[Federal Register Volume 86, Number 118 (Wednesday, June 23, 2021)]
[Proposed Rules]
[Pages 32818-32846]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-13262]


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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: Notice of proposed rulemaking.

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SUMMARY: In this notice of proposed rulemaking (NPRM), the Department 
of Labor (Department) proposes to withdraw and re-propose one portion 
of the Tip Regulations Under the Fair Labor Standards Act (FLSA) (2020 
Tip final rule) related to the determination of when a tipped employee 
is employed in dual jobs under the Fair Labor Standards Act of 1938 
(FLSA or the Act). Specifically, the Department is proposing to amend 
its regulations to clarify that an employer may only take a tip credit 
when its tipped employees perform work that is part of the employee's 
tipped occupation. Work that is part of the tipped occupation includes 
work that produces tips as well as work that directly supports tip-
producing work, provided the directly supporting work is not performed 
for a substantial amount of time.

DATES: Submit written comments on or before August 23, 2021.

ADDRESSES: You may submit comments, identified by Regulatory 
Information Number (RIN) 1235-AA21, by either of the following methods: 
Electronic Comments: Submit comments through the Federal eRulemaking 
Portal at https://www.regulations.gov. Follow the instructions for 
submitting comments. Mail: Address written submissions to:

[[Page 32819]]

Division of Regulations, Legislation, and Interpretation, Wage and Hour 
Division, U.S. Department of Labor, Room S-3502, 200 Constitution 
Avenue NW, Washington, DC 20210. Instructions: Response to this NPRM is 
voluntary. The Department requests that no business proprietary 
information, copyrighted information, or personally identifiable 
information be submitted in response to this NPRM. Please submit only 
one copy of your comments by only one method. Commenters submitting 
file attachments on https://www.regulations.gov are advised that 
uploading text-recognized documents--i.e., documents in a native file 
format or documents which have undergone optical character recognition 
(OCR)--enable staff at the Department to more easily search and 
retrieve specific content included in your comment for consideration. 
Anyone who submits a comment (including duplicate comments) should 
understand and expect that the comment will become a matter of public 
record and will be posted without change to https://www.regulations.gov, including any personal information provided. WHD 
posts comments gathered and submitted by a third-party organization as 
a group under a single document ID number on https://www.regulations.gov. All comments must be received by 11:59 p.m. on 
August 23, 2021 for consideration in this NPRM; comments received after 
the comment period closes will not be considered. The Department 
strongly recommends that commenters submit their comments 
electronically via https://www.regulations.gov to ensure timely receipt 
prior to the close of the comment period, as the Department continues 
to experience delays in the receipt of mail. Submit only one copy of 
your comments by only one method. Docket: For access to the docket to 
read background documents or comments, go to the Federal eRulemaking 
Portal at https://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Amy DeBisschop, Division of 
Regulations, Legislation, and Interpretation, Wage and Hour Division, 
U.S. Department of Labor, Room S-3502, 200 Constitution Avenue NW, 
Washington, DC 20210; telephone: (202) 693-0406 (this is not a toll-
free number). Copies of this proposal may be obtained in alternative 
formats (Large Print, Braille, Audio Tape or Disc), upon request, by 
calling (202) 693-0675 (this is not a toll-free number). TTY/TDD 
callers may dial toll-free 1-877-889-5627 to obtain information or 
request materials in alternative formats.
    Questions of interpretation or enforcement of the agency's existing 
regulations may be directed to the nearest WHD district office. Locate 
the nearest office by calling the WHD's toll-free help line at (866) 
4US-WAGE ((866) 487-9243) between 8 a.m. and 5 p.m. in your local time 
zone, or log onto WHD's website at https://www.dol.gov/agencies/whd/contact/local-offices for a nationwide listing of WHD district and area 
offices.

SUPPLEMENTARY INFORMATION:

I. Executive Summary

    The Fair Labor Standards Act (FLSA or Act) generally requires 
covered employers to pay employees at least the federal minimum wage, 
which is currently $7.25 per hour. See 29 U.S.C. 206(a)(1). Section 
3(m) of the FLSA allows an employer that meets certain requirements to 
count a limited amount of the tips its tipped employees receive as a 
credit toward its federal minimum wage obligation (known as a ``tip 
credit''). See 29 U.S.C. 203(m)(2)(A). Section 3(t) of the FLSA defines 
a ``tipped employee'' for whom an employer may take a tip credit under 
section 3(m) as ``any employee engaged in an occupation in which he 
customarily and regularly receives more than $30 a month in tips.'' See 
29 U.S.C. 203(t). The FLSA regulations addressing tipped employment are 
codified at 29 CFR 531.50 through 531.60. See also 29 CFR 10.28 
(establishing a tip credit for federal contractor employees covered by 
Executive Order 13658 who are tipped employees under section 3(t) of 
the FLSA).
    The current version of Sec.  531.56(e) recognizes that an employee 
may be employed both in a tipped occupation and in a non-tipped 
occupation, ``as[,] for example, where a maintenance man in a hotel 
also serves as a waiter'', explaining that in such a ``dual jobs'' 
situation, the employee is a ``tipped employee'' for purposes of 
section 3(t) only while the employee is employed in the tipped 
occupation, and that an employer may only take a tip credit against its 
minimum wage obligations for the time the employee spends in that 
tipped occupation. At the same time, the current regulation also 
recognizes that a distinguishable situation can exist where an employee 
in a tipped occupation may perform duties related to their tipped 
occupation that are not ``themselves . . . directed toward producing 
tips,'' such as, for example, a server ``who spends part of her time'' 
performing non-tipped duties, such as ``cleaning and setting tables, 
toasting bread, making coffee and occasionally washing dishes or 
glasses.'' 29 CFR 531.56(e).
    For three decades, the Department issued subregulatory guidance to 
provide further clarity to the terms ``occasionally'' and ``part of 
[the] time'' found in Sec.  531.56(e). The Department's guidance 
recognized that because the FLSA permits employers to compensate their 
tipped employees as little as $2.13 an hour directly, it is important 
to ensure that this reduced direct wage is only available to employers 
when employees are actually engaged in a tipped occupation within the 
meaning of section 3(t) of the statute. The guidance explained that an 
employer could continue to take a tip credit for the time an employee 
spent performing duties that are related to the employee's tipped 
occupation but that do not produce tips, but only if that time did not 
exceed 20 percent of the employee's workweek (80/20 guidance). See WHD 
Field Operations Handbook (FOH) 30d00(e), Revision 563 (Dec. 9, 1988). 
The 80/20 guidance and its tolerance permitting the performance of a 
limited amount of non-tipped, related duties provided an essential 
backstop to prevent abuse of the tip credit, and a number of courts 
deferred to the guidance.\1\
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    \1\ See, e.g., Marsh v. J. Alexander's LLC, 905 F.3d 610, 632 
(9th Cir. 2018) (en banc); Fast v. Applebee's Int'l, Inc., 638 F.3d 
872, 879 (8th Cir. 2011).
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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 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. On December 30, 2020, 
the Department published the 2020 Tip final rule updating Sec.  
531.56(e) largely incorporating the 2018-2019 guidance addressing 
situations where an employee performs both tipped and non-tipped duties 
(dual jobs portion of the 2020 Tip final rule). See 85 FR 86771.

[[Page 32820]]

    On February 26, 2021, the Department published a final rule 
extending the effective date of the 2020 Tip final rule from March 1, 
2021, until April 30, 2021, in order to allow it the opportunity to 
review issues of law, policy, and fact raised by the 2020 Tip final 
rule before it took effect. See 86 FR 11632. On March 25, 2021, in a 
second NPRM, the Department proposed to further extend the effective 
date of three portions of the 2020 Tip final rule. See 86 FR 15811. 
This delay provided the Department additional time to consider whether 
to withdraw and re-propose the dual jobs portion of the 2020 Tip final 
rule, and to complete a separate rulemaking addressing the two other 
portions of the rule. Having considered the dual jobs portion, the 
Department now believes that the 2020 Tip final rule may fall short of 
providing the intended clarity and certainty for employers and could 
harm tipped employees and non-tipped employees in industries that 
employ significant numbers of tipped workers. On April 29, 2021, the 
Department published a final rule confirming the delay as proposed and 
announcing that it would undertake a separate rulemaking on dual jobs. 
See 81 FR 22597.
    The Department is now proposing to withdraw the dual jobs portion 
of the 2020 Tip final rule and to re-propose new regulatory language 
that it believes would provide more clarity and certainty for employers 
while better protecting employees. Specifically, the Department is 
proposing to amend its regulations to clarify that an employee is only 
engaged in a tipped occupation under 29 U.S.C. 203(t) when the employee 
either performs work that produces tips, or performs work that directly 
supports the tip-producing work, provided that the directly supporting 
work is not performed for a substantial amount of time. Under the 
Department's proposal, work that ``directly supports'' tip-producing 
work is work that assists a tipped employee to perform the work for 
which the employee receives tips. In the proposed regulatory text, the 
Department explains that an employee has performed work that directly 
supports tip-producing work for a substantial amount of time if the 
tipped employee's directly supporting work either (1) exceeds, in the 
aggregate, 20 percent of the employee's hours worked during the 
workweek or (2) is performed for a continuous period of time exceeding 
30 minutes. The Department believes it is important to provide a clear 
limitation on the amount of non-tipped work that tipped employees 
perform in support of their tip-producing work, because if a tipped 
employee engages in a substantial amount of such non-tipped work, that 
work is no longer incidental to the tipped work, and thus, the employee 
is no longer employed in a tipped occupation. The Department requests 
comment on all aspects of its proposal, including its proposal to 
withdraw the dual jobs portion of the 2020 Tip final rule.

II. Background

A. FLSA Provisions on Tips and Tipped Employees

    Section 6(a) of the FLSA requires covered employers to pay 
nonexempt employees a minimum wage of at least $7.25 per hour. See 29 
U.S.C. 206(a). Section 3(m)(2)(A) allows an employer to satisfy a 
portion of its minimum wage obligation to any ``tipped employee'' by 
taking a partial credit, known as a ``tip credit,'' toward the minimum 
wage based on tips an employee receives. See 29 U.S.C. 203(m)(2)(A). An 
employer that elects to take a tip credit must pay the tipped employee 
a direct cash wage of at least $2.13 per hour. The employer may then 
take a credit against its wage obligation for the difference, up to 
$5.12 per hour, if the employees' tips are sufficient to fulfill the 
remainder of the minimum wage, provided that the employer meets certain 
requirements.
    Section 3(t) defines ``tipped employee'' as ``any employee engaged 
in an occupation in which he customarily and regularly receives more 
than $30 a month in tips.'' 29 U.S.C. 203(t). The legislative history 
accompanying the 1974 amendments to the FLSA's tip provisions 
identified tipped occupations to include ``waiters, bellhops, 
waitresses, countermen, busboys, service bartenders, etc.'' S. Rep. No. 
93-690, at 43 (Feb. 22, 1974). The legislative history also identified 
``janitors, dishwashers, chefs, [and] laundry room attendants'' as 
occupations in which employees do not customarily and regularly receive 
tips within the meaning of section 3(t). See id. Since the 1974 
Amendments, the Department's guidance documents have identified a 
number of additional occupations, such as barbacks, as tipped 
occupations. See, e.g., FOH 30d04(b). However, Congress left 
``occupation,'' and what it means to be ``engaged in an occupation,'' 
in section 3(t) undefined. Thus, Congress delegated to the Department 
the authority to determine what it means to be ``engaged in an 
occupation'' that customarily and regularly receives tips. See Fair 
Labor Standards Amendments of 1966, Public Law 89-601, 101, 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. See WHD Opinion 
Letter FLSA-895 (Aug. 8, 1979) (``1979 Opinion Letter''). Citing the 
dual jobs regulation and the legislative history

[[Page 32821]]

distinguishing between tipped occupations, such as server, and non-
tipped occupations, such as chef, the Department concluded that ``salad 
preparation activities are essentially the activities performed by 
chefs,'' and therefore ``no tip credit may be taken for the time spent 
in preparing vegetables for the salad bar.'' Id.
    A 1980 opinion letter addressed a situation in which tipped 
restaurant servers performed various non-tipped duties including 
cleaning and resetting tables, cleaning and stocking the server 
station, and vacuuming the dining room carpet. See WHD Opinion Letter 
WH-502 (Mar. 28, 1980) (``1980 Opinion Letter''). The Department 
reiterated language from the dual jobs regulation distinguishing 
between employees who spend ``part of [their] time'' performing 
``related duties in an occupation that is a tipped occupation'' that do 
not produce tips and ``where there is a clear dividing line between the 
types of duties performed by a tipped employee, such as between 
maintenance duties and waitress duties.'' Id. Because in the 
circumstance presented the non-tipped duties were ``assigned generally 
to the waitress/waiter staff,'' the Department found them to be related 
to the employees' tipped occupation. The letter suggested, however, 
that the employer would not be permitted to take the tip credit if 
``specific employees were routinely assigned, for example, maintenance-
type work such as floor vacuuming.'' Id.
    In 1985, the Department issued an opinion letter addressing non-
tipped duties both unrelated and related to the tipped occupation of 
server. See WHD Opinion Letter FLSA-854 (Dec. 20, 1985) (``1985 Opinion 
Letter''). First, the letter concluded (as had the 1979 Opinion Letter) 
that ``salad preparation activities are essentially the activities 
performed by chefs,'' not servers, and therefore ``no tip credit may be 
taken for the time spent in preparing vegetables for the salad bar.'' 
Id. Second, the letter explained, building on statements in the 1980 
Opinion Letter, that although a ``tip credit could be taken for non-
salad bar preparatory work or after-hours clean-up if such duties are 
incidental to the [servers'] regular duties and are assigned generally 
to the [server] staff,'' if ``specific employees are routinely assigned 
to maintenance-type work or . . . tipped employees spend a substantial 
amount of time in performing general preparation work or maintenance, 
we would not approve a tip credit for hours spent in such activities.'' 
Id. Under the circumstances described by the employer seeking an 
opinion--specifically, ``one waiter or waitress is assigned to perform 
. . . preparatory activities,'' including setting tables and ensuring 
that restaurant supplies are stocked, and those activities 
``constitute[ ] 30% to 40% of the employee's workday''--a tip credit 
was not permissible as to the time the employee spent performing those 
activities. Id.
    WHD's FOH is an ``operations manual'' that makes available to WHD 
staff, as well as the public, policies ``established through changes in 
legislation, regulations, significant court decisions, and the 
decisions and opinions of the WHD Administrator.'' In 1988, WHD revised 
its FOH to add section 30d00(e) which distilled and refined the 
policies established in the 1979, 1980, and 1985 Opinion Letters. See 
WHD FOH Revision 563. According to the 1988 FOH entry, 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 noted a ``substantial'' 
amount of time spent performing general preparation or maintenance work 
as being ``in excess of 20 percent,'' creating a substantial but 
limited tolerance for this work. Id. This guidance recognized that if a 
tipped employee performs too much related, non-tipped work, the 
employee is no longer engaged in a tipped occupation.
    WHD did not revisit its 80/20 guidance until more than 20 years 
later, when it briefly superseded its 80/20 guidance in favor of 
guidance that placed no limitation on the amount of duties related to a 
tip-producing occupation that may be performed by a tipped employee, 
``as long as they are performed contemporaneously with the duties 
involving direct service to customers or for a reasonable time 
immediately before or after performing such direct-service duties.'' 
See WHD Opinion Letter FLSA2009-23 (dated Jan. 16, 2009, withdrawn Mar. 
2, 2009). This guidance further stated that the Department ``believe[d] 
that guidance [was] necessary for an employer to determine on the front 
end which duties are related and unrelated to a tip-producing 
occupation . . . .'' Id. Accordingly, it stated that the Department 
would consider certain duties listed in O*NET for a particular 
occupation to be related to the tip-producing occupation. See id. The 
guidance cited Pellon v. Bus. Representation Int'l, Inc., 291 F. App'x 
310 (11th Cir. 2008) (unpublished), aff'g 528 F. Supp. 2d 1306 (S.D. 
Fla. 2007), in which the district granted summary judgment to the 
employer based in part on the infeasibility of determining whether the 
employees spent more than 20 percent of their work time on such duties; 
significantly, however, the court believed such a determination was 
unnecessary because the employees had not shown that their non-tipped 
work exceeded that threshold. See 528 F. Supp. 2d at 1313-15. However, 
WHD later withdrew this guidance on March 2, 2009, and reverted to and 
followed the 80/20 approach for most of the next decade. See WHD 
Opinion Letter FLSA2009-23 (dated Jan. 16, 2009, withdrawn Mar. 2, 
2009); WHD Opinion Letter FLSA2018-27 (Nov. 8, 2018).
    Between 2009 and 2018, both the Eighth Circuit and the Ninth 
Circuit deferred to the Department's dual jobs regulations and 80/20 
guidance in the FOH. See Marsh v. J. Alexander's LLC, 905 F.3d 610, 632 
(9th Cir. 2018) (en banc); Fast v. Applebee's Int'l, Inc., 638 F.3d 
872, 879 (8th Cir. 2011). Both courts of appeal concluded that the 
Department's dual jobs regulation at 531.56(e) appropriately interprets 
section 3(t) of the FLSA which ``does not define when an employee is 
`engaged in an [tipped] occupation.' '' Applebee's, 638 F.3d at 876, 
879; see also Marsh, 905 F.3d at 623. Both courts further held that the 
Department's 80/20 guidance was a reasonable interpretation of the dual 
jobs regulation. See Marsh, 905 F.3d at 625 (``The DOL's interpretation 
is consistent with nearly four decades of interpretive guidance and 
with the statute and the regulation itself.''); Applebee's, 638 F.3d at 
881 (``The 20 percent threshold used by the DOL in its Handbook is not 
inconsistent with 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

[[Page 32822]]

