Tip Regulations Under the Fair Labor Standards Act NPRM (1235-0018) (published)

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Federal Register / Vol. 84, No. 195 / Tuesday, October 8, 2019 / Proposed Rules

DEPARTMENT OF LABOR
Wage and Hour Division
29 CFR Parts 10, 516, 531, 578, 579,
and 580
RIN 1235–AA21

Tip Regulations Under the Fair Labor
Standards Act (FLSA)
Wage and Hour Division,
Department of Labor.
ACTION: Notice of proposed rulemaking;
withdrawal of proposed rulemaking;
request for comments.
AGENCY:

In the Consolidated
Appropriations Act, 2018 (CAA),
Congress amended section 3(m) of the
Fair Labor Standards Act (FLSA) to
prohibit employers from keeping tips
received by their employees, regardless
of whether the employers take a tip
credit under section 3(m). In this Notice
of Proposed Rulemaking (NPRM), the
Department proposes to amend its tip
regulations to address this
Congressional action. The Department
also proposes to codify policy regarding
the tip credit’s application to employees
who performed tipped and non-tipped
duties. This NPRM also withdraws the
Department’s December 5, 2017 NPRM
proposing changes to the Department’s
tip regulations, as the CAA has
superseded it.
DATES: Comments must be received on
or before December 9, 2019.
The proposed rule Tip Regulations
under the Fair Labor Standards Act,
published December 5, 2017 at 82 FR
57395, is withdrawn as of October 8,
2019.
SUMMARY:

To facilitate the receipt and
processing of written comments on this
NPRM, the Department encourages
interested persons to submit their
comments electronically. You may
submit comments, identified by
Regulatory Information Number (RIN)
1235–AA21, by either of the following
methods:
Electronic Comments: Follow the
instructions for submitting comments
on the Federal eRulemaking Portal
http://www.regulations.gov.
Mail: Address written submissions to
Amy DeBisschop, Acting Director of the
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: This NPRM is available
through the Federal Register and the
http://www.regulations.gov website.
You may also access this document via

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ADDRESSES:

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the Wage and Hour Division’s (WHD)
website at http://www.dol.gov/whd/. All
comment submissions must include the
agency name and Regulatory
Information Number (RIN 1235–AA21)
for this NPRM. 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.
Submit only one copy of your comment
by only one method (e.g., persons
submitting comments electronically are
encouraged not to submit paper copies).
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 http://www.regulations.gov,
including any personal information
provided. All comments must be
received by 11:59 p.m. on the date
indicated for consideration in this
NPRM; comments received after the
comment period closes will not be
considered. Commenters should
transmit comments early to ensure
timely receipt prior to the close of the
comment period. Electronic submission
via http://www.regulations.gov enables
prompt receipt of comments submitted
as the Department continues to
experience delays in the receipt of mail
in our area. For access to the docket to
read background documents or
comments, go to the Federal
eRulemaking Portal at http://
www.regulations.gov.
FOR FURTHER INFORMATION CONTACT:
Amy DeBisschop, Director of the
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 NPRM 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 (877) 889–5627
to obtain information or request
materials in alternative formats.
Questions of interpretation and/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 tollfree 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 http://www.dol.gov/whd/
america2.htm for a nationwide listing of
WHD district and area offices.
SUPPLEMENTARY INFORMATION:

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I. Executive Summary
The FLSA generally requires covered
employers to pay employees at least a
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). An employer may take a
tip credit only for ‘‘tipped employees’’,
and only if, among other things, its
tipped employees retain all their tips.
Id. This requirement, however, does not
preclude an employer that takes a tip
credit from implementing a tip pool in
which tips are shared only among those
employees who ‘‘customarily and
regularly receive tips.’’ Id.
In 2011, the Department revised its tip
regulations to reflect its view at the time
that the FLSA required that tipped
employees retain all tips received by
them, except for tips distributed through
a tip pool limited to employees who
customarily and regularly receive tips,
regardless of whether their employer
takes a tip credit. See, e.g., 29 CFR
531.52. On December 5, 2017, the
Department published an NPRM, 82 FR
57,395, which proposed to rescind the
parts of its tip regulations that applied
to employers that pay a direct cash wage
of at least the full Federal minimum
wage and do not take a tip credit.
On March 23, 2018, Congress
amended section 3(m) of the FLSA in
the CAA, Public Law 115–141, Div. S.,
Tit. XII, § 1201, 132 Stat. 348, 1148–49
(2018). Among other things, the CAA
revised section 3(m) by renumbering the
existing tip credit provision as section
3(m)(2)(A). Significantly, the CAA
added a new section 3(m)(2)(B), which
prohibits employers, whether or not
they take a tip credit, from keeping their
employees’ tips ‘‘for any purposes,
including allowing managers or
supervisors to keep any portion of
employees’ tips.’’ The CAA amended
sections 16(b) and 16(c) of the FLSA to
permit private parties and the
Department to recover any tips
unlawfully kept by an employer in
violation of section 3(m)(2)(B), in
addition to an equal amount of
liquidated damages. The CAA also
amended section 16(e) of the FLSA to
provide the Department discretion to
impose civil money penalties (CMPs) up
to $1,100 when employers unlawfully
keep employee’s tips.
Congress specified in the CAA that
the portions of the 2011 final rule that
‘‘are not addressed by section 3(m) . . .

