2024-29798. Tip Regulations Under the Fair Labor Standards Act (FLSA); Restoration of Regulatory Language

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Department of Labor

Wage and Hour Division

1. 29 CFR Part 531
2. RIN 1235-AA44

AGENCY:

Wage and Hour Division, Department of Labor.

ACTION:

Final rule; technical amendment.

SUMMARY:

On October 29, 2021, the U.S. Department of Labor (Department) published a final rule (2021 Dual Jobs Rule) addressing the determination of when a tipped employee is employed in dual jobs under the Fair Labor Standards Act (FLSA or the Act). The 2021 Dual Jobs Rule took effect on December 28, 2021.On October 29, 2024, a federal appeals court issued an order vacating regulatory text from the Department's 2021 Dual Jobs Rule, with the effect of reinstating the Department's original FLSA regulation on the topic. In accordance with that court order, the Department is issuing this final rule to remove from the Code of Federal Regulations (CFR) the corresponding regulatory text that the Department promulgated through the 2021 Dual Jobs Rule and reinstate regulatory text as it existed in the CFR prior to the effective date of the 2021 Dual Jobs Rule. This action is a technical amendment accounting for changes in the law which have already occurred.

DATES:

This rule is effective December 17, 2024.

FOR FURTHER INFORMATION CONTACT:

Daniel Navarrete, Director of 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: [phone] (this is not a toll-free number). Alternative formats are available upon request by calling 1-866-487-9243. If you are deaf, hard of hearing, or have a speech disability, please dial 7-1-1 to access telecommunications relay services.

SUPPLEMENTARY INFORMATION: ( print page 101885)

I. Background and Basis for the Restoration of Regulatory Text

Section 6(a) of the FLSA requires covered employers to pay nonexempt employees a minimum wage of at least $7.25 per hour. See29 U.S.C. 206(a). Since 1966, section 3(m) of the FLSA has permitted employers that meet certain requirements to satisfy a portion of their minimum wage obligation to a “tipped employee” by taking a partial credit, commonly known as a “tip credit,” toward the minimum wage based on the amount of tips that the tipped employee receives.^[1] An employer that elects to take a tip credit cannot satisfy the entirety of the minimum wage requirement with tips because the employer must pay the tipped employee a direct cash wage of at least $2.13 per hour.^[2] Based on the current Federal minimum wage of $7.25 per hour, the employer may claim a tip credit against its wage obligation of up to $5.12 per hour towards its minimum wage obligation for a tipped employee, provided—among other criteria—that the employee actually receives sufficient tips to earn not less than the FLSA minimum wage.

Section 3(t) of the FLSA defines a “tipped employee” as “any employee engaged in an occupation in which [the employee] customarily and regularly receives more than $30 a month in tips.” ^[3] The Department promulgated the original FLSA regulations for tipped employees in 1967, the year after Congress first created the tip credit provision.^[4] As part of that rulemaking, the Department included a “dual jobs” provision, recognizing that an employee may be employed by the same employer both in a tipped occupation and in a non-tipped occupation, for example, “where a maintenance man in a hotel also serves as a waiter.” 29 CFR 531.56(e) (1967).^[5] This provision explained that an employee is a “tipped employee” for the purposes of section 3(t) only while the employee is engaged in the tipped occupation, and their employer may take a tip credit against its minimum wage obligation only for the time the employee spends in that tipped occupation. Id. At the same time, the regulation recognized that tipped employees may perform “related” duties that are not “themselves . . . directed toward producing tips,” and used 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.” Id.^[6]

On December 30, 2020, the Department published Tip Regulations Under the Fair Labor Standards Act (FLSA),85 FR 86756 (2020 Tip Rule), a final rule revising various regulatory requirements related to the treatment of tipped employees under the FLSA. Among other changes, the 2020 Tip Rule would have revised the Department's original dual jobs regulation at 29 CFR 531.56(e) consistent with subregulatory guidance issued by the Department in 2018 and 2019,^[7] but the dual jobs provisions in the 2020 Tip Rule never took effect.

The 2020 Tip Rule was published with a scheduled effective date of March 1, 2021.^[8] However, on February 26, 2021, the Department delayed the effective date of the 2020 Tip Rule until April 30, 2021.^[9] On March 25, 2021, the Department proposed to further delay the effective date of three portions of the 2020 Tip Rule, including the portion of the rule that would have amended the Department's dual jobs regulation, until December 31, 2021.^[10] On April 29, 2021, the Department finalized the proposed partial delay.^[11]

On October 29, 2021, the Department published Tip Regulations Under the Fair Labor Standards Act (FLSA); Partial Withdrawal,86 FR 60114 (2021 Dual Jobs Rule), which withdrew the dual jobs provisions of the 2020 Tip Rule.^[12] Separately, the 2021 Dual Jobs Rule adopted at 29 CFR 531.56(e)-(f) a new dual jobs regulation, which—among other changes—set specific limits on the amount of time that tipped employees who are paid a direct cash wage which is less than the Federal minimum wage can spend performing “work that is not tip-producing, but directly supports tip-producing work.” ^[13] The 2021 Dual Jobs Rule took effect on December 28, 2021.