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 https://www.onetcenter.org/overview.html.
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    A large number of district courts have considered the 2018 Opinion 
Letter and 2019 FAB and declined to defer to the Department's 
interpretation of the dual jobs regulation in this guidance. Among 
other concerns, these courts have noted that the guidance: (1) Does not 
clearly define what it means to perform related, non-tipped duties 
``contemporaneously with, or for a reasonable time immediately before 
or after, tipped duties,'' thus inserting ``new uncertainty and 
ambiguity into the analysis,'' see, e.g., Flores v. HMS Host Corp., No. 
18-3312, 2019 WL 5454647 at *6 (D. Md. Oct. 23, 2019), and companion 
case Storch v. HMS Host Corp., No. 18-3322; (2) is potentially in 
conflict with language in 29 CFR 531.56(e) limiting the tip credit to 
related, non-tipped duties performed ``occasionally'' and ``part of 
[the] time,'' see Belt v. P.F. Chang's China Bistro, Inc., 401 F. Supp. 
3d 512, 533 (E.D. Pa. 2019); and (3) potentially ``runs contrary to the 
remedial purpose of the FLSA--to ensure a fair minimum wage,'' see 
Berger v. Perry's Steakhouse of Illinois, 430 F. Supp. 3d 397 (N.D. 
Ill. 2019).\3\ In addition, some courts have also expressed doubts 
about whether it is reasonable to rely on O*NET to determine related 
duties. See O'Neal, 2020 WL 210801, at *7 (employer practices of 
requiring non-tipped employees to perform certain duties would then be 
reflected in O*NET, allowing employers to influence the 
definitions).\4\ After declining to defer to the Department's 2018-2019 
guidance, many of these district courts have independently concluded 
that the 80/20 approach is reasonable, and applied a 20 percent 
tolerance to the case before them.\5\
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    \3\ See also Roberson v. Tex. Roadhouse Mgmt. Corp., No. 19-628, 
2020 WL 7265860 (W.D. Ky. Dec. 10, 2020); Rorie v. WSP2, 485 F. 
Supp. 3d 1037 (W.D. Ark. 2020); Williams v. Bob Evans Restaurants, 
No. 18-1353, 2020 WL 4692504 (W.D. Pa. Aug. 13, 2020); Esry v. OTB 
Acquisition, No. 18-255, 2020 WL 3269003 (E.D. Ark. June 17, 2020); 
Reynolds v. Chesapeake & Del. Brewing Holdings, No. 19-2184, 2020 WL 
2404904 (E.D. Pa. May 12, 2020); Sicklesmith v. Hershey Ent. & 
Resorts Co., 440 F. Supp. 3d 391 (M.D. Pa. 2020); O'Neal v. Denn-
Ohio, No. 19-280, 2020 WL 210801 (N.D. Ohio Jan. 14, 2020); Spencer 
v. Macado's, 399 F. Supp. 3d 545 (W.D. Va. 2019); Esry v. P.F. 
Chang's China Bistro, 373 F. Supp. 3d 1205 (E.D. Ark. 2019); Cope v. 
Let's Eat Out, 354 F. Supp. 3d 976 (W.D. Mo. 2019).
    A few other courts have followed the guidance. See Rafferty v. 
Denny's Inc., No. 19-24706, 2020 WL 5939064 (S.D. Fla. Sept. 4, 
2020); Shaffer v. Perry's Restaurants, Ltd., No. 16-1193, 2019 WL 
2098116 (W.D. Tex. Apr. 24, 2019).
    \4\ District courts have also declined to defer to the 2018-19 
guidance on the grounds that it did not reflect the Department's 
``fair and considered judgment,'' because the Department did not 
provide a compelling justification for changing policies after 30 
years of enforcing the 80/20 guidance. See e.g., Williams, 2020 WL 
4692504, at *10; O'Neal, 2020 WL 210801, at *7; see also 85 FR 86771 
(noting that the 2020 Tip final rule addressed this criticism by 
explaining through the notice-and-comment rulemaking process its 
reasoning for replacing the 80/20 approach with an updated related 
duties test).
    \5\ See, e.g., Rorie, 485 F. Supp. 3d at 1042; Sicklesmith, 440 
F. Supp. 3d at 404-05; Belt, 401 F. Supp. 3d at 536-37; Esry v. P.F. 
Chang's, 373 F. Supp. 3d at 1211; Berger, 430 F. Supp. 3d at 412; 
Cope, 354 F. Supp. 3d at 987; Spencer, 399 F. Supp. 3d at 554; 
Roberson, 2020 WL 7265860, at *7-*8; Williams, 2020 WL 4692504, at 
*10; Esry v. OTB Acquisition, 2020 WL 3269003, at *1; Reynolds, 2020 
WL 2404904, at *6.
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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 NPRM. In its comment on the 2019 
NPRM, for instance, law firm Littler Mendelson argued that the 80/20 
guidance was challenging to administer because it did not include a 
``comprehensive list of related duties or even a way to determine which 
duties were related''; among other concerns, it also argued that 
employers found it challenging to track employees' duties.\6\ Littler 
Mendelson and the National Restaurant Association (NRA) also argued 
that the 2018-2019 guidance was more consistent with the FLSA than the 
80/20 guidance because the statute refers to tipped employees being 
``engaged in an occupation'' in which they receive tips, 29 U.S.C. 
203(t), and therefore does not distinguish between duties of a tipped 
employee for which employers can and cannot take a tip credit.\7\ 
However, the NRA argued that the Department's retention of a 
distinction between tipped and non-tipped duties was still a ``flawed 
analytical approach.''
---------------------------------------------------------------------------

    \6\ WHD-2019-0004-0425.
    \7\ WHD-2019-0004-0438.
---------------------------------------------------------------------------

    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 Department also 
asserted that the 80/20 guidance ``generated extensive, costly 
litigation.'' Id. at 86761. The 2020 Tip final rule provided, 
consistent with the Department's 2018-2019 guidance, that `` an 
employer may take a tip credit for all non-tipped duties an employee 
performs that meet two requirements. First, the duties must be related 
to the employee's tipped occupation; second, the employee must perform 
the related duties contemporaneously with the tip-producing activities 
or within a reasonable time immediately before or after the tipped 
activities.'' Id. at 86767.
    Rather than using O*NET as a definitive list of related duties, the 
final rule adopted O*NET as a source of guidance for determining when a 
tipped employee's non-tipped duties are related to their tipped 
occupation. Under the final rule, a non-tipped duty

[[Page 32823]]

is presumed to be related to a tip-producing occupation if it is listed 
as a task of the tip-producing occupation in O*NET. See id. at 86771. 
The 2020 Tip final rule included a qualitative discussion of the 
potential economic impacts of the rule's revisions to the dual jobs 
regulations but ``[did] not quantify them due to lack of data and the 
wide range of possible responses by market actors that [could not] be 
predicted with specificity.'' Id. at 86776. The Department noted that 
one commenter, the Economic Policy Institute (EPI), provided a 
quantitative estimate of the economic impact of this portion of the 
rule but concluded that its estimate was not reliable. See id. at 
86785. This final rule was published with an effective date of March 1, 
2021, see id. at 86756; however, as explained below, the Department has 
extended the effective date for this part of the rule until December 
31, 2021.

E. Legal Challenge to the 2020 Tip Final Rule

    On January 19, 2021, before the 2020 Tip final rule went into 
effect, Attorneys General from eight states and the District of 
Columbia filed a complaint in the United States District Court for the 
Eastern District of Pennsylvania, in which they argued that the 
Department violated the Administrative Procedure Act in promulgating 
the 2020 Tip final rule, including that portion amending the dual jobs 
regulations. (Pennsylvania complaint or Pennsylvania litigation). \8\ 
The Pennsylvania complaint alleges that this portion of the 2020 Tip 
final rule is contrary to the FLSA. Specifically, the complaint alleges 
that the rule's elimination of the 20 percent limitation on the amount 
of time that tipped employees can perform related, non-tipped work 
contravenes the FLSA's definition of a tipped employee: An employee 
``engaged in an occupation in which [they] customarily and regularly'' 
receive tips, 29 U.S.C. 203(t).\9\ According to the complaint, ``when 
employees `spend more than 20 percent of their time performing untipped 
related work' they are no longer `engaged in an occupation in which 
[they] customarily and regularly receive[ ] . . . tips.' '' \10\
---------------------------------------------------------------------------

    \8\ See Compl., Commonwealth of Pennsylvania et al. v. Scalia et 
al., No. 2:21-cv-00258 (E.D. Pa.).
    \9\ Id., ]] 87-89.
    \10\ Id. ] 87 (citing Belt, 401 F. Supp. 3d at 526).
---------------------------------------------------------------------------

    The complaint also alleges that that this portion of the 2020 Tip 
final rule is arbitrary and capricious for several reasons. First, the 
complaint alleges that the 2020 Tip final rule's new test for when an 
employer can continue to take a tip credit for a tipped employee who 
performs related, non-tipped duties relied on ``ill-defined'' terms--
``contemporaneously with'' and ``a reasonable time immediately before 
or after tipped duties'' \11\--which some district courts have also 
found to be unclear when construing the 2018-2019 guidance.\12\ 
According to the complaint, the 2020 Tip final rule failed to ``provide 
any guidance as to when--or whether--a worker could be deemed a dual 
employee during a shift or how long before or after a shift constitutes 
a `reasonable time.' '' \13\ The complaint also alleges that the 
Department failed to offer a valid justification for replacing the 80/
20 guidance with a new test for when an employer can take a tip credit 
for related, non-tipped duties. The complaint disputes the Department's 
conclusion in the 2020 Tip final rule that its former 80/20 guidance 
was difficult to administer, noting that courts consistently applied 
and, in many cases, deferred to the 80/20 guidance.\14\ The complaint 
argues that the 2020 Tip final rule's new test, in contrast, will 
invite ``a flood of new litigation'' due to its ``murkiness'' and its 
reliance on ``ill-defined'' terms.\15\
---------------------------------------------------------------------------

    \11\ Id. ] 128.
    \12\ See, e.g., Belt, 401 F. Supp. 3d at 533; Flores, 2019 WL 
5454647, at *6.
    \13\ Commonwealth of Pennsylvania v. Scalia, at ] 131; see also 
id. ] 129 (``The Department never provides a precise definition of 
`contemporaneous,' simply stating that it means `during the same 
time as' before making the caveat that it `does not necessarily mean 
that the employee must perform tipped and non-tipped duties at the 
exact same moment in time.' '')
    \14\ See id. ] 127; see also id. ] 41 (noting that many courts 
awarded Auer deference to the 80/20 guidance).
    \15\ Id. ]] 127-28.
---------------------------------------------------------------------------

    The complaint further alleges that the rule's use of O*NET to 
define ``related duties'' is ``itself'' arbitrary and capricious 
because O*NET ``seeks to describe the work world as it is, not as it 
should be'' and ``does not objectively evaluate whether a task is 
actually related to a given occupation.'' \16\ According to the 
complaint, the use of O*NET to define related, non-tipped duties 
``dramatically expand[ed] the universe of duties that can be performed 
by tipped workers,'' thereby authorizing employer ``conduct that has 
been prohibited under the FLSA for decades.'' \17\ Lastly, the 
complaint alleges that the Department ``failed to consider or quantify 
the effect'' that this portion of the rule ``would have on workers and 
their families'' in the rule's economic analysis and ``disregarded'' 
the data and analysis provided by a commenter on the NPRM for the 2020 
Tip final rule, the EPI.\18\ The complaint claims that these asserted 
flaws in the Department's economic analysis are evidence of a ``lack of 
reasoned decision-making.'' \19\
---------------------------------------------------------------------------

    \16\ Id. ] 115.
    \17\ Id. ]] 114-15.
    \18\ Id. at Sec.  I(C)(i), ]] 108-9.
    \19\ 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. 
Commenters who supported the proposed 60-day delay of the 2020 Tip 
final rule, including numerous advocacy organizations and the Attorneys 
General who filed the Pennsylvania lawsuit, urged the Department to 
specifically reconsider the portion of the 2020 Tip final rule that 
revised the Department's dual jobs regulations. Id. at 11633. EPI 
supported the proposed delay because it would give the Department time 
to reassess the Department's economic analysis of this portion of the 
2020 Tip final rule, which it argued was flawed. Id. On March 25, 2021, 
the Department proposed to further delay the effective date of three 
portions of the 2020 Tip final rule, including the portion of the rule 
that amended the Department's dual jobs regulations to address the FLSA 
tip credit's application to tipped employees who perform tipped and 
non-tipped duties, until December 31, 2021. See 86 FR 15811 (Partial 
Delay NPRM). The Department received comments on the merits of the 
delay and on the merits of the 2020 Tip final rule itself. On April 29, 
2021, the Department finalized the proposed partial delay. See 86 FR 
22597 (Partial Delay final rule).

III. Discussion of Comments on the Partial Delay Rule

A. Comments Regarding the 2020 Tip Final Rule's Revisions to the Dual 
Jobs Regulations

    Commenters who supported the Partial Delay NPRM raised multiple 
concerns with the substance of the dual jobs portion of the 2020 Tip 
final rule. In their comments in support of the Partial Delay NPRM, the 
Attorneys General who filed the Pennsylvania complaint and worker 
advocacy organizations raised legal and policy concerns similar to 
those raised in the

[[Page 32824]]

Pennsylvania lawsuit: That the new test for when an employer can take a 
tip credit for related, non-tipped duties will encourage employers to 
shift more non-tipped work to tipped employees, depressing tipped 
employees' wages and possibly eliminating non-tipped jobs, that the new 
test does not reflect the statutory definition of a tipped employee, 
that the terms used in the new test are so amorphous that they will 
lead to extensive litigation, and that O*NET is not an appropriate tool 
to determine related duties. See 86 FR 22600. In its comment supporting 
the Partial Delay NPRM, EPI stated that the 2020 Tip final rule's 
revision to the dual jobs regulations created a ``less protective'' 
standard for tipped wages, replacing a firm 20 percent limitation on 
the amount of related, non-tipped duties that tipped employees could 
perform while being paid the tipped wage of $2.13 per hour with ``vague 
and much less protective'' language. Id. EPI noted that because these 
new regulatory terms, such as ``reasonable time,'' are not defined, 
they create an ``ambiguity that would [be] difficult to enforce'' and 
would create ``an immense loophole that would be costly to workers.'' 
Id.
    Commenters who supported the Partial Delay NPRM also raised 
concerns with how the dual jobs portion of the 2020 Tip final rule was 
promulgated, specifically, that the economic analysis may not have 
adequately estimated the impact of this portion of the rule. EPI 
suggested that the 2020 Tip final rule's economic analysis was flawed 
because it did not sufficiently estimate the economic impact on 
workers--as EPI did in a comment it submitted in the 2020 Tip 
rulemaking, which concluded that the rule ``would allow employers to 
capture more than $700 million annually from workers.'' See id. at 
22600-01. The Attorneys General \20\ and the National Employment Law 
Project (NELP) \21\ also argued in their comments in support of the 
Partial Delay NPRM that the Department's failure to quantitatively 
estimate the impact of the dual jobs portion of the 2020 Tip final rule 
or to consider the estimates of the rule's impact submitted by EPI and 
other groups in the course of that rulemaking is evidence that the 
rulemaking process was flawed. See id. at 22601.
---------------------------------------------------------------------------

    \20\ WHD-2019-0004-0420.
    \21\ WHD-2019-0004-0453.
---------------------------------------------------------------------------

    The Department also received comments on the substance of the 2020 
Tip final rule from organizations that opposed the Partial Delay NPRM. 
The NRA \22\ and Littler Mendelson's Workplace Policy Institute (WPI) 
\23\ argued that the 2020 Tip final rule reflects a better 
interpretation of the statutory term ``tipped employee'' than the 80/20 
guidance because the FLSA refers to tipped employees being ``engaged in 
an occupation'' in which they receive tips, 29 U.S.C. 203(t), and 
therefore does not create any distinction between the tipped and non-
tipped duties of the employee. See id. at 22602. WPI also argued that 
the 2020 Tip final rule, by removing the 20 percent limitation on 
related duties and using O*NET to define related duties, would be 
easier for employers to administer, and both WPI and the NRA argued 
that the 2020 Tip final rule would avoid the litigation that the 80/20 
guidance generated. See id. Additionally, the NRA argued that EPI's 
criticism of the 2020 Tip final rule was flawed because its impact 
analysis used the Department's 80/20 guidance as its baseline instead 
of the Department's 2018-2019 guidance. See id. More generally, the NRA 
noted that the restaurant industry has been ``uniquely hurt'' by the 
pandemic and stated that, in this challenging economic environment, 
restaurants need ``clear guidelines'' and ``predictability.'' See NRA.
---------------------------------------------------------------------------

    \22\ WHD-2019-0004-0504.
    \23\ WHD-2019-0004-0519.
---------------------------------------------------------------------------

    In the Partial Delay final rule, the Department stated that it 
shares the concerns of commenters who supported the proposed partial 
delay that the new test articulated in the 2020 Tip final rule for when 
an employer can take a tip credit for a tipped employee who performs 
related, non-tipped work may be contrary to the FLSA. Specifically, the 
Department stated that it shared commenters' concerns that the new test 
may not accurately identify when a tipped employee who is performing 
non-tipped duties is still engaged in a tipped occupation under section 
3(t) of the statute. See 86 FR 22606. Additionally, the Department 
stated that it shares commenters' concerns that the economic analysis 
may not have adequately estimated the impact of this portion of the 
rule and that allowing this portion of the rule to go into effect 
without further consideration of its impact could potentially lead to a 
loss of income for workers in tipped industries. See id. at 22606-07.

B. Recommendations for Future Rulemaking

    Commenters who supported the Partial Delay NPRM also urged the 
Department to engage in further rulemaking to better address the issue 
of when an employer can continue to take a tip credit for tipped 
employees who perform tipped and non-tipped work. All of the advocacy 
organizations that supported the Partial Delay NPRM urged the 
Department to withdraw the portion of the 2020 Tip final rule that 
revised its dual jobs regulations and to re-propose revisions no less 
protective of workers than the 80/20 guidance. See, e.g., NELP; \24\ 
Restaurant Opportunities Center United (ROC United); \25\ National 
Urban League; \26\ National Women's Law Center; \27\ One Fair Wage.\28\ 
EPI also encouraged the Department to create a rule that is 
``stronger'' than the previous 80/20 guidance ``that further clarifies, 
and limits, the amount of non-tipped work for which an employer can 
claim a tip credit.'' See 86 FR 22600. EPI suggested that the 
Department could, among other things, consider tightening the 
definitions of related and unrelated duties, propose to adopt standards 
such as those adopted in states such as New York that, for example, bar 
an employer from taking a tip credit on any day during which a tipped 
employee spends more than 20 percent of their time in a non-tipped 
occupation, and/or promulgate enhanced notice and recordkeeping 
requirements. See id.
---------------------------------------------------------------------------

    \24\ WHD-2019-0004-0515.
    \25\ WHD-2019-0004-0524.
    \26\ WHD-2019-0004-0516.
    \27\ WHD-2019-0004-0520.
    \28\ WHD-2019-0004-0523.
---------------------------------------------------------------------------

    In its comments supporting the Partial Delay, NELP also stated that 
a delayed effective date of the dual jobs portion of the rule would 
give the Department the opportunity to consider how the rule 
``improperly narrows the protections of the FLSA for tipped workers in 
a variety of fast-growing industries including delivery, limousine and 
taxi, airport workers, parking, carwash, valet, personal services and 
retail, in addition to restaurants and hospitality.'' See id. at 22601.
    Although WPI opposed the proposed delay of the dual jobs portion of 
the 2020 Tip final rule, it included some recommendations for the 
Department to consider in the event that it ultimately proposed to 
withdraw and revise this portion of the rule. WPI stated that any 
alternative should include ``concrete guidance on where the lines are 
to be drawn,'' adding that, in its view, ``there has been no clear 
definition of what duties are `tipped' as opposed to merely `related' 
or `non-tipped.'' See id. at 22602. WPI further stated that any 
``quantitative limit'' on duties that a tipped employee can perform 
``must precisely identify which duties fall on either side of the 
line,'' recognize that

[[Page 32825]]

occupations can evolve over time, and draw upon O*NET as a resource. 
See id.

