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

<RULE> DEPARTMENT OF LABOR <SUBAGY>Wage and Hour Division</SUBAGY> <CFR>29 CFR Part 531</CFR> <RIN>RIN 1235-AA44</RIN> <SUBJECT>Tip Regulations Under the Fair Labor Standards Act (FLSA); Restoration of Regulatory Language</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Wage and Hour Division, Department of Labor. <HD SOURCE="HED">ACTION:</HD> Final rule; technical amendment. <SUM> <HD SOURCE="HED">SUMMARY:</HD> 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. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> This rule is effective December 17, 2024. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> 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: (202) 693-0406 (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. </FURINF> <SUPLINF> <HD SOURCE="HED"> SUPPLEMENTARY INFORMATION: </HD> <HD SOURCE="HD1">I. Background and Basis for the Restoration of Regulatory Text</HD> Section 6(a) of the FLSA requires covered employers to pay nonexempt employees a minimum wage of at least $7.25 per hour. <E T="03">See</E> 29 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. <SU>1</SU> <FTREF/> 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. <SU>2</SU> <FTREF/> 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. <FTNT> <SU>1</SU>   <E T="03">See</E> Fair Labor Standards Amendments of 1966, Public Law 89-601, sec. 101, 80 Stat. 830, 830 (1966); <E T="03">see also</E> 29 U.S.C. 203(m)(2)(A). </FTNT> <FTNT> <SU>2</SU>   <E T="03">See</E> 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. </FTNT> 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.”  <SU>3</SU> <FTREF/> The Department promulgated the original FLSA regulations for tipped employees in 1967, the year after Congress first created the tip credit provision. <SU>4</SU> <FTREF/> 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). <SU>5</SU> <FTREF/> 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. <E T="03">Id.</E> 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.” <E T="03">Id.</E> <SU>6</SU> <FTREF/> <FTNT> <SU>3</SU>  29 U.S.C. 203(t). </FTNT> <FTNT> <SU>4</SU>   <E T="03">See</E> 32 FR 13575 (Sept. 28, 1967). </FTNT> <FTNT> <SU>5</SU>   <E T="03">See</E> 32 FR 13580-81 (codified at 29 CFR 531.56(e)). </FTNT> <FTNT> <SU>6</SU>  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, <E T="03">see</E> 76 FR 18855, accounting for the increase of that statutory threshold effectuated by the 1977 FLSA Amendments. <E T="03">See</E> 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. </FTNT> On December 30, 2020, the Department published <E T="03">Tip Regulations Under the Fair Labor Standards Act (FLSA),</E> 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, <SU>7</SU> <FTREF/> but the dual jobs provisions in the 2020 Tip Rule never took effect. <FTNT> <SU>7</SU>   <E T="03">See</E> 85 FR 86767-72, 86790. </FTNT> The 2020 Tip Rule was published with a scheduled effective date of March 1, 2021. <SU>8</SU> <FTREF/> However, on February 26, 2021, the Department delayed the effective date of the 2020 Tip Rule until April 30, 2021. <SU>9</SU> <FTREF/> 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. <SU>10</SU> <FTREF/> On April 29, 2021, the Department finalized the proposed partial delay. <SU>11</SU> <FTREF/> <FTNT> <SU>8</SU>   <E T="03">Id.</E> at 86756. </FTNT> <FTNT> <SU>9</SU>   <E T="03">See</E> 86 FR 11632. </FTNT> <FTNT> <SU>10</SU>   <E T="03">See</E> 86 FR 15811. </FTNT> <FTNT> <SU>11</SU>   <E T="03">See</E> 86 FR 22597. </FTNT> On October 29, 2021, the Department published <E T="03">Tip Regulations Under the Fair Labor Standards Act (FLSA); Partial Withdrawal,</E> 86 FR 60114 (2021 Dual Jobs Rule), which withdrew the dual jobs provisions of the 2020 Tip Rule. <SU>12</SU> <FTREF/> 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.”  <SU>13</SU> <FTREF/> The 2021 Dual Jobs Rule took effect on December 28, 2021. <FTNT> <SU>12</SU>   <E T="03">See</E> 86 FR 60138. </FTNT> <FTNT> <SU>13</SU>  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. <E T="03">Id.</E> 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)). </FTNT> On October 29, 2024, the United States Court of Appeals for the Fifth Circuit issued a decision in <E T="03">Restaurant Law Center</E> v. <E T="03">U.S. Department of Labor,</E> 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), <E T="03">superseded on reh'g</E> (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 Ci ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 20k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━