On October 29, 2024, the United States Court of Appeals for the Fifth Circuit issued a decision in Restaurant Law Center v. U.S. Department of Labor, vacating regulatory text codified at 29 CFR 531.56(e)-(f) from the Department's 2021 Dual Jobs Rule, with the effect of reinstating the Department's original dual jobs regulation. 115 F.4th 396 (5th Cir. 2024), superseded on reh'g (5th Cir. Oct. 29, 2024) (vacating the 2021 Dual Jobs Rule “insofar as it modifies 29 CFR 531.56 as promulgated in 1967”). Since the Fifth Circuit's mandate issued on October 29, 2024, the operative version of 29 CFR 531.56(e) is thus the dual jobs regulation that was in place on December 27, 2021, prior to the effective date of the 2021 Dual Jobs Rule.

Consistent with the Fifth Circuit's mandate, this rule amends 29 CFR 531.56 to reinstate the regulatory text as it appeared prior to the effective date of the 2021 Dual Jobs Rule. This action is a technical correction accounting for changes in the law which have already occurred.

II. Procedural and Other Matters

A. Administrative Procedure Act

Section 553(b)(B) of the Administrative Procedure Act (APA) provides that an agency is not required to publish a notice of proposed rulemaking in the Federal Register and solicit public comments when the agency has good cause to find that doing so would be “impracticable, unnecessary, or contrary to the public interest.” 5 U.S.C. 553(b)(B). The Department finds that good cause exists to dispense with public notice-and-comment rulemaking procedures in this final rule because such procedures are unnecessary. The final rule accounts for the effects of the Fifth Circuit's order in RLC, which already changed the operative regulatory provisions by vacating regulatory text codified at 29 CFR 531.56(e)-(f) from the Department's 2021 Dual Jobs Rule, with the effect of ( print page 101886) reinstating the Department's earlier original dual jobs regulation. The final rule makes technical non-substantive revisions to correct the CFR to reflect the court's mandate. These amendments ensure the accuracy of the CFR, but do not alter any regulatory obligations.

Section 553(d) of the APA provides that substantive rules should take effect not less than 30 days after the date they are published in the Federal Register unless “otherwise provided by the agency for good cause found[.]” 5 U.S.C. 553(d)(3). The Department finds that good cause also exists to make this final rule immediately effective because a delayed effective date is unnecessary and contrary to the public interest. A delayed effective date is unnecessary because the Fifth Circuit's order vacating regulatory text codified at 29 CFR 531.56(e)-(f) from the Department's 2021 Dual Jobs Rule has already taken effect. Delaying the ministerial act of removing the regulatory text of the vacated rule and restoring the operative regulatory text in the Federal Register would also be contrary to the public interest in light of the Department's need to expediently implement the court's final judgment, and because it could lead to confusion, particularly among employers and tipped employees, about the FLSA's requirements for the payment of minimum wages to tipped employees. The Department concludes that a delayed effective date is both unnecessary and is contrary to the public interest, providing good cause to bypass a delayed effective date.

B. Regulatory Flexibility Act

The Regulatory Flexibility Act of 1980 (RFA) as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), hereafter jointly referred to as the RFA, requires that an agency prepare an initial regulatory flexibility analysis (IRFA) when proposing, and a final regulatory flexibility analysis (FRFA) when issuing, rules that will have a significant economic impact on a substantial number of small entities. However, the RFA only applies to “rule[s] for which the agency publishes a general notice of proposed rulemaking pursuant to section 553(b) of this title, or any other law.” ^[14] Because the Department has determined for good cause that public notice and comment is not required, the Department is not publishing a notice of proposed rulemaking for this final rule to comply with the court's order. Therefore, the RFA and its procedural requirements do not apply.

C. Executive Orders 12866 and 13563

Under Executive Order 12866 (as amended by Executive Order 14094), 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. As amended by Executive Order 14094, 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 $200 million or more; or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or state, local, territorial, or Tribal governments or communities; (2) create a 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 legal or policy issues for which centralized review would meaningfully further the President's priorities or the principles set forth in the Executive order.

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. OIRA has determined that this final rule is not significant for the purpose of Executive Orders 12866 and 13563.