IV. Need for Rulemaking

    Delaying the effective date of this portion of the 2020 Tip final 
rule has provided the Department the opportunity to consider whether 
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 has also 
allowed the Department to further consider the comments it received on 
this portion of the rule in response to its February 5, 2021 proposal 
to delay the effective date of the 2020 Tip final rule and its March 
25, 2021 proposal to delay the effective date of this portion of the 
rule and to evaluate the legal concerns with this portion of the rule 
that were raised in the Pennsylvania complaint.
    In light of the comments received on both delay NPRMs and the 
allegations raised in the Pennsylvania complaint, as well as a review 
and reconsideration of questions of law, policy, and fact, the 
Department believes that it is necessary to revisit that portion of the 
2020 Tip final rule addressing whether an employee who is performing 
non-tipped duties is still engaged in a tipped occupation. 
Specifically, the Department is concerned that the lack of clear 
guidelines in the 2020 Tip final rule both failed to achieve its goal 
of providing certainty for employers and created the potential for 
abuse of the tip credit to the detriment of low-wage tipped workers. In 
this NPRM, the Department has further reviewed data provided by 
commenters, including conducting a thorough analysis on transfer 
estimates using that data. The Department requests comment on 
withdrawing the dual jobs portion of the 2020 Tip final rule.

A. The 2020 Tip Final Rule Did Not Define Its Key Terms

    As noted above, the Department stated that one of its reasons for 
departing from the 80/20 guidance in the 2020 Tip final rule was that 
it ``generated extensive, costly litigation.'' 85 FR 86761. In their 
comments in opposition to the Partial Delay NPRM, the NRA and WPI 
argued that the 2020 Tip final rule created a standard that was less 
susceptible to litigation than the 80/20 guidance. 86 FR 22606. 
However, the Pennsylvania litigants noted that the 2020 Tip final rule 
does not clearly define either ``contemporaneously'' or the phrase 
``for a reasonable time immediately before or after'' and thus is 
``certain to cause a flood of new litigation.'' \29\ Commenters who 
supported the Partial Delay NPRM echoed this concern. See 86 FR 22600. 
After consideration, the Department believes that the lack of clear 
definitions of these key terms may undermine the stated goals of the 
2020 Tip final rule.
---------------------------------------------------------------------------

    \29\ Commonwealth of Pennsylvania v. Scalia, at ] 128.
---------------------------------------------------------------------------

    For example, although the 2020 Tip final rule posited that the 
requirement that related duties be performed ``contemporaneously'' is 
``not difficult to administer in practice,'' the Department now 
believes that the rule's failure to provide a clear definition of the 
term may undermine the utility of the rule. See 85 FR 86768. Instead, 
as the Pennsylvania litigants noted, the 2020 Tip final rule both 
stated that the term ``contemporaneously'' means ``during the same time 
as'' and also that it ``does not necessarily mean that the employee 
must perform tipped and non-tipped at the exact same moment in time.'' 
Id. These potentially conflicting definitions may have caused confusion 
for employers and tipped employees alike. Additionally, by stating that 
a task that is performed ``contemporaneously'' does not have to be 
performed at the same time, the Department blurred the distinction 
between tasks performed contemporaneously and those performed ``for a 
reasonable time immediately before or after'' the performance of tipped 
duties. See, e.g., id. at 86769 (describing a scenario in which a 
bellhop works 48 minutes of every hour on tipped duties and 12 minutes 
of every hour on related, non-tipped duties as illustrating the new 
regulatory concept of work that is performed ``for a reasonable time 
immediately before or after'' the performance of tipped duties).
    Although the 2020 Tip final rule stated that related duties could 
be performed ``for a reasonable time immediately before or after'' 
performing tipped duties, the rule also did not provide a specific 
definition for the term ``reasonable.'' In justifying the Department's 
decision to use the term, the 2020 Tip final rule stated that ``the 
concept of reasonableness is a cornerstone of modern common law and is 
familiar to employers in a variety of contexts.'' See 85 FR 86768. Even 
if employers are familiar with the general concept of 
``reasonableness,'' it is not clear from the 2020 Tip final rule how 
reasonableness would be defined in the context of that rule--
determining how long a tipped employee could perform non-tipped, 
related duties--and the reference to common law implicitly acknowledged 
that those boundaries would be left to the courts to draw.
    The Department believes that because the 2020 Tip final rule did 
not define these key terms, the 2020 Tip final rule will invite rather 
than limit litigation in this area, and thus may not support one of the 
rule's stated justifications for departing from the 80/20 guidance. 
Furthermore, a key justification for the 2020 Tip final rule was that 
it would be easier for employers to administer--but the absence of 
clear guidelines regarding the boundaries of ``reasonable'' means that 
employers would still face uncertain litigation risk. As noted above, 
the Department seeks comments on the merits of withdrawing the dual 
jobs portion of the 2020 Tip final rule; in particular, it seeks 
comments on the extent to which definitions of the key terms used in 
the dual jobs portion of the 2020 Tip final rule provide clarity and 
certainty, as compared with the proposed terminology the Department 
proposes herein.

B. Concerns About Using O*NET To Identify ``Related'' Duties

    In addition to not specifically defining key terms, the Department 
is concerned that the 2020 Tip final rule's reliance on O*NET to 
identify ``related'' duties may be flawed. As discussed above, the 2020 
Tip final rule uses occupational task listings from O*NET to identify 
which non-tipped duties, when performed for a limited or at a certain 
time, are part of an employees' tipped occupation. O*NET, however, is a 
tool for career exploration. See www.onetonline.org. It was not created 
to identify employer's legal obligations under the FLSA. The Department 
now believes that O*NET may not be an appropriate instrument to 
delineate the duties that are part of a tipped occupation for which an 
employer may take a tip credit.
    O*NET uses data obtained in part by asking employees which duties 
their employers are requiring them to perform.\30\ As a result, when 
employers require tipped employees to perform the work of a non-tipped 
occupation, O*NET may reflect these duties on the task list for their 
tipped occupation even though they are not the tasks of the tipped 
occupation. For example, the

[[Page 32826]]

Pennsylvania litigants noted that, at the time of their complaint, 
O*NET included cleaning bathrooms as tasks of servers, notwithstanding 
the Department's longstanding position that these duties are not part 
of the tipped occupation of a server. See Complaint, Commonwealth of 
Pennsylvania et al. v. Scalia et al., No. 2:21-cv-00258, ] 117 (E.D. 
Pa., Jan. 19, 2021); see also Br. for Department of Labor as Amicus, at 
18, 18 n.6, Fast v. Applebee's Int'l, Inc., 638 F.3d 872 (8th Cir. 
2011). At the same time, as commenters on the 2019 NPRM noted, O*NET 
may not reflect all of the duties that are part of a tipped occupation. 
See Inspire Brands; \31\ National Restaurant Association.\32\
---------------------------------------------------------------------------

    \30\ More detailed information about O*NET's data collection can 
be found at https://www.onetcenter.org/ombclearance.html.
    \31\ WHD-2019-0004-0456.
    \32\ WHD-2019-0004-0438.
---------------------------------------------------------------------------

    In response to concerns that O*NET may not accurately capture the 
non-tipped duties that are part of tipped occupations, the 2020 Tip 
final rule provided that a non-tipped duty is merely presumed to be 
related to a tip-producing occupation if it is listed as a task of the 
tip-producing occupation in O*NET. See 85 FR 86771. Regarding this 
presumption, the Department specified that when ``industry-wide 
practices and trends demonstrate that a listed duty is not actually 
related to the tipped occupation, or that an unlisted duty is actually 
related to that occupation, then employers would not be able to rely on 
O*NET'' in that case. See id. at 86772. As a result, the Department 
acknowledged, the regulation in the final rule does not afford the 
``certainty'' that the Department sought to provide when it proposed to 
codify its subregulatory guidance in the 2019 NPRM. Id.
    After further consideration, the Department has determined that 
this uncertainty could potentially harm both employers and employees. 
Although WPI noted in its comment to the Partial Delay NPRM that 
employers can simply review O*NET's task lists to determine if a 
particular non-tipped duty is related to a tipped occupation, this is 
not necessarily the case under the 2020 Tip final rule; as noted above, 
``industry-wide practices and trends'' may show that a task not listed 
on O*NET is a related duty. See id. at 86722. The Department now 
believes, however, that the rule's reference to ``industry-wide 
practices and trends'' is insufficient guidance for employers or 
employees to determine whether a duty is ``actually related to the 
tipped occupation,'' notwithstanding its inclusion in (or absence from) 
O*NET. As a result, the Department believes that the 2020 Tip final 
rule may not provide clarity in defining ``related duties,'' and fails 
to support the rule's stated justification for departing from the 
previous 80/20 guidance because it was ``difficult to administer'' due 
to the problems with ``categorizing of tasks.'' See id. at 86770. Given 
this, the Department is proposing a new functional test for identifying 
which non-tipped duties, when performed for a limited time, can be part 
of an employee's tipped occupation. The Department seeks comments on 
the use of O*NET in the dual jobs portion of the 2020 Tip final rule.

C. Harm to Workers

    The Department shares the concerns raised in comments to the 
Partial Delay that enacting the dual jobs portion of the 2020 Tip final 
rule could harm tipped employees and non-tipped employees in industries 
that employ significant numbers of tipped workers. The Department is 
particularly concerned that the lack of clearly defined limits 
regarding when employers can continue to take a tip credit for tipped 
employees who perform related, non-tipped work could lead to employers 
shifting more non-tipped work to employees in tipped occupations. This 
concern is particularly acute during the COVID-19 pandemic, when, as 
ROC United noted in its comment on the Partial Delay NPRM, many 
restaurants may have shifted a significant portion of their tipped 
employees to perform more non-tipped work.\33\ In their complaint, the 
Pennsylvania litigants cited to data from the Bureau of Labor 
Statistics (BLS) showing that servers in Massachusetts, Pennsylvania, 
and Illinois earn less than half the average annual income of workers 
in each state; for nail technicians, annual incomes were between 40 and 
43 percent of the state average.\34\ If employers require tipped 
workers to perform more non-tipped work outside their tipped 
occupation, these low-wage workers' earnings could be reduced even 
further. As NELP and other advocacy organizations noted, if employers 
shift non-tipped work to tipped employees for whom they take a tip 
credit, this could also harm employees in non-tipped occupations. 
Specifically, this could ``drive down wages for--or even eliminate--
back-of-house positions in restaurants, and related maintenance and 
prep jobs in other workplaces like hotels, carwashes and parking lots, 
and service establishments.'' See NELP; \35\ see also Oxfam; \36\ NWLC; 
\37\ ROC United; \38\ National Urban League.\39\
---------------------------------------------------------------------------

    \33\ WHD-2019-0004-0491.
    \34\ Specifically, the Pennsylvania litigants noted that 
according to the BLS's May 2020 Occupational Employment and Wages 
Statistics (OEWS) survey, average annual incomes for servers in 
Massachusetts, Pennsylvania, and Illinois were $32,970, $25,380, and 
$23,340, respectively; for nail technicians, average annual incomes 
were $28,620, $21,630, and $24,580. See Commonwealth of Pennsylvania 
v. Scalia, ] 150. According to the May 2020 OEWS, average annual 
incomes in Massachusetts, Pennsylvania, and Illinois were $70,010, 
$53,950, and $58,070, respectively. See BLS, May 2020 State 
Occupational Employment and Wage Estimates Massachusetts, https://www.bls.gov/oes/current/oes_ma.htm#00-0000; May 2020 State 
Occupational Employment and Wage Estimates Pennsylvania, https://www.bls.gov/oes/current/oes_pa.htm; May 2020 State Occupational 
Employment and Wage Estimates Illinois, https://www.bls.gov/oes/current/oes_il.htm#00-0000. BLS notes that its ``May 2020 estimates 
do not fully reflect the impact of the COVID-19 pandemic.'' 
Technical Notes for May 2020 OES Estimates, https://www.bls.gov/oes/current/oes_tec.htm.
    \35\ WHD-2019-0004-0515.
    \36\ WHD-2019-0004-0503.
    \37\ WHD-2019-0004-0520.
    \38\ WHD-2019-0004-0524.
    \39\ WHD-2019-0004-0516.
---------------------------------------------------------------------------

    As the NRA noted in its comment on the Partial Delay NPRM, 
employers in the restaurant industry have also been hit hard by COVID-
19. The Department appreciates the strong desire of restaurants, 
particularly small and independently-owned restaurants, for certainty 
as they recover from the impact of the pandemic. However, as noted 
above, the Department is concerned that the 2020 Tip final rule's test 
for when an employer can continue to take a tip credit for related, 
non-tipped duties did not provide such certitude: The rule uses terms 
that may not be sufficiently clearly defined and may have failed to 
provide certainty when defining ``related duties.'' Upon consideration 
of the comments received regarding the Partial Delay NPRM, the 
Department believes that revisions to the dual jobs portion of the 2020 
Tip final rule are needed to better protect workers and to provide 
clarity to employers and workers alike. The Department seeks additional 
comments on the potential economic impact of the dual jobs portion of 
the 2020 Tip final rule on workers. The Department also seeks comments 
on whether the dual jobs portion of the 2020 Tip final rule provides 
enough clarity to employers and workers regarding when employers can 
continue to take a tip credit for non-tipped duties performed by tipped 
employees.

V. Proposed Regulatory Revisions

    The Department proposes to withdraw and amend the dual jobs 
regulation at Sec.  531.56(e) to define when an employee is engaged in 
a tipped occupation for purposes of section 3(t) of the FLSA. As 
explained above, section 3(t) of the FLSA defines a

[[Page 32827]]

``tipped employee'' for whom an employer may take a tip credit as ``any 
employee engaged in an occupation in which he customarily and regularly 
receives more than $30 a month in tips.'' 29 U.S.C. 203(t). As also 
explained above, since it was first promulgated in 1967, Sec.  
531.56(e) has recognized that an employee may be employed by the same 
employer in both a tipped occupation and in a non-tipped occupation.
    A straightforward dual jobs scenario exists when an employee is 
hired by the same employer to perform more than one job, only one of 
which is in a tipped occupation: For example, when an employee is 
employed by the same employer to work both as a server and a 
maintenance person. A dual jobs scenario also exists when an employee 
is hired to do one job but is required to do work that is not part of 
that occupation: For example, when an employee is hired as a server but 
is required to do building maintenance.
    Yet another dual jobs scenario exists where an employee is hired to 
work in a tipped occupation but is assigned to perform non-tipped work 
that directly supports the tipped producing work for such a significant 
amount of time that the work is no longer incidental to the tipped 
occupation and thus, the employee is no longer employed in the tipped 
occupation. From 1988 to 2018, the Department's guidance, in 
recognition of the fact that every tipped occupation usually includes a 
limited amount of related, non-tipped work, provided a tolerance 
whereby employers could continue to take a tip credit for a period of 
time when a tipped employee performed non-tipped work that was related 
to the tipped occupation. The Department's guidance also recognized, 
however, that it was necessary to cap the tolerance at a certain amount 
of non-tipped work, because at some point, if a tipped employee 
performs too much non-tipped work, even if that work were related to 
the tipped occupation, the work was no longer incidental to the tipped 
work and thus the employee was no longer engaged in a tipped 
occupation. As the Department explained in legal briefs defending its 
80/20 guidance, particularly where the FLSA permits employers to 
compensate their tipped employees as little as $2.13 an hour directly, 
providing protections to ensure that this reduced direct wage is only 
available to employers when employees are actually engaged in a tipped 
occupation within the meaning of section 3(t) of the statute is 
essential to prevent abuse.
    As noted above, past criticisms of the Department's 80/20 guidance 
from employer representatives included that the policy was contrary to 
the FLSA, and that it was difficult for employers to administer because 
it required employers to monitor employees' duties and did not provide 
sufficient guidance for employers to determine whether a particular 
non-tipped duty was ``related'' to the tip-producing occupation. In 
comments received on the Partial Delay Rule, for instance, the NRA 
expressed its support for the 2020 Tip final rule's revision to the 
dual jobs regulation because, in its view, the new test avoided this 
problem and was consistent with the plain statutory text of the FLSA, 
which permits employers to take a tip credit based on whether an 
employee is employed to work in a tipped occupation, not whether the 
employee is performing certain kinds of duties within the tipped 
occupation.\40\ However, as the Eighth Circuit recognized in 
Applebee's, Congress did not define ``occupation'' or what it means to 
be ``engaged in an occupation'' in section 3(t), leaving that for the 
Department to interpret. See Applebee's, 638 F.3d at 879. In other 
enforcement contexts, the Department recognizes that job titles alone 
cannot be determinative, see, e.g., 29 CFR 541.2; thus, merely because 
someone is hired to work as a server does not mean that they are always 
``engaged in the occupation'' of a server. Furthermore, as explained 
above, the dual jobs test set forth in the 2020 Tip final rule also 
distinguished between related and unrelated duties, and therefore did 
not fully address the concern advanced by the NRA about the kinds of 
duties a tipped employee performs.
---------------------------------------------------------------------------

    \40\ WHD-2019-0004-0504.
---------------------------------------------------------------------------

    Additionally, many courts upheld the 80/20 guidance because it 
provided an essential backstop to prevent abuse of the tip credit and, 
conversely, criticized the dual jobs test set forth in the Department's 
2018-2019 guidance, which was largely codified by the 2020 Tip final 
rule, as being more difficult to administer than the 80/20 
guidance.\41\ Like some commenters that supported the Partial Delay 
rule and the Pennsylvania litigants, courts have found that the 
parameters of the 2020 Tip final rule's test are so broad and 
indeterminate that they do not sufficiently define when an employee is 
employed in a tipped occupation within the meaning of section 3(t) of 
the FLSA, and that O*NET is not an appropriate tool to use to identify 
related duties because it catalogues the duties that employees have 
been required to perform rather than the duties that fall within the 
definition of an occupation.\42\
---------------------------------------------------------------------------

