Federal Register, Volume 86 Issue 118 (Wednesday, June 23, 2021)

[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\
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\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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BILLING CODE 4510-27-C
As shown in the tables above, costs for small business entities in
these industries are never more than 0.3 percent of annual receipts.
Therefore, this rule will not have a significant economic impact on a
substantial number of small entities.

IX. Unfunded Mandates Reform Act of 1995

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

[[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.
---------------------------------------------------------------------------

\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.
---------------------------------------------------------------------------

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
------------------------------------------------------------------------

-------------------------------------------------------------------------
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