D. Congressional Review Act

Before a rule can take effect, 5 U.S.C. 801, the Congressional Review Act (CRA) requires agencies to submit the rule and a report indicating whether it is a major rule to Congress and the Comptroller General. This final rule does not qualify as a major rule for purposes of the CRA and is therefore not subject to the timing requirements provided in 5 U.S.C. 801(a)(3).

E. Unfunded Mandates Reform Act

The Unfunded Mandates Reform Act of 1995, 2 U.S.C. 1531-38, requires agencies to consider whether a rule will result in the expenditure of $100,000,000 or more (adjusted annually for inflation) in any one year by State, local, and Tribal governments, in the aggregate, or by the private sector. This technical amendment will not result in such an expenditure.

F. Executive Order 13132, Federalism

The Department has (1) reviewed this proposed rule in accordance with Executive Order 13132 regarding federalism and (2) determined that it does not have federalism implications. The proposed rule would 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.

G. Paperwork Reduction Act

The Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501 et seq., and its attendant regulations, 5 CFR part 1320, require the Department to consider the agency's need for its information collections, their practical utility, 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. See44 U.S.C. 3506(c)(2)(B); 5 CFR 1320.8. The final rule is also not subject to the requirements of the PRA because it does not contain a collection of information as defined in 44 U.S.C. 3502(3).

List of Subjects 29 CFR Part 531

• Wages

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

1. 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.

( print page 101887)

2. Amend § 531.56 by revising paragraph (e) and removing paragraph (f) to read as follows:

§ 531.56

“More than $30 a month in tips.”

* * * * *

(e) Dual jobs. In some situations an employee is employed in a dual job, as for example, where a maintenance man in a hotel also serves as a waiter. In such a situation the employee, if he customarily and regularly receives at least $30 a month in tips for his work as a waiter, is a tipped employee only with respect to his employment as a waiter. He is employed in two occupations, and no tip credit can be taken for his hours of employment in his occupation of maintenance man. Such a situation is distinguishable from that of a waitress who spends part of her time cleaning and setting tables, toasting bread, making coffee and occasionally washing dishes or glasses. It is likewise distinguishable from the counterman who also prepares his own short orders or who, as part of a group of countermen, takes a turn as a short order cook for the group. Such related duties in an occupation that is a tipped occupation need not by themselves be directed toward producing tips.

Signed this 12th day of December, 2024.

Jessica Looman,

Administrator, Wage and Hour Division.

Footnotes

1.   See Fair Labor Standards Amendments of 1966, Public Law 89-601, sec. 101, 80 Stat. 830, 830 (1966); see also29 U.S.C. 203(m)(2)(A).

2.   See Fair Labor Standards Amendments of 1989, Public Law 101-157, sec. 5, 103 Stat. 938, 941 (1989) (requiring employers to pay a cash wage of at least “50 percent of the [$4.25 per hour] minimum wage rate after March 31, 1991”). Although subsequent FLSA Amendments have increased the federal minimum wage, those amendments did not change the $2.13 per hour minimum cash wage for tipped employees, which has been in effect since April 1, 1991.

3.  29 U.S.C. 203(t).

4.   See32 FR 13575 (Sept. 28, 1967).

5.   See32 FR 13580-81 (codified at 29 CFR 531.56(e)).

6.  In 2011, the Department issued a technical correction to its original dual jobs regulation by updating the amount of tips needed to qualify as a tipped employee under section 3(t) of the FLSA from $20 per month to $30 per month, see76 FR 18855, accounting for the increase of that statutory threshold effectuated by the 1977 FLSA Amendments. See Fair Labor Standards Amendments of 1977, Public Law 95-151, sec. 3, 91 Stat. 1245, 1249 (1977). The 2011 rule did not otherwise change the Department's original dual jobs regulation.

7.   See85 FR 86767-72, 86790.

8.   Id. at 86756.

9.   See86 FR 11632.

10.   See86 FR 15811.

11.   See86 FR 22597.

12.   See86 FR 60138.

13.  86 FR 60158 (codified at 29 CFR 531.56(f)(4)). Specifically, the 2021 Dual Jobs Rule provided that tipped employees must receive the full minimum wage from their employer whenever untipped support work exceeds 20 percent of their workweek or 30 continuous minutes. Id. The 2021 Dual Job Rule also provided examples of tasks that fall into the following three categories: (1) tip-producing work; (2) work that directly supports tip-producing work; and (3) work that is not part of a tipped occupation. 86 FR 60157-58 (codified at 29 CFR 531.56(f)(2)-(3) and (5)).

14.   See5 U.S.C. 601(2); see also id. at 604(a) (requiring a FRFA for rules where the agency was “required . . . to publish a general notice of proposed rulemaking”).