    \41\ See supra note 4.
    \42\ See supra note 3.
---------------------------------------------------------------------------

    The Department believes that it is important to retain the 
longstanding regulatory dual jobs language addressing a straightforward 
dual jobs situation, where one employee is employed to perform two 
separate jobs, only one of which is in a tipped occupation. The 
Department also believes that it is important for its regulations to 
address the dual jobs scenario where a tipped employee is performing so 
much non-tipped work even though that non-tipped work is performed in 
support of the tipped work, that the work is no longer incidental and 
thus the employee is no longer employed in a tipped occupation. The 
Department rejects the argument put forth by the NRA and WPI that a 
regulation that analyzes a tipped employee's duties and determines when 
a tip credit should be permitted and not permitted is inconsistent with 
the statutory language of 3(t), which says that an employer can take a 
tip credit for an employee who is employed in a tipped occupation. This 
argument fails to take into account the multiple scenarios outlined 
above, where an employer hires someone into a tipped occupation but 
then requires them to perform work outside of the occupation or 
requires the employee to perform so much non-tipped work that it can no 
longer be considered part of the tipped occupation.
    Because concerns about its dual jobs tests have been identified 
over the years--both with its prior subregulatory guidance and the 2020 
Tip final rule--the Department in this rulemaking is proposing a new 
test that the Department believes will address the concerns articulated 
about its prior tests, will be easier to administer, provide employers 
with more certainty, reduce litigation, and will protect tipped workers 
against abusive pay practices. In developing this proposed test, the 
Department also took into consideration the recommendations of 
organizations that commented on the Partial Delay NPRM, including the 
recommendation of numerous advocacy organizations that the Department 
re-propose a test no less protective than the 80/20 guidance and WPI's 
recommendation that the Department ``precisely identify'' the duties 
for which employers can and cannot take a tip credit if it engages in 
further rulemaking. The Department believes that its proposed test will 
better identify when an employer can continue to take a tip credit for 
the time tipped

[[Page 32828]]

employees spend on tasks that do not themselves produce tips but 
support the tip-producing work, and when an employer cannot take a tip 
credit for this work because the time spent performing these tasks is 
so great that work is no longer incidental and thus the employee is no 
longer engaged in a tipped occupation. Congress delegated to the 
Department the authority to determine what it means to be ``engaged in 
an occupation'' that customarily and regularly receives tips. See Fair 
Labor Standards Amendments of 1966, Public Law 89-601, Sec.  101, Sec.  
602, 80 Stat. 830, 830, 844 (1966). The Department has decades of 
outreach, compliance assistance, stakeholder engagement, and 
enforcement experience in this area and has relied on that experience 
to develop a proposed test that provides clarity in determining what 
work an employer may take a tip credit for and also the flexibility to 
address unique workplaces and changing occupations. Additionally, the 
Department believes the proposed test, because it provides clear and 
specific guidance, will ensure fair and consistent application of the 
tip credit in instances where tipped employees perform non-tipped 
duties in support of their tipped work.
    The new test proposed in this rulemaking permits an employer to 
continue to take a tip credit for its tipped employees when they are 
performing work that is part of the tipped occupation. Work that is 
part of the tipped occupation includes any work that produces tips, as 
well as any work that directly supports the tip-producing work, 
provided the directly supporting work is not performed for a 
substantial amount of time. To address the criticisms of its past rules 
that the Department has used largely undefined terms such as ``related 
duties'', or used unhelpful tools such as O*NET, to determine the sorts 
of duties that fall within the tipped occupation, the new test proposed 
in this rulemaking provides a number of examples to illustrate the 
kinds of tasks that would be included in each category of work covered 
by the regulation: Work that is part of the tipped occupation, which 
includes a non-substantial amount of directly supporting work, as well 
as work that is not part of the tipped occupation.

A. Proposed Sec.  531.56(e)--Dual Jobs

    Proposed 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 proposes to make this section gender-
neutral by using terms such as ``server'' and ``maintenance person.''

B. Proposed Sec.  531.56(f)

    Proposed Sec.  531.56(f) defines what it means for an employee to 
be engaged in a tipped occupation under section 3(t) of the FLSA. 
Specifically, an employee is engaged in a tipped occupation when they 
either perform work that produces tips, or perform work that directly 
supports the tip-producing work, provided the directly supporting work 
is not performed for a substantial amount of time. Because an employer 
may not take a tip credit for work that is not part of the tipped 
occupation, proposed Sec.  531.56(f) defines the relevant term ``tipped 
occupation'' specifically and provides examples of tasks that fall into 
those categories.
    The Department believes that these examples will assist employers 
and employees in understanding the parameters of those terms and will 
help ensure consistent application of the test. The proposed regulation 
lists tasks in three occupations--servers, bartenders, and nail 
technicians--that would fall within the three categories of work set 
out in the regulations. For example, the proposed regulations explain 
that a server's tip-producing work includes waiting on tables, work 
that directly supports the server's tip-producing work includes 
cleaning the tables to prepare for the next customers, and work which 
is not part of a server's occupation includes food preparation and 
cleaning bathrooms. A bartender's tip-producing work includes making 
and serving drinks and talking to customers, work that directly 
supports the work includes preparing fruit to garnish the prepared 
drinks, and work that is not part of a bartender's occupation includes 
preparing food and cleaning the dining room. Finally, the proposed rule 
explains that a nail technician's tip-producing work includes 
performing manicures and pedicures, work that directly supports the 
work of a nail technician includes cleaning pedicure baths between 
customers, and work that is not part of the nail technician's 
occupation includes ordering supplies for the nail salon. While not an 
exhaustive list, the Department believes that these examples set clear 
parameters for how those three categories of work are defined and 
applied.
    Proposed Sec.  531.56(f)(1)(i) would permit an employer to take a 
tip credit for the employee's performance of work that is part of the 
tipped occupation, defined as work that produces tips. As explained 
above, the proposed regulation provides specific examples of tip-
producing work for three specific occupations, which illustrate that 
tip-producing work in many instances is work which requires direct 
service to customers. In addition to the tasks listed in the proposed 
regulation, other examples of tip-producing work would include a 
parking attendant's work parking and retrieving cars, and accepting 
payment for the same, a hotel housekeeper's work cleaning hotel rooms, 
and bussers' tip-producing work would include filling water glasses and 
clearing dishes from tables. However, not all tip-producing work 
involves direct customer service. A busser's tip-producing work, for 
example, would also include work, such as putting new linens on tables 
that is done in support of other tipped employees, such as servers. The 
Department recognizes that tipped employees in different occupations 
may have different tip-producing work and requests comment on its 
definition of tip-producing work and these examples, and seeks input on 
other occupations and examples that the Department should consider.
    Proposed Sec.  531.56(f)(1)(ii) and (1)(iii) would address when and 
to what extent an employer can continue to take a tip credit for a 
tipped employee's work that does not itself generate tips but that 
supports the tip-producing work of the tipped occupation because it 
assists a tipped employee to perform the work for which the employee 
receives tips. As proposed, Sec.  531.56(f)(1)(ii) defines this 
supportive work as work that directly supports tip-producing work, and 
explains that this work can be considered to be part of the tipped 
occupation provided that it is not performed for a substantial amount 
of time.
    The Department believes that defining this as work that ``directly 
supports'' the tip-producing work is more specific and therefore more 
helpful than referring to these tasks as duties that are related to the 
tipped occupation. The Department believes that the ``related duties'' 
terminology used in past tests may have inadvertently caused confusion 
because it could be interpreted to encompass duties that are only 
remotely related to the tipped occupation, particularly because the 
Department provided only a few examples of the type of work the 
Department intended to include in this term. In contrast, the proposed 
new rule's limited tolerance for non-tipped work that ``directly 
supports'' tip-producing work, which in turn is defined as work that 
assists a tipped employee to perform the work for which

[[Page 32829]]

the employee receives tips, provides a more concrete and specific 
definition of the term.
    The examples included in the proposed regulatory text are not the 
only tasks that the Department would consider to be directly supporting 
work under the new test. For example, work that directly supports the 
work of a server would also include folding napkins, preparing 
silverware, and garnishing plates before serving the food to customers. 
Sweeping under tables would be considered to be directly supporting 
work if it is performed in and limited to the dining room because 
keeping the serving area clean assists the performance of a server's 
tip-producing work. Likewise, work that directly supports the work of a 
bartender would also include wiping down the surface of the bar and 
tables in the bar area, cleaning bar glasses and implements used to 
make drinks behind the bar, arranging the bottles behind the bar, and 
briefly retrieving from a storeroom a particular beer, wine, or liquor, 
and supplies such as ice and napkins. Work that directly supports the 
work of a nail technician would also include cleaning manicure tools, 
cleaning the floor of the nail salon, and scheduling client 
appointments and taking customer payments. Work that directly supports 
the tip-producing work of a parking attendant would include moving cars 
in a parking lot or parking garage to facilitate the parking of 
patrons' cars. Work that directly supports the tip-producing work of a 
hotel housekeeper would include stocking the housekeeping cart. These 
examples illustrate the nexus between the tip-producing work and the 
supporting work that is required to conclude that the supporting work 
directly supports the tip-producing work within the meaning of the 
proposed regulation. The proposed test allows for some flexibility in 
determining the nexus between the tip-producing work and the directly 
supporting work. The Department seeks comment on these examples and 
seeks input on other occupations and examples that the Department 
should consider.
    Proposed Sec.  531.56(f)(1)(iii) would define substantial amount of 
time to include two categories of time. Under proposed Sec.  
531.56(f)(1)(iii), an employee has performed work that directly 
supports tip-producing work for a substantial amount of time if the 
tipped employee's directly supporting work either (1) exceeds 20 
percent of the hours worked during the employee's workweek or (2) is 
performed for a continuous period of time exceeding 30 minutes. Under 
proposed Sec.  531.56(f)(1)(iii)(A), if a tipped employee spends more 
than 20 percent of their workweek performing directly supporting work, 
the employer cannot take a tip credit for any time that exceeds 20 
percent of the workweek. Under proposed Sec.  531.56(f)(1)(iii)(B), if 
a tipped employee spends a continuous, or uninterrupted, period of time 
performing directly supporting work that exceeds 30 minutes, the 
employer cannot take a tip credit for that entire period of time that 
was spent on such directly supporting work. The Department believes 
that these two measurements of time reflect the manner in which tipped 
employees are most likely to conduct non-tipped, directly supporting 
work: On the one hand, tipped employees may do an incidental amount of 
non-tipped, directly supporting work that is interspersed with their 
tip-producing work throughout the workday, and on the other hand, 
tipped employees may be assigned non-tipped, directly supporting work 
for distinct blocks of time. The Department believes that measuring a 
``substantial amount of time'' in this way provides a uniform and 
accurate measure of when a tipped employee is still engaged in a tipped 
occupation such that an employer can pay a reduced cash wage for the 
time spent on that work, but requests comment on this proposed test.
    The first prong of the Department's proposed test provides a 
tolerance that permits an employer to continue taking a tip credit for 
some part of the work that its tipped employees perform which directly 
supports their tip-producing work. However, the Department is proposing 
in its test to limit the amount of this non-tipped work, in recognition 
that if a tipped employee engages in a substantial amount of such work, 
the employee is no longer employed in a tipped occupation. The 
Department has thus proposed, in part, to define ``substantial amount 
of time'' as meaning more than 20 percent of the hours worked in a 
workweek. A 20 percent limitation is consistent with various other FLSA 
provisions, interpretations, and enforcement positions setting a 20 
percent tolerance for work that is incidental to but distinct from the 
type of work to which an exemption applies.\43\ The Department believes 
this tolerance is also reasonable and consistent with the Department's 
previous practice under the 80/20 guidance.
---------------------------------------------------------------------------

    \43\ See, e.g., 29 U.S.C. 213(c)(6) (permitting 17-year-olds to 
drive under certain conditions, including that the driving be 
``occasional and incidental,'' and defining ``occasional and 
incidental'' to, inter alia, mean ``no more than 20 percent of an 
employee's worktime in any workweek''); 29 CFR 786.100, 786.150, 
786.1, 786.200 (nonexempt work for switchboard operators, rail or 
air carriers, and drivers in the taxicab business will be considered 
``substantial if it occupies more than 20 percent of the time worked 
by the employee during the workweek''); 29 CFR 552.6(b) (defining 
``companionship services'' that are exempt from FLSA requirements to 
include ``care'' only if such ``care . . . does not exceed 20 
percent of the total hours worked per person and per workweek'').
---------------------------------------------------------------------------

    As explained above, prior to 2018, federal courts deferred to the 
Department's 80/20 guidance, including both the Eighth and the Ninth 
Circuits. See Applebee's, 638 F.3d at 879-81; Marsh, 905 F.3d at 623; 
see also Driver v. AppleIllinois, LLC, 739 F.3d 1073, 1075 (7th Cir. 
2014) (describing underlying substantive legal issues by relying on 
Department's 80/20 guidance and Applebee's). District courts also 
deferred to and relied on the Department's interpretation of the dual 
jobs regulation.\44\ Even after the Department rescinded the 80/20 
guidance, most federal courts to consider the issue have declined to 
defer to the new interpretation. As explained above, many of those 
district courts independently determined that a 20 percent tolerance is 
a reasonable interpretation of the dual jobs regulation.\45\ The 
Department thus believes that 20 percent of an employee's workweek is 
an appropriate tolerance for non-tipped work that is part of the tipped 
employee's occupation. The Department seeks comments, however, on 
whether a different portion of the employee's workweek would be 
appropriate or if another metric would be more appropriate.
---------------------------------------------------------------------------

    \44\ See, e.g., Alverson v. BL Rest. Operations LLC, No. 16-849, 
2017 WL 3493048, at *5-6 (W.D. Tex. Aug. 8, 2017), rep. & rec. 
adopted, 2018 WL 1057045 (W.D. Tex. Feb. 22, 2018); White v. NIF 
Corp., No. 15-322, 2017 WL 210243, at *4 (S.D. Ala. Jan. 18, 2017); 
Romero v. Top-Tier Colorado LLC, 274 F. Supp. 3d 1200, 1206 (D. 
Colo. 2017); Knox v. Jones Group, 201 F. Supp. 3d 951, 960-61 (S.D. 
Ind. 2016); Langlands v. JK & T Wings, Inc., No. 15-13551, 2016 WL 
2733092, at *3 (E.D. Mich. May 11, 2016); Irvine v. Destination Wild 
Dunes Mgmt., Inc., 106 F. Supp. 3d 729, 733-34 (D.S.C. 2015); Flood 
v. Carlson Restaurants Inc., 94 F. Supp. 3d 572, 582-84 (S.D.N.Y. 
2015); Schaefer v. Walker Bros. Enters., No. 10-6366, 2014 WL 
7375565, at *3 (N.D. Ill. Dec. 17, 2014); Holder v. MJDE Venture, 
LLC, No. 08-2218, 2009 WL 4641757, at *3-4 (N.D. Ga. Dec. 1, 2009).
    \45\ The courts reasoned that this limitation is consistent with 
the qualifiers ``occasionally,'' ``part of [the] time,'' found in 
Sec.  531.56(e). See, e.g., Belt, 401 F. Supp. 3d at 536-37; Rorie, 
485 F. Supp. 3d at 1042; Berger, 430 F. Supp. 3d at 412; Roberson, 
2020 WL 7265860, at *7-*8.
---------------------------------------------------------------------------

    In addition to the 20 percent limitation, the proposed regulation 
also defines ``substantial amount of time'' to

[[Page 32830]]

include any continuous period of time that exceeds 30 minutes. This 
proposal addresses concerns with the 80/20 guidance, which the 
Department identified in the 2020 Tip final rule, that the guidance did 
not adequately address the scenario where an employee performs non-
tipped, directly supporting work for an extended period of time, and 
thus essentially ceases to be employed in the tipped occupation for 
that entire block of time. See 85 FR 86769. The 2020 Tip final rule 
provided an example of a bellhop who performed tipped duties for 8 
hours, and worked for an additional 2 hours ``cleaning, organizing, and 
maintaining bag carts.'' The Department noted that under the 80/20 
guidance, the employer could potentially take a tip credit for the 
entire 2 hour block of time, even though the bellhop was ``engaged in a 
tipped occupation (bellhop) for 8 hours and a non-tipped occupation 
(cleaner) for 2 hours.'' Id. The proposed regulation addresses this 
concern by requiring employers to pay employees the full cash minimum 
wage whenever they perform non-tipped work, albeit work that directly 
supports tipped work, for a continuous block of time that exceeds 30 
minutes. The Department's proposal that an employer cannot take a tip 
credit for the entire block of time spent on non-tipped work when the 
work is performed for more than 30 minutes, rather than time that 
exceeds the 30 minute standard, is premised on the concept that the 
work is being performed for such a significant, continuous period of 
time that the tipped employee's work is no longer being done in support 
of the tip-producing work, such that the employee is not engaged in a 
tipped occupation for that entire period.
    Particularly because the FLSA's tip credit provision permits 
employers to compensate their tipped employees as little as $2.13 an 
hour in direct cash wages, it is important to ensure that this reduced 
direct wage is available to employers only when employees are actually 
engaged in a tipped occupation within the meaning of section 3(t) of 
the statute. The tip credit provision allows employers to pay a reduced 
cash wage based on the assumption that a worker will earn additional 
money from customer-provided tips--at least $5.12 per hour in tips. 
When an employer assigns an employee to perform non-tipped duties 
continuously for a substantial period of time, such as more than 30 
minutes, however, the employee's non-tipped duties are not being 
performed in support of the tipped work, and the employee is no longer 
earning tips during that time. Therefore, the employee is not engaged 
in a tipped occupation.
    Under the Department's proposed Sec.  531.56(f)(1)(iii)(B), if a 
tipped employee performs non-tipped, directly supporting work for a 
continuous period of time that exceeds 30 minutes, the employer cannot 
take a tip credit for the entire period of time the non-tipped work is 
performed. Thus, an employer may take a tip credit for time a server 
performs directly supporting work such as cleaning the dining room at 
the end of the day and preparing the tables for the next day's service, 
but only if that time does not exceed 30 minutes. An employee who 
performs non-tipped, directly supporting work for more than 30 minutes 
does so for a substantial amount of time. The Department believes that 
a threshold of 30 minutes, the majority of any given work hour, is an 
appropriate time marker for determining when an employee continuously 
performing non-tipped work is no longer performing incidental work but 
instead has ceased to be engaged in their tipped occupation for that 
entire period. The Department seeks comments, however, on whether a 
different period of time would better approximate this transition, and 
on how to best define a substantial amount of time for which the 
employer should no longer be permitted to pay a cash wage as low as 
$2.13 an hour.
    The proposed rule also recognizes the different situation where an 
employee performs incidental, non-tipped work for shorter periods of 
time. As described above, when an employee performs non-tipped work 
that directly supports the tip-producing work for 30 minutes or less, 
proposed Sec.  531.56(f)(1)(iii)(A) provides a general tolerance that 
permits the employer to take a tip credit for that work before it 
exceeds 20 percent of the workweek. This tolerance is provided for ease 
of administration, and in recognition of the fact, as noted above, that 
most tipped occupations involve an incidental amount of non-tipped work 
that supports the tip-producing activities and is interspersed with 
those activities. Such work may also be less foreseeable than when an 
employer assigns an employee to perform non-tipped directly supporting 
work continuously for a period of more than 30 minutes, further 
justifying the tolerance.
    The proposed regulation addresses concerns raised in the 2020 Tip 
final rule that the timeframe used to determine compliance under the 
Department's previous 80/20 guidance was unclear. See 85 FR 86770. The 
20 percent tolerance applies to increments of directly supporting work 
spanning 30 continuous minutes or less, and is calculated on a workweek 
basis. Once an employee spends more than 20 percent of the workweek on 
directly supporting work, the employer cannot take a tip credit for any 
additional time spent on directly supporting work in that workweek and 
must pay the full minimum wage for that time. If an employee spends 
more than 30 continuous minutes on work that directly supports the tip-
producing work, the employer may not take a tip credit and must pay the 
full minimum wage for that entire continuous period of time. Any time 
paid at the full minimum wage would not count towards the 20 percent 
workweek tolerance. For example, if a server is required to perform an 
hour of directly supporting work at the end of each of her five 8-hour 
shifts, each of those hours spent performing directly supporting work 
must be paid at the full minimum wage and would not count towards the 
20 percent workweek tolerance. If that same server also performs 20 
minutes of directly supporting work three times each shift, for a total 
of 1 hour per day, the employer could take a tip credit for the rest of 
the server's supporting work because the 5-hour total did not reach the 
20 percent tolerance for a 40-hour workweek.
    The Department believes that the requirement limiting employer's 
ability to pay a reduced cash wage for non-tipped, directly supporting 
work to less than a substantial amount of time, as discussed above, 
will not be onerous for employers to implement. The preamble to the 
2020 Tip final rule criticized the previous 80/20 guidance, discussing 
the perceived need for employers to ``precisely'' track employees' time 
spent on non-tipped related duties in order to comply with a 
percentage-of-time limitation on those duties, and employer's concerns 
that such tracking was difficult. See 85 FR 86769-70. Upon further 
review and consideration, however, the Department believes that the 
limitations on performing non-tipped work included in the proposed rule 
allow employers ample ability to assign to their tipped employees a 
non-substantial amount of non-tipped duties that directly support the 
tip-producing work, without needing to account for employees' duties 
minute-by-minute. Twenty percent of an employee's workweek is a 
significant amount of time--equal to a full 8 hour workday in a 5-day, 
40-hour workweek. Particularly because the proposed guidance provides 
examples illustrating the type of work

