in the restaurant and hospitality industry, employers
would have difficulty bearing any additional management associated with
this rule or any increased labor costs due to limits on their ability
to take a tip credit for work that does not generate tips. See, e.g.,
Chamber. Commenters also alleged that industries with many tipped
employees are experiencing a labor shortage, which would make
compliance with the proposal difficult. See Seyfarth (alleging that due
to a labor shortage, it would be impossible for employers ``to hire
additional workers to ensure compliance with a more stringent tip
credit''); see also AHLA; Chamber. Additionally, some commenters stated
that the Department should take more time to consider the pandemic's
impact on tipping patterns in the restaurant industry before
promulgating a revised dual jobs test. See AHLA; WPI.
Commenters such as EPI and most organizations representing
employees, on the other hand, argued that the COVID-19 pandemic only
made it more urgent that the Department withdraw the dual j
[…truncated; see source link]Indexed from Federal Register on October 29, 2021.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.