[[Page 32831]]

that is part of the tipped occupation, including work that is tip-
producing and work that directly supports the tip-producing work, 
employers should be able to proactively identify work that counts 
toward the tolerance and assign work to tipped employees accordingly, 
to avoid going over this tolerance. Similarly, a continuous, 
uninterrupted block of 30 minutes or more is a significant amount of 
time, and does not require the minute-by-minute micromanaging with 
which the 2020 Tip final rule expressed concern. In addition, as noted 
above, employers are likely to assign such work in a foreseeable 
manner. As a general matter, ``since employers, in order to manage 
employees, must assign them duties and assess completion of those 
duties, it is not a real burden on an employer to require that they be 
aware of how employees are spending their time.'' Irvine v. Destination 
Wild Dunes Mgmt., Inc., 106 F. Supp. 3d 729, 734 (D.S.C. 2015); see 
also Marsh, 905 F.3d at 631 (``[I]t is not impracticable for an 
employer to keep track of time spent on related tasks.''). Far from 
being an arbitrary burden, showing that a tipped employee does not 
perform a substantial amount of non-tipped work is how an employer can 
properly justify claiming a tip credit rather than directly paying the 
full minimum wage.
    Finally, proposed Sec.  531.56(f)(2) would clarify that an employer 
cannot take a tip credit for the time a tipped employee spends 
performing work that is not part of the tipped occupation, defined as 
any work that does not generate tips and does not directly support tip-
producing work. In addition to the work identified in the examples, 
work that is not part of the tipped occupation of a hotel housekeeper 
would include cleaning non-residential parts of a hotel, such as a spa, 
gym, or the restaurant. Work that is not part of the tipped occupation 
of a busser would include, for example, cleaning the kitchen of the 
restaurant. Under the proposed rule, all time performing any work that 
is not part of the tipped occupation must be paid at the full minimum 
wage. The Department seeks comment on this part of its proposed test, 
including whether the list of examples appropriately identify work that 
is not part of the tipped occupation.
    The Department requests comments on its proposed revisions to Sec.  
531.56(e) and all aspects of the new proposed Sec.  531.56(f).

C. Proposed Sec.  10.28(b)

    The Department also proposes to amend the provisions of the 
Executive Order 13658 regulations, which address the hourly minimum 
wage paid by contractors to workers performing work on or in connection 
with covered federal contracts. See E.O. 13658, 79 FR 9851 (Feb. 12, 
2014). The Executive Order also established a tip credit for workers 
covered by the Order who are tipped employees pursuant to section 3(t) 
of the FLSA. The Department proposes to amend Sec.  10.28(b) consistent 
with its proposed revisions to Sec.  531.56(e) and (f) and seeks 
comment on these proposed revisions.

VI. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) and its attendant 
regulations require an agency to consider its need for any information 
collections, their practical utility, as well as the impact of 
paperwork and other information collection burdens imposed on the 
public, and how to minimize those burdens. The PRA typically requires 
an agency to provide notice and seek public comments on any proposed 
collection of information contained in a proposed rule. This proposed 
rule does not contain a collection of information subject to Office of 
Management and Budget approval under the PRA.

VII. Executive Order 12866, Regulatory Planning and Review; and 
Executive Order 13563, Improved Regulation and Regulatory Review

    Under Executive Order 12866, OMB's Office of Information and 
Regulatory Affairs (OIRA) determines whether a regulatory action is 
significant and, therefore, subject to the requirements of the 
Executive Order and OMB review.\46\ Section 3(f) of Executive Order 
12866 defines a ``significant regulatory action'' as a regulatory 
action that is likely to result in a rule that may: (1) Have an annual 
effect on the economy of $100 million or more, or adversely affect in a 
material way a sector of the economy, productivity, competition, jobs, 
the environment, public health or safety, or state, local or tribal 
governments or communities (also referred to as economically 
significant); (2) create serious inconsistency or otherwise interfere 
with an action taken or planned by another agency; (3) materially alter 
the budgetary impact of entitlements, grants, user fees or loan 
programs or the rights and obligations of recipients thereof; or (4) 
raise novel legal or policy issues arising out of legal mandates, the 
President's priorities, or the principles set forth in the Executive 
Order. OIRA has determined that this proposed rule is economically 
significant under section 3(f) of Executive Order 12866.
---------------------------------------------------------------------------

    \46\ See 58 FR 51735, 51741 (Oct. 4, 1993).
---------------------------------------------------------------------------

    Executive Order 13563 directs agencies to, among other things, 
propose or adopt a regulation only upon a reasoned determination that 
its benefits justify its costs; that it is tailored to impose the least 
burden on society, consistent with obtaining the regulatory objectives; 
and that, in choosing among alternative regulatory approaches, the 
agency has selected those approaches that maximize net benefits. 
Executive Order 13563 recognizes that some costs and benefits are 
difficult to quantify and provides that, when appropriate and permitted 
by law, agencies may consider and discuss qualitatively values that are 
difficult or impossible to quantify, including equity, human dignity, 
fairness, and distributive impacts. The analysis below outlines the 
impacts that the Department anticipates may result from this proposed 
rule and was prepared pursuant to the above-mentioned executive orders.

A. Background

    In 2018 and 2019, the Department issued new guidance providing that 
the Department would no longer prohibit an employer from taking a tip 
credit for the time an employee performs related, non-tipped duties--as 
long as those duties are performed contemporaneously with, or for a 
reasonable time immediately before or after, tipped duties. See WHD 
Opinion Letter FLSA2018-27 (Nov. 8, 2018); FAB 2019-2 (Feb. 15, 2019); 
WHD FOH 30d00(f). This guidance thus removed the 20 percent limitation 
on related, non-tipped duties that existed under the Department's prior 
80/20 guidance. On December 30, 2020, the Department published the 2020 
Tip final rule to largely incorporate this 2018-2019 guidance into its 
regulations. The Department uses the 2018-2019 guidance as a baseline 
for this analysis because this is what WHD has been enforcing since the 
2018-2019 guidance was issued and is similar to the policy codified in 
the 2020 Tip final rule.
    In this NPRM, the Department proposes to withdraw the dual jobs 
portion of the 2020 Tip final rule and to re-propose new regulatory 
language that it believes will provide more clarity and certainty for 
employers, and will better protect employees. Specifically, the 
Department is proposing to amend its regulations to clarify that an 
employer may not take a tip credit for its tipped employees unless the 
employees are performing work that is part of their tipped occupation. 
This includes work that produces tips, as well as work that directly 
supports the tip-producing

[[Page 32832]]

work, provided that the directly supporting work is not performed for a 
substantial amount of time. Under the Department's proposal, work that 
``directly supports'' tip-producing work is work that assists a tipped 
employee to perform the work for which the employee receives tips. In 
the proposed regulatory text, the Department explains that an employee 
has performed work that directly supports tip-producing work for a 
substantial amount of time if the tipped employee's directly supporting 
work either (1) exceeds, in the aggregate, 20 percent of the hours 
worked during the employee's workweek or (2) is performed for a 
continuous period of time exceeding 30 minutes. In order to analyze 
this regulatory change, the Department has quantified costs, provided 
an analysis of transfers, and provided a qualitative discussion of 
benefits. These impacts depend on the interaction between the policy 
proposed in this NPRM and any underlying market failure--perhaps most 
notably in this case, the monopsony power created for employers if 
their workers receive a substantial portion of their compensation in 
the form of tips.\47\
---------------------------------------------------------------------------

    \47\ Jones, Maggie R. (2016), ``Measuring the Effects of the 
Tipped Minimum Wage Using W-2 Data,'' CARRA Working Paper Series, 
U.S., Census Bureau, Working Paper 2016-03, https://www.census.gov/content/dam/Census/library/working-papers/2016/adrm/carra-wp-2016-03.pdf.
---------------------------------------------------------------------------

B. Costs

    The Department believes that this proposed rule would result in 
three types of costs to employers: Rule familiarization costs, 
adjustment costs, and management costs. Rule familiarization and 
adjustment costs would be one-time costs following the promulgation of 
the final rule. Management costs would likely be ongoing costs 
associated with complying with the rule.
1. Potentially Affected Entities
    The Department has calculated the number of establishments that 
could be affected by this proposed rule using 2019 data from the Bureau 
of Labor Statistics (BLS) Quarterly Census of Employment and Wages 
(QCEW). Because this rule relates to the situations in which an 
employer is able to take a tip credit under the FLSA, it is unlikely 
that employers in states without a tipped minimum wage or employers in 
states with a direct cash wage of over $7.25 would be affected by this 
proposal, because they are already paying their staff the full FLSA 
minimum wage for all hours worked. Therefore, the Department has 
dropped the following states from the pool of affected establishments: 
Alaska, Arizona, California, Colorado, Connecticut (Drinking Places 
(Alcoholic Beverages) only), Hawaii, Minnesota, Montana, Nevada, New 
York, Oregon, and Washington.\48\
---------------------------------------------------------------------------

    \48\ Department of Labor, Wage and Hour Division, ``Minimum 
Wages for Tipped Employees,'' Updated January 1, 2021. https://www.dol.gov/agencies/whd/state/minimum-wage/tipped.
---------------------------------------------------------------------------

    Because the QCEW data only provides data on establishments, the 
Department has used the number of establishments for calculating all 
types of costs. The Department acknowledges that for some employers, 
the costs associated with this proposed rule could instead be incurred 
at a firm level, leading to an overestimate of costs.\49\ Presumably, 
the headquarters of a firm could conduct the regulatory review for 
businesses with multiple locations, but could also require businesses 
to familiarize themselves with the proposed rule at the establishment 
level. The Department welcomes comments on whether these costs would be 
incurred at a firm or establishment level.
---------------------------------------------------------------------------

    \49\ An establishment is a single physical location where one 
predominant activity occurs. A firm is an establishment or a 
combination of establishments, and can operate in one industry or 
multiple industries. See BLS, ``Quarterly Census of Employment and 
Wages: Concepts,'' https://www.bls.gov/opub/hom/cew/concepts.htm.
---------------------------------------------------------------------------

    The Department limited this analysis to the industries that were 
acknowledged to have tipped workers in the 2020 Tip final rule, along 
with a couple of other industries that have tipped workers, which is 
consistent with using the 2018-2019 guidance as the baseline. These 
industries are classified under the North American Industry 
Classification System (NAICS) as 713210 (Casinos (except Casino 
Hotels)), 721110 (Hotels and Motels), 721120 (Casino Hotels), 722410 
(Drinking Places (Alcoholic Beverages)), 722511 (Full-Service 
Restaurants), 722513 (Limited Service Restaurants), 722515 (Snack and 
Nonalcoholic Beverage Bars), and 812113 (Nail Salons). See Table 1 for 
a list of the number of establishments in each of these industries. The 
Department understands that there may be entities in other industries 
with tipped workers who may review this rule, and welcomes data and 
information on other industries that should be included in this 
analysis.
    The Department has calculated that in states that allow employers 
to pay a lower direct cash wage to tipped workers and in the industries 
mentioned above, there are 470,894 potentially affected establishments.
[GRAPHIC] [TIFF OMITTED] TP23JN21.000


[[Page 32833]]


2. Rule Familiarization Costs
    Regulatory familiarization costs represent direct costs to 
businesses associated with reviewing the new regulation. The Department 
believes one hour per entity, on average, to be an appropriate review 
time for this proposed rule. This estimate does not include any time 
employers spend adjusting their business or pay practices; that is 
discussed in the adjustment cost section below. Many employers are 
familiar with a 20 percent tolerance, which is part of what is being 
proposed in this rule, since the Department enforced a 20 percent 
tolerance for 30 years prior to the 2018-2019 guidance, albeit in a 
different way. The Department believes that some employers in the 
industries listed above do not have any tipped employees, or do not 
take a tip credit, and would therefore not review the rule at all. This 
review time therefore represents an average of employers who would 
spend less than one hour or no time reviewing, and others who would 
spend more time. The Department welcomes comments on how much time 
employers would spend reviewing this proposed rule.
    The Department's analysis assumes that the rule would be reviewed 
by Compensation, Benefits, and Job Analysis Specialists (Standard 
Occupational Classification (SOC) 13-1141) or employees of similar 
status and comparable pay. The median hourly wage for these workers was 
$31.04 per hour in 2019.\50\ The Department also assumes that benefits 
are paid at a rate of 46 percent and overhead costs are paid at a rate 
of 17 percent of the base wage, resulting in a fully loaded hourly rate 
of $50.60.\51\ The Department estimates that regulatory familiarization 
costs would be $23,827,236 (470,894 establishments x $50.60 x 1 hour). 
The Department estimates that all regulatory familiarization costs 
would occur in Year 1.
---------------------------------------------------------------------------

    \50\ BLS Occupational Employment and Wage Statistics (OEWS), May 
2019 National Occupational Employment and Wage Estimates, https://www.bls.gov/oes/2019/may/oes_nat.htm. Data for 2020 are now 
available, but the Department believes that it is more appropriate 
to use 2019 data for the analysis, because wages could have been 
affected by structural changes associated with the COVID-19 
pandemic. The Department has aligned the year of the cost data with 
the pre-pandemic data used in the transfer analysis discussed later.
    \51\ The benefits-earnings ratio is derived from the Bureau of 
Labor Statistics' Employer Costs for Employee Compensation data 
using variables CMU1020000000000D and CMU1030000000000D.
---------------------------------------------------------------------------

3. Adjustment Costs
    The Department expects that employers may incur adjustment costs 
associated with this rule. They may adjust their business practices and 
staffing to ensure that workers do not spend more than 20 percent of 
their time on directly supporting work, and that directly supporting 
work does not exceed more than 30 minutes continuously. Additionally, 
as a result of this proposed rule, some duties that are currently 
considered related, non-tipped duties of a tipped employee, for which 
employers may take a tip credit under certain conditions, could now be 
considered duties that are not part of a tipped occupation, for which 
employers cannot take a tip credit. Accordingly, some employers may 
also adjust their business practices and staffing to reassign such 
duties from tipped employees to employees in non-tipped occupations. 
Some employers may also adjust their payroll software to account for 
these changes, and may also provide training for managers and staff to 
learn about the changes. The Department welcomes comments on the types 
of adjustment costs that employers could incur as a result of this 
rule.
    The Department uses the same number of establishments (470,894) as 
discussed in the rule familiarization section above, and also assumes 
that the adjustments would be performed by Compensation, Benefits, and 
Job Analysis Specialists (SOC 13-1141) or an employee of similar 
position and comparable pay, with a fully loaded wage of $50.60 per 
hour. The Department estimates that these adjustments would take an 
average of one hour per entity. For employers that would need to make 
adjustments, the Department expects that these adjustments could take 
more than one hour. However, the Department believes that many 
employers likely would not need to make any adjustments at all, because 
either they do not have any tipped employees, do not take a tip credit, 
or the work that their tipped employees perform complies with the 
requirements set forth in this proposed rule. Therefore, the hour of 
adjustment costs represents the average of the employers who would 
spend more than one hour on adjustments, and the many employers who 
would spend no time on adjustments. The Department welcomes data on the 
amount of time employers who need to make adjustments would spend. The 
Department also welcomes information about how many businesses already 
manage their staff in a manner that is in compliance with the 
requirements set forth in this proposed rule, and would therefore not 
need to make any adjustments. The Department estimates that adjustment 
costs would be $23,827,236 (470,894 establishments x $50.60 x 1 hour). 
The Department estimates that all adjustment costs would occur in Year 
1.
4. Management Costs
    The Department also believes that some employers may incur ongoing 
management costs, because in order to make sure that they can continue 
to take a tip credit for all hours of an employee's shift, they will 
have to ensure that tipped employees are not spending more than 20 
percent of their time on directly supporting work per workweek, or more 
than 30 minutes continuously performing such duties. The Department 
does not believe that these costs will be substantial, because if 
employers are able to make the upfront adjustments to scheduling, there 
is less of a need for ongoing monitoring. For example, if employers 
stop assigning work to tipped employees that will no longer be 
considered part of the tipped occupation under this proposed rule, this 
will be a one-time change that does not necessitate ongoing monitoring. 
Additionally, employers may have also incurred similar management costs 
under the 2018-2019 guidance, because in order to take a tip credit for 
all hours, they would have had to ensure that tipped employees did not 
perform duties not related to their tipped occupation, and that 
employees' related, non-tipped work was contemporaneous with or for a 
reasonable time before or after the tipped work.
    The Department estimates that employers would spend, on average, 10 
minutes per week on management costs in order to comply with this 
proposed rule. The Department expects that many employers will not 
spend any time on management tasks associated with this rule, because 
they do not claim a tip credit for any of their employees, or their 
business is already set up in a way where the work their tipped 
employees perform complies with the requirements set forth in this 
proposed rule (such as a situation where the tipped employees perform 
minimal directly supporting work). Therefore, this estimate of 10 
minutes is an average of those employers who would spend more time on 
management tasks, and the many employers who would spend no time on 
management tasks. The Department welcomes comments on how much time 
employers would spend per week managing their employees to ensure that 
they comply with this proposed rule. The Department therefore 
calculates that the average annual time spent will be 8.68 hours (0.167 
hours x 52 weeks).
    The Department's analysis assumes that the management tasks would 
be

[[Page 32834]]

performed by Food Service Managers (SOC 11-9051) or employees of 
similar status and comparable pay. The median hourly wage for these 
workers was $26.60 per hour in 2019.\52\ The Department also assumes 
that benefits are paid at a rate of 46 percent and overhead costs are 
paid at a rate of 17 percent of the base wage, resulting in a fully 
loaded hourly rate of $43.36 ($26.60 + $12.24 + $4.52). The Department 
estimates that management costs would be $177,227,926 (470,894 
establishments x $43.36 x 8.68 hours). The Department estimates that 
these management costs would occur each year.
---------------------------------------------------------------------------

    \52\ BLS Occupational Employment and Wage Statistics (OEWS), May 
2019 National Occupational Employment and Wage Estimates, https://www.bls.gov/oes/2019/may/oes_nat.htm.
---------------------------------------------------------------------------

5. Cost Summary
    The Department estimates that costs for Year 1 would consist of 
rule familiarization costs, adjustment costs, and management costs, and 
would be $224,882,399 ($23,827,236 + $23,827,236 + $177,227,926). For 
the following years, the Department estimates that costs would only 
consist of management costs and would be $177,227,926. Additionally, 
the Department estimated average annualized costs of this proposed rule 
over 10 years. Over 10 years, it would have an average annual cost of 
$183.6 million calculated at a 7 percent discount rate ($151.1 million 
calculated at a 3 percent discount rate). All costs are in 2019 
dollars.

C. Transfers

1. Introduction
    As previously discussed, the Department recognizes the concerns 
that it did not adequately assess the impact of the dual jobs provision 
of the 2020 Tip final rule. Therefore, for this proposed rule, the 
Department provides the following analysis of the transfers associated 
with the proposed changes to its dual jobs regulations, pursuant to 
which employers would not be able to take a tip credit for a 
substantial amount of directly supporting work, defined as 20 percent 
of a tipped employee's workweek or a continuous period of more than 30 
minutes. The Department has performed two different transfer analyses 
for this proposed rule. The first analysis refines a methodological 
approach similar to the one described by the Economic Policy Institute 
(EPI) in response to the Department's NPRM for the 2020 Tip final rule, 
which proposed to codify the Department's 2018-2019 guidance, which 
replaced the 80/20 approach with a different related duties test. See 
84 FR 53956.\53\ This analysis helps demonstrate the range of potential 
transfers that may result from this proposed rule. The second analysis 
is a retrospective analysis that looks at changes to total hourly wages 
following the 2018-2019 guidance to help inform whether changes would 
occur in the other direction following this proposed rule.
---------------------------------------------------------------------------

    \53\ Shierholz, H. and D. Cooper. 2019. ``Workers will lose more 
than $700 million annually under proposed DOL rule.'' Available at 
https://www.epi.org/blog/workers-will-lose-more-than-700-million-dollars-annually-under-proposed-dol-rule/.
---------------------------------------------------------------------------

    Both of the Department's analyses discuss the transfers from 
employees to employers that may have occurred from the removal of the 
80/20 approach, and assumes that the direction of these transfers would 
be reversed under this proposed rule, which, similar to the 80/20 
guidance, includes a 20 percent tolerance on directly supporting work. 
The proposed rule would also preclude employers from taking a tip 
credit for a continuous period of more than 30 minutes of directly 
supporting work.
2. Potential Transfer Analysis
    Under the approach outlined in the 2020 Tip final rule, and as 
originally put forth in the 2018-2019 guidance, employers can take a 
tip credit for related, non-tipped duties so long as they are performed 
``contemporaneously with'' or for ``a reasonable time immediately 
before or after tipped duties.'' Additionally, the 2018-2019 guidance 
uses the Occupational Information Network (O*NET) to determine whether 
a tipped employee's non-tipped duties are related to the employee's 
tipped occupation.\54\ As explained above, the Department is concerned 
that the terms ``contemporaneously with'' and ``a reasonable time 
immediately before or after tipped duties'' do not provide clear limits 
on the amount of time workers can spend on non-tipped tasks for which 
an employer is permitted to take a tip credit. Under the 2018-2019 
guidance, transfers would have arisen if employers required tipped 
employees for whom they take a tip credit, such as servers and 
bartenders, to perform more related, non-tipped duties, such as 
cleaning and setting up tables, washing glasses, or preparing garnishes 
for plates or drinks, than they would have under the prior 80/20 
guidance. Because employers would be taking a tip credit for these 
additional related, non-tipped duties instead of paying the full 
minimum wage, tipped employees would earn less pay because they would 
be spending less time on tip-producing duties, such as serving 
customers.
---------------------------------------------------------------------------

    \54\ As explained above, the 2020 Tip final rule--which is not 
yet in effect--provided that a non-tipped duty is merely presumed to 
be related to a tip-producing occupation if it is listed as a task 
of the tip-producing occupation in O*NET.
---------------------------------------------------------------------------

    However, to retain the tipped workers that they need, employers 
would have needed to pay these workers as much as their ``outside 
option,'' that is, the hourly wage that they could receive in their 
best alternative non-tipped job with a similar skill level requirement 
to their current position. For each tipped employee, the Department 
assumed that by assigning non-tipped work, an employer could have only 
lowered the tipped employee's total hourly pay rate including tips if 
the employee's current pay rate was greater than the predicted outside-
option wage from a non-tipped job.\55\ As a measure of the upper bound 
of the amount of tips that employers could have reallocated to pay for 
additional hours of work, the Department estimated the difference 
between a tipped worker's current hourly wage and the worker's outside-
option wage.
---------------------------------------------------------------------------

    \55\ This methodology of estimating an outside wage option was 
used in the Department's 2020 Tip Regulations under the Fair Labor 
Standards Act (FLSA) final rule to determine potential transfer of 
tips with the expansion of tip pooling.
---------------------------------------------------------------------------

    The Department is specifically contemplating an example in which, 
prior to 2018, a restaurant employed multiple dishwashers and multiple 
bartenders. The dishwashers earned a direct cash wage of $7.25 per hour 
and spent all of their time washing dishes and doing other kitchen 
duties. The bartenders earned a direct cash wage of $2.13 per hour and 
spent all of their time tending bar. Following the removal of the 80/20 
approach in the 2018-2019 guidance, the restaurant decided to employ 
fewer dishwashers, and instead hire one additional bartender and have 
the bartenders all take turns washing bar glasses throughout their 
shifts, adding up to more than 20 percent of their time. In this 
situation, the bartenders are each earning fewer tips because they are 
spending less time on tip-producing duties, such as preparing drinks, 
and more time on non-tip-producing duties, such as washing bar glasses. 
The employers' wage costs have also decreased, as they are paying more 
workers a direct cash wage of $2.13 instead of $7.25. This results in a 
transfer from employees to employers. This transfer would be reversed 
following the reinstatement of a time limit on directly supporting work 
in this proposed rule. The Department is requesting comments and data 
on how prevalent staffing changes like this were following the 2018-
2019 guidance of

[[Page 32835]]

the 2020 Tip Final Rule. The Department also requests comments on 
whether employers would make staffing changes following this proposed 
rule.
a. Defining Tipped Workers
    The Department used individual-level microdata from the 2018 
Current Population Survey (CPS), a monthly survey of about 60,000 
households that is jointly sponsored by the U.S. Census Bureau and BLS. 
Households are surveyed for four months, excluded from the survey for 
eight months, surveyed for an additional four months, and then 
permanently dropped from the sample. During the last month of each 
rotation in the sample (month 4 and month 16), employed respondents 
complete a supplementary questionnaire in addition to the regular 
survey. These households and questions form the CPS Outgoing Rotation 
Group (CPS-ORG) and provide more detailed information about those 
surveyed.\56\ The Department used 2018 CPS-ORG data to avoid any 
unintentional impacts from the issuance of the 2018-2019 guidance. 
Because this analysis first looks at transfers that could have occurred 
following the 2018-2019 guidance, and uses that estimate to inform what 
the transfers would be following this rule, all data tables in this 
analysis include estimates for the year 2018, with dollar amounts 
inflated to $2019 using the GDP deflator and further refinements as 
discussed below.
---------------------------------------------------------------------------

    \56\ See Current Population Survey, U.S. Census Bureau, https://www.census.gov/programs-surveys/cps.html (last visited April 28, 
2021); The Department used the Center for Economic and Policy 
Research. 2020. CPS ORG Uniform Extracts, Version 2.5. Washington, 
DC, http:\\cedprdata.org/cps-uniform-data-extracts/cps-outgoing-rotation-group/cps-org-data/ (last visited April 27, 2021).
---------------------------------------------------------------------------

    The Department included workers in two industries and in two 
occupations within those industries. The two industries are classified 
under the North American Industry Classification System (NAICS) as 
722410 (Drinking Places (Alcoholic Beverages)) and 722511 (Full-Service 
Restaurants); referred to in this analysis as ``restaurants and 
drinking places.'' The two occupations are classified under BLS 
Standard Occupational Classification (SOC) codes SOC 35-3031 (Waiters 
and Waitresses) and SOC 35-3011 (Bartenders).\57\ The Department 
considered these two occupations because they constitute a large 
percentage of the workers in these occupations receive tips (see Table 
2 for shares of workers in these occupations who may receive tips). The 
Department understands that there are other occupations in these 
industries beyond servers and bartenders with tipped workers, such as 
SOC 35-9011 (Dining Room and Cafeteria Attendants and Bartender 
Helpers) and SOC 35-9031 (Hosts and Hostesses, Restaurant, Lounge, and 
Coffee Shop). Additionally, there may also be some tipped workers in 
other industries who may be affected such as nail technicians, parking 
attendants, and hotel housekeepers.\58\ The Department welcomes 
comments on which occupations would be affected, and therefore should 
be included in the analysis.
---------------------------------------------------------------------------

    \57\ In the CPS, these occupations correspond to Bartenders 
(Census Code 4040) and Waiters and Waitresses (Census Code 4110). 
The industries correspond to Restaurants and Other Food Services 
(Census Code 8680) and Drinking Places, Alcoholic Beverages (Census 
Code 8690).
    \58\ The Department considered the additional set of 
occupations: SOC 39-5090 (Miscellaneous Personal Appearance 
Workers), SOC 39-5012 (Hairdressers, hairstylists, and 
cosmetologists), SOC 39-5011 (Barbers), SOC 53-6021 (Parking 
Attendants), SOC 37-2012 (Maids and Housekeeping Cleaners), and SOC 
31-9011 (Massage Therapists). Workers in these occupations reported 
usually earning overtime pay, tips, and commissions (OTTC) less 
often than in the tipped occupations that the Department included in 
its analysis (15.2 percent compared to 56.1 percent). Additionally, 
a considerably lower proportion of workers in this additional set of 
occupations reported earning a direct wage below the federal minimum 
wage per hour (1.2 percent compared to 27.8 percent).
---------------------------------------------------------------------------

    Table 2 presents the total number of bartenders and wait staff in 
restaurants and drinking places. The number of workers is then limited 
to those potentially affected by the changes proposed in this NPRM. 
This excludes workers in states that do not allow a tip credit, workers 
in states that requires a direct cash wage of at least $7.25, and 
workers in other states who are paid a direct cash wage of at least the 
full FLSA minimum wage of $7.25 (i.e., employees whose employers are 
not taking a tip credit under the FLSA).\59\ As alluded to above, 
because this proposed rule relates to the situations in which an 
employer takes a tip credit, it is unlikely that employees of employers 
that cannot or otherwise do not take a tip credit would be affected by 
this proposal. Both of these populations were also excluded from the 
analysis of potential transfers. The Department also assumed that 
nonhourly workers are not tipped employees and excluded these workers 
from the potentially affected population.\60\ Lastly, workers earning a 
direct wage below $2.13 per hour were dropped from the analysis.\61\ 
This results in 630,000 potentially affected workers in these 
industries and occupations.
---------------------------------------------------------------------------

    \59\ Workers considered not affected by the 20 percent 
limitation were those in the following states that either do not 
allow a tip credit or require a direct cash wage of at least $7.25 
as of 2019: Alaska, Arizona, California, Colorado, Connecticut 
(Bartenders only), Hawaii, Minnesota, Montana, Nevada, New York, 
Oregon, and Washington.
    \60\ The Department made this assumption because tipped 
employees are generally paid hourly and because the CPS does not 
include information on tips received for nonhourly workers. Without 
knowing the prevalence of tipped income among nonhourly workers, the 
Department cannot accurately estimate potential transfers from these 
workers. However, the Department believes the transfer from 
nonhourly workers will be small because only 10 percent of wait 
staff and bartenders in restaurants and drinking places are 
nonhourly and the Department believes nonhourly workers have a lower 
probability of receiving tips.
    \61\ The Department was unable to determine whether these 
workers were earning a direct cash wage below $2.13 because their 
employers were not complying with the minimum wage requirements of 
the FLSA, or whether the data was incorrect.
---------------------------------------------------------------------------

    The CPS asks respondents whether they usually receive overtime pay, 
tips, and commissions (OTTC), which allows the Department to estimate 
the number of bartenders and wait staff in restaurants and drinking 
places who receive tips. CPS data are not available separately for 
overtime pay, tips, and commissions, but the Department assumes very 
few bartenders and wait staff receive commissions, and the number who 
receive overtime pay but not tips is also assumed to be minimal.\62\ 
Therefore, the Department assumed bartenders and wait staff who 
responded affirmatively to this question receive tips. Table 2 presents 
the share of potentially affected bartenders and wait staff in 
restaurants and drinking places who reported that they usually earned 
OTTC in 2018: Approximately 86 percent of bartenders and 78 percent of 
wait staff.
---------------------------------------------------------------------------

    \62\ According to BLS Current Population Survey data, in 2018, 
workers in service occupations worked an average of 35.2 hours per 
week. See https://www.bls.gov/cps/aa2018/cpsaat23.htm.

[[Page 32836]]



                      Table 2--Bartenders and Wait Staff in Restaurants and Drinking Places
----------------------------------------------------------------------------------------------------------------
                                                                                   Potentially affected workers
                                                                    Potentially       who report earning OTTC
                   Occupation                     Total  workers     affected    -------------------------------
                                                     (millions)       workers         Workers
                                                                  (millions) \a\    (millions)        Percent
----------------------------------------------------------------------------------------------------------------
Total...........................................            2.28            0.63            0.50            79.4
    Bartenders..................................            0.37            0.09            0.07            85.5
    Waiters/Waitresses..........................            1.91            0.54            0.42            78.4
----------------------------------------------------------------------------------------------------------------
Source: CEPR, 2018 CPS-ORG.
\a\ Excludes workers in states that do not allow a tip credit, workers in states that require a direct cash wage
  of at least $7.25, and workers in other states who are paid a direct cash wage of at least the full FLSA
  minimum wage of $7.25 (i.e., employers whose employers are not using a tip credit). Also excludes nonhourly
  workers.
Occupations: Bartenders (Census Code 4040) and Waiters and Waitresses (Census Code 4110).
Industries: Restaurants and other food services (Census Code 8680) and Drinking places, alcoholic beverages
  (Census Code 8690).

    Of the 500,000 bartenders and wait staff who receive OTTC, only 
310,000 reported the amount received in OTTC. Therefore, the Department 
imputed OTTC for those workers who did not report the amount received 
in OTTC. As shown in Table 3, 69 percent of bartenders' earnings (an 
average of $339 per week) and 68 percent of wait staff's earnings (an 
average of $251 per week) were from overtime pay, tips, and commissions 
in 2018. For workers who reported receiving tips but did not report the 
amount, the ratio of OTTC to total earnings for the sample who reported 
their OTTC amounts (69 or 68 percent) was applied to their weekly total 
income to estimate weekly tips.

Table 3--Portion of Income from Overtime Pay, Tips, and Commissions for Bartenders and Wait Staff in Restaurants
                                               and Drinking Places
----------------------------------------------------------------------------------------------------------------
                                                            Those who report the amount earned in OTTC
                                                 ---------------------------------------------------------------
                                                                                                    Percent of
                   Occupation                                         Average         Average        earnings
                                                      Workers         weekly       weekly  OTTC    attributable
                                                                     earnings                         to OTTC
----------------------------------------------------------------------------------------------------------------
Total...........................................         309,690         $386.44         $262.56              68
    Bartenders..................................          40,354          491.03          338.67              69
    Waiters and waitresses......................         269,335          370.77          251.16              68
----------------------------------------------------------------------------------------------------------------
Source: CEPR, 2018 CPS-ORG, inflated to $2019 using the GDP deflator.
Occupations: Bartenders (Census Code 4040) and Waiters and Waitresses (Census Code 4110).
Industries: Restaurants and other food services (Census Code 8680) and Drinking places, alcoholic beverages
  (Census Code 8690).

b. Outside-Option Wage
    The Department assumed that employers only reduce the hourly wage 
rate of tipped employees for whom they are taking a tip credit if the 
tipped employee's total hourly wage, including the tips the employee 
retains, are greater than the ``outside-option wage'' that the employee 
could earn in a non-tipped job. To model a worker's outside-option 
wage, the Department used a quartile regression analysis to predict the 
wage that these workers would earn in a non-tipped job. Hourly wage was 
regressed on age, age squared, age cubed, education, gender, race, 
ethnicity, citizenship, marital status, veteran status, metro area 
status, and state for a sample of non-tipped workers.\63\ The 
Department restricted the regression sample to non-tipped workers 
earning at least the applicable state minimum wage (inclusive of OTTC), 
and those who are employed. This analysis excludes workers in states 
where the law prohibits employers from taking a tip credit or that 
require a direct cash wage of at least $7.25.\64\
---------------------------------------------------------------------------

    \63\ For workers who had missing values for one or more of these 
explanatory variables we imputed the missing value as the average 
value for tipped/non-tipped workers.
    \64\ These states are Alaska, Arizona, California, Connecticut 
(bartenders only), Hawaii, Minnesota, Montana, Nevada, New York, 
Oregon, and Washington.
---------------------------------------------------------------------------

    In calculating the outside-option wage for tipped workers, the 
Department defined the comparison sample as non-tipped workers in a set 
of occupations that are likely to represent outside options. The 
Department determined the list of relevant occupations by exploring the 
similarity between the knowledge, activities, skills, and abilities 
required by the occupation to that of servers and bartenders. The 
Department searched the O*NET system for occupations that share 
important similarities with wait staff and bartenders--the occupations 
had to require ``customer and personal service'' knowledge and 
``service orientation'' skills.\65\ The list was further reduced by 
eliminating occupations that are not comparable to the wait staff and 
bartender occupations in terms of education and training, as wait staff 
and bartender occupations do not require formal education or training. 
See Appendix Table 1 for a list of these occupations.
---------------------------------------------------------------------------

    \65\ For a full list of all occupations on O*NET, see https://www.onetcenter.org/reports/Taxonomy2010.html.
---------------------------------------------------------------------------

    The regression analysis calculates a distribution of outside-option 
wages for each worker. The Department used the same percentile for each 
worker as they currently earn in the distribution of wages for wait 
staff and bartenders in restaurants and drinking places in the state 
where they live.\66\ This method

[[Page 32837]]

assumes that a worker's position in the wage distribution for wait 
staff and bartenders reflects their position in the wage distribution 
for the outside-option occupations.
---------------------------------------------------------------------------

    \66\ Because of the uncertainty in the estimate of the 
percentile ranking of the worker's current wage, the Department used 
the midpoint percentile for workers in each decile. For example, 
workers whose current wage was estimated to be in the zero to tenth 
percentile range were assigned the predicted fifth percentile 
outside-option wage, those with wages estimated to be in the 
eleventh to twentieth percentile were assigned the predicted 
fifteenth percentile outside-option wage, etc.
---------------------------------------------------------------------------

c. Potential Transfer Calculation
    After determining each tipped worker's outside-option wage, the 
Department calculated the potential reduction in pay as the lesser of 
the following three numbers:
     The positive differential between a worker's current 
earnings (wage plus tips) and their predicted outside-option wage,
     the positive differential between a worker's current 
earnings and the state minimum wage, and
     the total tips earned by the worker.
    The second number is included for cases where the outside-option 
wage predicted by the analysis is below the state minimum wage, because 
the worker cannot earn less than their applicable state minimum wage in 
non-tipped occupations. The third number is included because the 
maximum potential tips that can be transferred from an employee cannot 
be greater than their total tips. Total tips for each worker were 
calculated from the OTTC variable in the CPS data. The Department 
subtracted predicted overtime pay to better estimate total tips.\67\ 
For workers who reported receiving OTTC, but did not report the amount 
they earned, the Department applied the ratio of tipped earnings to 
total earnings for wait staff or bartenders (see Table 2).
---------------------------------------------------------------------------

    \67\ Predicted overtime pay is calculated as (1.5 x base wage) x 
weekly hours worked over 40.
---------------------------------------------------------------------------

    To determine the aggregate annual potential total tip transfer, the 
Department multiplied the weighted sum of weekly tip transfers by 45.2 
weeks--the average weeks worked in a year for wait staff and bartenders 
in the 2018 CPS Annual Social and Economic Supplement. The resulting 
annual estimate of the upper bound of potential transfers from tipped 
employees to employers is $714 million). This estimate is an upper 
bound, because following the 2018-2019 guidance, an employer could 
have, at most, had a tipped worker do more related non-tipped work 
until their overall earnings reached their outside option wage. In 
order to further refine this estimate, and adjust down this upper 
bound, the Department requests data on how much related non-tipped work 
tipped employees were performing prior to the 2018-2019 guidance and 
how that changed with the removal of the 80/20 approach. The Department 
requests information on whether employers increased the number of 
employees for which they took a tip credit, and decreased the number of 
employees for which they paid a direct cash wage of at least $7.25. The 
Department also requests data about how the amount of time that 
employees spend on directly supporting work would change following the 
requirements proposed in this rule.
    The above analysis looks only at how the hourly earnings would 
change. It may also be informative to see how weekly earnings would 
change. Lowering the total hourly earnings of employees will either:
    1. Lower the weekly earnings of these employees if their weekly 
hours worked remain the same; or
    2. Require that these employees work more hours per week to earn 
the same amount per week.
    The workers for whom potential pay reductions could have occurred 
had average weekly earnings of $473; on average, their weekly earnings 
could have been reduced by as much as $105, assuming their hours worked 
per week remained the same.
    As noted above, this transfer estimate is based on the Department's 
2019 proposal to codify the 2018-2019 guidance, which removed the 20 
percent limitation on related, non-tipped duties, into the Department's 
regulations. The Department believes that this transfer analysis both 
underestimates and overestimates potential transfers. This estimate may 
be an underestimate because it does not include all possible 
occupations and industries for which there may be transfers. 
Additionally, it does not include workers with tipped jobs that are not 
listed as their main job in the CPS-ORG data. Additionally, the 
Department believes that transfers that would result from this proposed 
rule may exceed the transfers that would occur from reinstating the 
previous 80/20 guidance. As noted above, under this proposal, employers 
would be prohibited from taking a tip credit for a substantial amount 
of directly supporting work, defined as 20 percent of the tipped 
employee's workweek or a continuous period of more than 30 minutes.
    The Department believes that these estimates are also an 
overestimate, because they assume that every employer that takes a tip 
credit and for whom it was economically beneficial would lower the 
hourly rate (including tips) of tipped employees to their outside-
option wage. In reality, even when it is seemingly economically 
beneficial from this narrow perspective, many employers may not have 
changed their non-tipped task requirements with the removal of the 20 
percent limitation because it would have required changes to the 
current practice to which their employees were accustomed. There are 
reasons it is not appropriate to assume that all employers are able to 
extract all the earnings above the outside-option wage of their 
employees for whom they take a tip credit. For example, decreasing 
workers' hourly earnings might reduce morale, leading to lower levels 
of efficiency or customer service. The reduction in workers' earnings 
may also lead to higher turnover, which can be costly to a company. 
Part of this turnover may be due to workers' wages falling below their 
reservation wage and causing them to exit the labor force.\68\ In 
support of this, researchers have found evidence of downward nominal 
wage stickiness, meaning that employees rarely experience nominal wage 
decreases with the same employer.\69\ Although in this case the direct 
wage paid by the employer would not change, these tipped employees' 
total hourly pay including tips would decrease due to the employer 
requiring more work on non-tipped tasks leading to earning fewer tips 
per hour. While some empirical evidence, such as the Kahn paper cited 
above, indicates that employers are unlikely to make changes in work 
requirements that would lower employees' nominal hourly earnings, this 
evidence may not hold in low-wage industries such as food service and 
in times of structural changes to the economy, such as during the 
COVID-19 pandemic.\70\ Additionally, even if employers may be 
constrained from having current employees take on more non-tipped work, 
they could institute these changes for any newly hired employees, so 
the reduction in average earnings would be over a longer-term time 
horizon.
---------------------------------------------------------------------------

    \68\ A worker's reservation wage is the minimum wage that the 
worker requires to participate in the labor market. It roughly 
represents the worker's monetary value of an hour of leisure. If the 
worker's reservation wage is greater than their outside option wage, 
the worker may exit the labor market if tips are reduced.
    \69\ See for example Kahn, S. 1997. ``Evidence of Nominal Wage 
Stickiness from Microdata.'' The American Economic Review. 87(5): 
993-1008. Hanes, C. 1993. ``The Development of Nominal Wage Rigidity 
in the Late 19th Century.'' The American Economic Review 83(4): 732-
756. Kawaguchi, D. and F. Ohtake. 2007. ``Testing the Morale Theory 
of Nominal Wage Rigidity.'' ILR Review 61(1): 59-74. Kaur, S. 2019. 
``Nominal Wage Rigidity in Village Labor Markets.'' American 
Economic Review 109(10): 3585-3616.
    \70\ See Section VI.E. for a more detailed discussion of the 
effects of the COVID-19 pandemic.
---------------------------------------------------------------------------

    The Department believes that another potential reason these 
transfer estimates

[[Page 32838]]

may be an overestimate is because of the interaction with the tip 
pooling provisions of the 2020 Final Rule. The 2020 Tip final rule 
codified the Consolidated Appropriations Act (CAA) amendments from 
2018, which allowed employers to institute mandatory ``nontraditional'' 
tip pools to include both front-of-the-house and back-of-the-house 
workers, as long as they paid all employees a direct cash wage of at 
least $7.25. See 85 FR 86765. The portions of the 2020 Tip final rule 
addressing tip pooling went into effect on April 30, 2021. See 86 FR 
22598. Following this change, some employers may have been incentivized 
to no longer take a tip credit, and pay all of their employees the full 
minimum wage. For these employees, the dual jobs analysis is no longer 
relevant, because they are already earning at least $7.25 for all hours 
worked. To the extent that employers responded to the CAA amendments by 
electing to stop taking a tip credit in order to institute a 
nontraditional tip pool, the Department believes that the transfers 
predicted in this analysis may be an overestimate.
    However, the Department does not know to what extent this 
overestimate has occurred, because data is lacking on how many 
employers stopped taking a tip credit to expand their tip pools 
following the CAA amendments. Employers may not have acted on new 
incentives to shift away from their current tip credit arrangements. 
Additionally, some states and local areas may not allow employer-
mandated tip pooling, so employers in these areas would not have made 
adjustments following the change in tip pooling provisions. Moreover, 
there is uncertainty about the future trajectory of state employment 
regulations; if state-level prohibitions on mandatory tip pooling were 
to become more widespread, the scope of the tip pooling provisions' 
impacts could decrease and, in turn, the scope for this NPRM's impacts 
could increase (thus potentially making the $714 million estimate less 
of an overstatement farther in the future than in the near-term). 
Lastly, the CAA amendments were enacted in March 2018, so although the 
Department expects that it may have taken employers time to implement 
changes to their pay practices, any employers that stopped taking a tip 
credit in order to institute a nontraditional tip pool directly 
following the CAA amendments could have already been excluded from the 
transfer calculation. The Department does not know if employers would 
have changed their usage of the tip credit following the CAA 
amendments, or waited to make the change until the codification of the 
CAA in the 2020 Tip final rule. As noted above, the tip pooling 
provisions of the 2020 Tip final rule went into effect on April 30, 
2021.
    The Department also looked at the share of workers earning a direct 
wage of less than $7.25 in 2018 and 2019, and found no statistically 
significant difference between those two years. Because of this, and 
for all of the reasons discussed above, the Department has not 
quantified the reduction in transfers associated with the fact that the 
CAA allowed employers to institute nontraditional tip pools that 
include back-of-the-house workers. However, it welcomes comments on the 
extent to which employers stopped taking a tip credit in order to 
expand their tip pools to include back-of-the-house workers.
    The transfer estimate may also be an overestimate because it 
assumes that the 2018-2019 guidance, and the 2020 Tip final rule, 
completely lacked a limitation on non-tipped work. As discussed above, 
there was a limit put forth in this approach, but it was not clearly 
defined.
    The Department was unable to determine what proportion of the total 
tips estimated to have been potentially transferred from these workers 
were realistically transferred following the replacement of its prior 
80/20 guidance with the 2018-2019 guidance. The Department assumes that 
the likely potential transfers were somewhere between a lower bound of 
zero and an upper bound of $714million, depending on interactions 
between federal and state-level policies. The Department believes that 
the reasons the estimate is an overestimate outweigh the reasons the 
estimate is an underestimate, but requests comments and data to help 
inform this assumption. Therefore, the Department believes that this 
proposed rule would result in transfers from employers to employees, 
but at a fraction of the upper bound of transfers.
    The Department does not have data to determine what percentage of 
the maximum possible transfers is likely to result from this proposed 
rule, and welcomes comments and data to help inform this analysis.
    If the proposal results in transfers to tipped workers, it could 
also lead to increased earnings for underserved populations. Using data 
from the American Community Survey, the National Women's Law Center 
found that about 70 percent of tipped workers are women and 26 percent 
of tipped workers are women of color.\71\ Tipped workers also have a 
poverty rate of over twice that of non-tipped workers.\72\
---------------------------------------------------------------------------

    \71\ National Women's Law Center, ``Women in Tipped Occupations, 
State by State,'' May 2019. https://nwlc.org/wp-content/uploads/2019/06/Tipped-workers-state-by-state-2019.pdf.
    \72\ Sylvia A. Allegretto and David Cooper, ``Twenty-three Years 
and Still Waiting for Change: Why It's Time to Give Tipped Workers 
the Regular Minimum Wage,'' July 10, 2014. https://files.epi.org/2014/EPI-CWED-BP379.pdf.
---------------------------------------------------------------------------

3. Retrospective Transfer Analysis (Extrapolated Forward)
    Because the 80/20 guidance was withdrawn through guidance published 
in November 2018 and February 2019, the Department also looked at 
whether employees' wages and tips changed following the 2018-2019 
guidance to help inform the analysis of transfers associated with this 
proposed rule. If there was a significant drop in tips, it could mean 
that employers were having employees do more non-tipped work in 
response to the guidance.
    The Department used the 2018 and 2019 CPS-ORG data to estimate 
earnings of tipped workers for whom their employers are taking a tip 
credit. Comparisons were restricted to observations in the months of 
February-November in each year to compare before and after the 
guidance. The Department looked at the difference in tips per hour, 
total hourly wages (direct wages plus tips), and weekly earnings in 
2018 and 2019. None of the differences in values between these two 
periods was statistically significant. The Department also ran linear 
regressions on these three variables using the set of controls used in 
the outside-option wage regressions discussed above (state, age, 
education, gender, race/ethnicity, citizenship, marital status, 
veteran, metro area) and also found that none of the differences were 
statistically significant.
    This lack of a significant decline in tips and total wages could 
imply that employers had not directed employees to do more non-tipped 
work following the guidance, and that there would also be little to no 
transfers associated with the requirement put forth in the proposed 
rule. However, it is also possible that employers had made no changes 
in response to the guidance, but would have shifted employees' duties 
following the 2020 Tip final rule. As noted above, federal courts 
largely declined to defer to the Department's 2018-2019 guidance, and 
this may have influenced employer's decisions as well.\73\ 
Additionally, it may be that the time period is too short to really 
observe

[[Page 32839]]

a meaningful difference. The Department chose not to examine data from 
2020, as average hourly wages during that year increased as low-wage 
workers in the leisure and hospitality industry were out of work due to 
the COVID-19 pandemic, making meaningful comparisons difficult. 
Furthermore, as noted elsewhere in this regulatory impact analysis, 
other tip-related policy changes occurred in 2018, thus creating 
challenges in estimating impacts attributable to each such policy. The 
Department welcomes comments and data on this analysis, specifically 
whether employers made changes in response to the 2018-2019 guidance, 
or whether they were planning to make changes until after the 2020 Tip 
final rule.
---------------------------------------------------------------------------

    \73\ See supra note 3 (identifying cases in which courts 
declined to defer to the 2018-19 guidance).
---------------------------------------------------------------------------

D. Benefits and Cost Savings

    The Department believes that one benefit of this proposed rule is 
increased clarity for both employers and workers. In the 2020 Tip final 
rule, the Department said that it would not prohibit an employer from 
taking a tip credit for the time a tipped employee performs related, 
non-tipped duties, as long as those duties are performed 
contemporaneously with, or for a reasonable time immediately before or 
after, tipped duties. However, the Department did not define 
``contemporaneously'' or a ``reasonable time immediately before or 
after.'' If the 2020 Tip final rule's revisions to the dual jobs 
regulations had gone into effect, the Department believes that the lack 
of clear definitions of these terms could have made it more difficult 
for employers to comply with the regulations and more difficult for WHD 
to enforce them. The reinstatement of the historically used 20 percent 
work week tolerance of work that does not produce tips but is part of 
the tipped occupation, together with the 30 continuous minute limit on 
directly supporting work, along with examples and explanations, will 
make it easier for employers to understand their obligations under the 
Fair Labor Standards Act, and will ensure that workers are paid the 
wages that they are owed.
    Under this proposed rule, employers will also no longer need to 
refer to O*NET to determine whether a tipped employee's non-tipped 
duties are related to their tipped occupation. The duties listed in 
O*NET could change over time, so an employer would have had to make 
sure to regularly review the site to ensure that they are in 
compliance. This proposed rule could result in cost savings related to 
employers' time referencing O*NET. The Department welcomes comments on 
other cost savings associated with the clarity provided by this rule.
    As noted previously in this regulatory impact analysis, the 
phenomenon of tipping can create monopsony power in the labor market. 
As a result, the relationship between minimum wages for tipped 
employees and employment of such workers has been estimated by some to 
be quadratic--with employment increasing over some range of minimum 
wage increases and decreasing over a further range.\74\ Although this 
NPRM does not change the minimum direct cash wage that must be paid 
when an employer claims a tip credit, one way that an employer could 
comply with the requirements proposed in this rule is to pay tipped 
workers a direct cash wage of at least $7.25 for all hours worked. An 
employer could discontinue taking a tip credit if they found it more 
beneficial not to limit the amount of directly supporting work 
performed by a tipped employee. The Department welcomes comments on the 
likelihood of this outcome and data that would help facilitate 
quantification of such changes.
---------------------------------------------------------------------------

    \74\ Jones, Maggie R. (2016), ``Measuring the Effects of the 
Tipped Minimum Wage Using W-2 Data,'' CARRA Working Paper Series, 
U.S., Census Bureau, Working Paper 2016-03, https://www.census.gov/content/dam/Census/library/working-papers/2016/adrm/carra-wp-2016-03.pdf; Wessels, Walter John (1997), ``Minimum Wages and Tipped 
Servers,'' Economic Inquiry 35: 334-349, April 1997.
---------------------------------------------------------------------------

    The Department also welcomes comments and data on additional 
benefits of this proposed rule.

E. Note on the Effects of the COVID-19 Pandemic

    The Department notes that this analysis relies on data from 2018 
and 2019, which is prior to the COVID-19 pandemic. Because many 
businesses were shut down during 2020 or had to change their business 
model, especially restaurants, the economic situation for tipped 
workers likely changed due to the pandemic. For example, a survey from 
One Fair Wage found that 83 percent of respondents reported that their 
tips had decreased since COVID-19, with 66 percent reporting that their 
tips decreased by at least 50 percent.\75\ This reduction in tips 
received could result in a decrease in the amount of transfers 
calculated above.
---------------------------------------------------------------------------

    \75\ One Fair Wage, ``Service Workers' Experience of Health & 
Harassment During COVID-19'', November 2020. https://onefairwage.site/wp-content/uploads/2020/11/OFW_COVID_WorkerExp_Emb-1.pdf.
---------------------------------------------------------------------------

    The labor market has likely changed for tipped workers during the 
pandemic, and could continue to change following the recovery from the 
pandemic, especially in the restaurant business. The full-service 
restaurant industry lost over 1 million jobs since the beginning of the 
pandemic, \76\ and by the end of 2020, over 110,000 restaurants had 
closed permanently.\77\ These industry changes could impact workers' 
wages, as well as their ability and willingness to change jobs. There 
may also be other factors such as safety influencing workers' choice of 
workplace, which could distort labor market assumptions and behavior. 
Workers that value the security and safety of their job could be less 
willing to leave for another job, even if their net earnings decreased, 
and this could have an impact on the outside-option analysis.
---------------------------------------------------------------------------

    \76\ BLS Current Employment Statistics, https://www.bls.gov/ces/. Series ID CES7072251101.
    \77\ Carolina Gonzales, ``Restaurant Closings Top 110,000 With 
Industry in `Free Fall,' '' December 7, 2020. https://www.bloomberg.com/news/articles/2020-12-07/over-110-000-restaurants-have-closed-with-sector-in-free-fall.
---------------------------------------------------------------------------

    The Department welcomes data and information on how tipped workers 
were affected by the pandemic, and how the analysis discussed in this 
proposed rule would be adjusted to account for these changes.

VIII. Regulatory Flexibility Act (RFA) Analysis

    The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601 et seq., 
as amended by the Small Business Regulatory Enforcement Fairness Act of 
1996, Public Law 104-121 (1996), requires federal agencies engaged in 
rulemaking to consider the impact of their proposals on small entities, 
consider alternatives to minimize that impact, and solicit public 
comment on their analyses. The RFA requires the assessment of the 
impact of a regulation on a wide range of small entities, including 
small businesses, not-for-profit organizations, and small governmental 
jurisdictions. Accordingly, the Department examined this proposed rule 
to determine whether it would have a significant economic impact on a 
substantial number of small entities. The most recent data on private 
sector entities at the time this NPRM was drafted are from the 2017 
Statistics of U.S. Businesses (SUSB).\78\ The Department limited this 
analysis to the industries that were acknowledged to have tipped 
workers in the 2020 Tip final rule. These industries are classified 
under the North American Industry Classification System (NAICS) as 
713210 (Casinos (except Casino Hotels), 721110 (Hotels and Motels), 
721120 (Casino Hotels), 722410 (Drinking

[[Page 32840]]

Places (Alcoholic Beverages)), 722511 (Full-Service Restaurants), 
722513 (Limited Service Restaurants), 722515 (Snack and Nonalcoholic 
Beverage Bars), and 812113 (Nail Salons). As discussed in Section 
IV.B.1, there are 470,894 potentially affected establishments. The QCEW 
does not provide size class data for these detailed industries and 
states, but the Department calculates that for all industries 
nationwide, 99.8 percent of establishments have fewer than 500 
employees. If we assume that this proportion holds true for the 
affected states and industries in our analysis, then there are 469,952 
potentially affected establishments with fewer than 500 employees.
---------------------------------------------------------------------------

    \78\ Statistics of U.S. Businesses 2017, https://www.census.gov/data/tables/2017/econ/susb/2017-susb-annual.html, 2016 SUSB Annual 
Data Tables by Establishment Industry.
---------------------------------------------------------------------------

    The Year 1 per-entity cost for small business employers is $477.56, 
which is the regulatory familiarization cost of $50.60, plus the 
adjustment cost of $50.60, plus the management cost of $376.36. For 
each subsequent year, costs consist only of the management cost. See 
Section IV.B for a description of how the Department calculated these 
costs. The Department has provided tables with data on the impact on 
small businesses, by size class, for each industry included in the 
analysis.
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    As shown in the tables above, costs for small business entities in 
these industries are never more than 0.3 percent of annual receipts. 
Therefore, this rule will not have a significant economic impact on a 
substantial number of small entities.

IX. Unfunded Mandates Reform Act of 1995

    The Unfunded Mandates Reform Act of 1995 (UMRA) \79\ requires 
agencies to prepare a written statement for rules with a federal 
mandate that may result in increased expenditures by state, local, and 
tribal governments, in the aggregate, or by the private sector, of $165 
million ($100 million in 1995 dollars adjusted for inflation) or more 
in at least one year.\80\ This statement must: (1) Identify the 
authorizing legislation; (2) present the estimated costs and benefits 
of the rule and, to the extent that such estimates are feasible and

[[Page 32844]]

relevant, its estimated effects on the national economy; (3) summarize 
and evaluate state, local, and Tribal government input; and (4) 
identify reasonable alternatives and select, or explain the non-
selection, of the least costly, most cost-effective, or least 
burdensome alternative.
---------------------------------------------------------------------------

    \79\ See 2 U.S.C. 1501.
    \80\ Calculated using growth in the Gross Domestic Product 
deflator from 1995 to 2019. Bureau of Economic Analysis. Table 
1.1.9. Implicit Price Deflators for Gross Domestic Product.
---------------------------------------------------------------------------

A. Authorizing Legislation

    This final rule is issued pursuant to the Fair Labor Standards Act, 
29 U.S.C. 201, et seq.
1. Assessment of Costs and Benefits
    For purposes of the UMRA, this proposed rule includes a federal 
mandate that would result in increased expenditures by the private 
sector of more than $156 million in at least one year, but will not 
result in any increased expenditures by state, local, and Tribal 
governments.
    The Department determined that the proposed rule would result in 
Year 1 total costs for the private sector of $224.9 million, for 
regulatory familiarization, adjustment costs, and management costs. The 
Department determined that the proposed rule would result in management 
costs of $177.2 million in subsequent years. Furthermore, the 
Department estimates that there may substantial transfers experienced 
as UMRA-relevant expenditures by employers.
    UMRA requires agencies to estimate the effect of a regulation on 
the national economy if such estimates are reasonably feasible and the 
effect is relevant and material.\81\ However, OMB guidance on this 
requirement notes that such macroeconomic effects tend to be measurable 
in nationwide econometric models only if the economic effect of the 
regulation reaches 0.25 percent to 0.5 percent of Gross Domestic 
Product (GDP), or in the range of $53.6 billion to $107.2 billion 
(using 2019 GDP).\82\ A regulation with a smaller aggregate effect is 
not likely to have a measurable effect in macroeconomic terms, unless 
it is highly focused on a particular geographic region or economic 
sector, which is not the case with this rule.
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    \81\ See 2 U.S.C. 1532(a)(4).
    \82\ According to the Bureau of Economic Analysis, 2019 GDP was 
$21.43 trillion. https://www.bea.gov/system/files/2020-02/gdp4q19_2nd_0.pdf.
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    The Department's RIA estimates that the total costs of the final 
rule will be $224.9 million. Given OMB's guidance, the Department has 
determined that a full macroeconomic analysis is not likely to show 
that these costs would have any measurable effect on the economy.

X. Executive Order 13132, Federalism

    The Department has (1) reviewed this delay in accordance with 
Executive Order 13132 regarding federalism and (2) determined that it 
does not have federalism implications. The rule will not have 
substantial direct effects on the States, on the relationship between 
the national government and the States, or on the distribution of power 
and responsibilities among the various levels of government.

XI. Executive Order 13175, Indian Tribal Governments

    This rule will not have substantial direct effects on one or more 
Indian tribes, on the relationship between the Federal Government and 
Indian tribes, or on the distribution of power and responsibilities 
between the Federal Government and Indian tribes.

  Appendix Table 1--List of Occupations Included in the Outside-Option
                            Regression Sample
------------------------------------------------------------------------
 
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Amusement and Recreation Attendants.
Bus Drivers, School or Special Client.
Bus Drivers, Transit and Intercity.
Cashiers.
Childcare Workers.
Concierges.
Door-To-Door Sales Workers, News and Street Vendors, and Related
 Workers.
Driver/Sales Workers.
Flight Attendants.
Funeral Attendants.
Hairdressers, Hairstylists, and Cosmetologists.
Home Health Aides.
Hotel, Motel, and Resort Desk Clerks.
Insurance Sales Agents.
Library Assistants, Clerical.
Maids and Housekeeping Cleaners.
Manicurists and Pedicurists.
Massage Therapists.
Nursing Assistants.
Occupational Therapy Aides.
Office Clerks, General.
Orderlies.
Parking Lot Attendants.
Parts Salespersons.
Personal Care Aides.
Pharmacy Aides.
Pharmacy Technicians.
Postal Service Clerks.
Real Estate Sales Agents.
Receptionists and Information Clerks.
Recreation Workers.
Residential Advisors.
Retail Salespersons.
Sales Agents, Financial Services.
Sales Representatives, Wholesale and Manufacturing, Except Technical and
 Scientific Products.
Secretaries and Administrative Assistants, Except Legal, Medical, and
 Executive.
Social and Human Service Assistants.

[[Page 32845]]

 
Statement Clerks.
Stock Clerks, Sales Floor.
Subway and Streetcar Operators.
Taxi Drivers and Chauffeurs.
Telemarketers.
Telephone Operators.
Tellers.
Tour Guides and Escorts.
Travel Agents.
Travel Guides.
------------------------------------------------------------------------

List of Subjects

29 CFR Part 10

    Administrative practice and procedure, Construction industry, 
Government procurement, Law enforcement, Reporting and recordkeeping 
requirements, Wages.

29 CFR Part 531

    Wages.

    For the reasons set forth above, the Department proposes to amend 
title 29, parts 10 and 531, of the Code of Federal Regulations as 
follows:

PART 10--ESTABLISHING A MINIMUM WAGE FOR CONTRACTORS

0
1. The authority citation for part 10 continues to read as follows:

    Authority: 4 U.S.C. 301; section 4, E.O 13658, 79 FR 9851; 
Secretary of Labor's Order No. 01-2014 (Dec. 19, 2014), 79 FR 77527 
(Dec. 24, 2014).

0
2. Amend Sec.  10.28 by revising paragraph (b)(2) and adding paragraph 
(b)(3) to read as follows:


Sec.  10.28  Tipped employees.

* * * * *
    (b) * * *
    (2) Dual jobs. In some situations an employee is employed in dual 
jobs, as, for example, where a maintenance person in a hotel also works 
as a server. In such a situation the employee, if the employee 
customarily and regularly receives at least $30 a month in tips for the 
work as a server, is engaged in a tipped occupation only when employed 
as a server. The employee is employed in two occupations, and no tip 
credit can be taken for the employee's hours of employment in the 
occupation of maintenance person.
    (3) Engaged in a tipped occupation. An employee is engaged in a 
tipped occupation when the employee performs work that is part of the 
tipped occupation. An employer may only take a tip credit for work 
performed by a tipped employee that is part of the employee's tipped 
occupation.
    (i) Work that is part of the tipped occupation. Any work performed 
by the tipped employee that produces tips is part of the tipped 
occupation. Work that directly supports tip-producing work is also work 
that is part of the tipped occupation provided it is not performed for 
a substantial amount of time.
    (A) Tip-producing work. Any work for which tipped employees receive 
tips is tip-producing work. A server's tip-producing work includes 
waiting tables; a bartender's tip-producing work includes making and 
serving drinks and talking to customers; a nail technician's tip-
producing work includes performing manicures and pedicures.
    (B) Directly supports. Work that directly supports tip-producing 
work is also part of the tipped occupation provided that it is not 
performed for a substantial amount of time. Work that directly supports 
the work for which employees receive tips is work that assists a tipped 
employee to perform the work for which the employee receives tips. Work 
performed by a server that directly supports the tip-producing work 
includes, for example, preparing items for tables so that the servers 
can more easily access them when serving customers or cleaning the 
tables to prepare for the next customers. Work that directly supports 
the work of a bartender would include slicing and pitting fruit for 
drinks so that the garnishes are more readily available to bartenders 
as they mix and prepare drinks for customers. Work that directly 
supports the work of a nail technician would include cleaning the 
pedicure baths between customers so that the nail technicians can begin 
customers' pedicures without waiting.
    (C) Substantial amount of time. An employer can take a tip credit 
for the time a tipped employee spends performing work that is not tip-
producing, but directly supports tip-producing work, provided that the 
employee does not perform that work for a substantial amount of time. 
For the purposes of this section, an employee has performed work for a 
substantial amount of time if:
    (1) For any workweek, the directly supporting work exceeds 20 
percent of the hours worked during the employee's workweek. If a tipped 
employee spends more than 20 percent of the workweek on directly 
supporting work, the employer cannot take a tip credit for any time 
that exceeds 20 percent of the workweek; or
    (2) For any continuous period of time, the directly supporting work 
exceeds 30 minutes. If a tipped employee performs directly supporting 
work for a continuous period of time that exceeds 30 minutes, the 
employer cannot take a tip credit for any of that continuous period of 
time.
    (ii) Work that is not part of the tipped occupation. Work that is 
not part of the tipped occupation is any work that does not generate 
tips and does not directly support tip-producing work. If a tipped 
employee is required to perform work that is not part of the employee's 
tipped occupation, the employer may not take a tip credit for that 
time. For example, preparing food or cleaning the bathroom is not part 
of a server's occupation. Preparing food or cleaning the dining room is 
not part of a bartender's occupation. Ordering supplies for the nail 
salon is not part of a nail technician's occupation.
* * * * *

PART 531--WAGE PAYMENTS UNDER THE FAIR LABOR STANDARDS ACT OF 1938

0
3. The authority citation for part 531 continues to read as follows:

    Authority:  29 U.S.C. 203(m) and (t), as amended by sec. 3(m), 
Pub. L. 75-718, 52 Stat. 1060; sec. 2, Pub. L. 87-30, 75 Stat. 65; 
sec. 101, sec. 602, Pub. L. 89-601, 80 Stat. 830; sec. 29(B), Pub. 
L. 93-259, 88 Stat. 55 sec. 3, sec. 15(c), Pub. L. 95-151, 91 Stat 
1245; sec. 2105(b), Pub. L. 104-188, 110 Stat 1755; sec. 8102, Pub. 
L. 110-28, 121 Stat. 112; and sec. 1201, Div. S., Tit. XII, Pub. L. 
115-141, 132 Stat. 348.

0
4. Amend Sec.  531.56 by revising paragraph (e) and adding paragraph 
(f) to read as follows:


Sec.  531.56  ``More than $30 a month in tips.''

* * * * *

[[Page 32846]]

    (e) Dual jobs. In some situations an employee is employed in dual 
jobs, as, for example, where a maintenance person in a hotel also works 
as a server. In such a situation if the employee customarily and 
regularly receives at least $30 a month in tips for the employee's work 
as a server, the employee is engaged in a tipped occupation only when 
employed as a server. The employee is employed in two occupations, and 
no tip credit can be taken for the employee's hours of employment in 
the occupation of maintenance person.
    (f) Engaged in a tipped occupation. An employee is engaged in a 
tipped occupation when the employee performs work that is part of the 
tipped occupation. An employer may only take a tip credit for work 
performed by a tipped employee that is part of the employee's tipped 
occupation.
    (1) Work that is part of the tipped occupation. Any work performed 
by the tipped employee that produces tips is part of the tipped 
occupation. Work that directly supports tip-producing work is also work 
that is part of the tipped occupation provided it is not performed for 
a substantial amount of time.
    (i) Tip-producing work. Any work for which tipped employees receive 
tips is tip-producing work. A server's tip-producing work includes 
waiting tables; a bartender's tip-producing work includes making and 
serving drinks and talking to customers; a nail technician's tip-
producing work includes performing manicures and pedicures.
    (ii) Directly supports. Work that directly supports tip-producing 
work is also part of the tipped occupation provided that it is not 
performed for a substantial amount of time. Work that directly supports 
the work for which employees receive tips is work that assists a tipped 
employee to perform the work for which the employee receives tips. Work 
performed by a server that directly supports the tip-producing work 
includes, for example, preparing items for tables so that the servers 
can more easily access them when serving customers or cleaning the 
tables to prepare for the next customers. Work that directly supports 
the work of a bartender would include slicing and pitting fruit for 
drinks so that the garnishes are more readily available to bartenders 
as they mix and prepare drinks for customers. Work that directly 
supports the work of a nail technician would include cleaning all the 
pedicure baths between customers so that the nail technicians can begin 
customers' pedicures without waiting.
    (iii) Substantial amount of time. An employer can take a tip credit 
for the time a tipped employee spends performing work that is not tip-
producing, but directly supports tip-producing work, provided that the 
employee does not perform that work for a substantial amount of time. 
For the purposes of this section, an employee has performed work for a 
substantial amount of time if:
    (A) For any workweek, the directly supporting work exceeds 20 
percent of the hours worked during the employee's workweek. If a tipped 
employee spends more than 20 percent of the workweek on directly 
supporting work, the employer cannot take a tip credit for any time 
that exceeds 20 percent of the workweek; or
    (B) For any continuous period of time, the directly supporting work 
exceeds 30 minutes. If a tipped employee performs directly supporting 
work for a continuous period of time that exceeds 30 minutes, the 
employer cannot take a tip credit for any of that continuous period of 
time.
    (2) Work that is not part of the tipped occupation. Work that is 
not part of the tipped occupation is any work that does not generate 
tips and does not directly support tip-producing work. If a tipped 
employee is required to perform work that is not part of the employee's 
tipped occupation, the employer may not take a tip credit for that 
time. For example, preparing food or cleaning the bathroom is not part 
of a server's occupation. Preparing food or cleaning the dining room is 
not part of a bartender's occupation. Ordering supplies for the nail 
salon is not part of a nail technician's occupation.

Jessica Looman,
Principal Deputy Administrator, Wage and Hour Division.
[FR Doc. 2021-13262 Filed 6-21-21; 11:15 am]
BILLING CODE 4510-27-P