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Federal Register / Vol. 84, No. 195 / Tuesday, October 8, 2019 / Proposed Rules
(as such section was in effect on April
5, 2011), shall have no further force or
effect until any future action taken by
[the Department of Labor].’’ As the
Department explained in a Field
Assistance Bulletin (FAB) published
shortly thereafter, that statement applies
to those portions of the Department’s
regulations at §§ 531.52, 531.54, and
531.59 that restricted tip pooling when
employers pay tipped employees a
direct cash wage of at least the full
FLSA minimum wage and do not claim
a tip credit. FAB No. 2018–3 (Apr. 6,
2018), available at https://www.dol.gov/
whd/FieldBulletins/fab2018_3.pdf.
Because the Congressional
amendments to the FLSA directly
impacted the subject of the
Department’s 2017 NPRM, this
document withdraws that proposal.
This document also explains the impact
of the 2018 CAA amendments on the
Department’s current tip pooling
regulations. The CAA did not change
the existing rules that apply to
employers that take a tip credit, now in
section 3(m)(2)(A) of the FLSA, which
provide that such employers may
institute a mandatory, ‘‘traditional’’ tip
pool that is limited to employees who
‘‘customarily and regularly’’ receive
tips. But the CAA did eliminate the
regulatory restrictions on an employer’s
ability to require tip pooling when it
does not take a tip credit: Such
employers may now implement
mandatory, ‘‘nontraditional’’ tip pools
in which employees who do not
customarily and regularly receive tips,
such as cooks and dishwashers, may
participate.
The CAA also created a new statutory
provision, 3(m)(2)(B), which applies to
all employers regardless of whether they
take a tip credit, and provides that
employers may not keep employees’ tips
and may not allow managers or
supervisors to keep employees’ tips.
Among other things, this new statutory
provision prohibits employers,
managers, and supervisors from
receiving employees’ tips from any tip
pooling arrangement. As explained
further herein, section 3(m)(2)(B) also
prohibits employers from operating tip
pools in a manner such that they ‘‘keep’’
tips.
The Department is proposing to
update its tip regulations to incorporate
the CAA’s amendments to the FLSA.
Although the CAA renumbered the
FLSA’s existing tip credit provision as
section 3(m)(2)(A), it did not
substantively change that provision.
Therefore, this rulemaking does not
address the Department’s existing
regulations and guidance implementing
3(m)(2)(A) that apply to employers that

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take a tip credit unless it is necessary to
clarify how those provisions relate to
the statutory amendment. The
Department is proposing to incorporate
the new statutory provision, section
3(m)(2)(B)—which applies regardless of
whether the employer takes a tip
credit—into its existing regulations and
is proposing to incorporate a new
recordkeeping provision to assist the
Department with its administration of
that provision. The Department is
additionally proposing, consistent with
Congressional action, to remove the
portions of its regulations that
prohibited employers that pay their
tipped employees a direct cash wage of
at least the full Federal minimum wage
and do not take a tip credit against their
minimum wage obligations from
including employees who do not
customarily and regularly receive tips,
such as cooks and dishwashers, in
mandatory tip pooling arrangements.
The Department is also proposing to
amend its tip regulations to reflect
recent guidance explaining that an
employer may take a tip credit for any
amount of time that an employee in a
tipped occupation performs related,
non-tipped duties contemporaneously
with his or her tipped duties, or for a
reasonable time immediately before or
after performing the tipped duties. The
proposed regulation would also address
which non-tipped duties are related to
a tip-producing occupation.
The Department is also proposing to
incorporate the FLSA’s new CMP
provision into its existing regulations.
Since the Department is proposing to
revise its CMP regulations to reflect the
statutory amendments, the Department
also proposes to revise portions of its
CMP regulations to address courts of
appeals’ decisions that have raised
concerns that some of the regulations’
statements regarding willful violations
are inconsistent with Supreme Court
authority and how the Department
actually litigates willfulness.
Finally, the Department is proposing
to amend the provisions of its
regulations that address the payment of
tipped employees under Executive
Order 13658 (Establishing a Minimum
Wage for Contractors) to reflect the
rescissions proposed in the FLSA
regulations for tipped employees, to
incorporate the Department’s guidance
on when an employee performing nontipped work is a tipped employee, and
to otherwise align those regulations
with the authority provided in the
Executive Order.
The Department estimates the rule
updating WHD’s regulations to reflect
the CAA amendments, if finalized as
proposed, could result in a potential

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transfer of $107 million, as tip pools are
expanded to share tips among both
front-of-the-house and back-of-thehouse employees. The directlyobservable transfer would only occur
among employees because section
3(m)(2)(B) prohibits employers from
participating in these tip pools or
otherwise keeping employee’s tips.
However, because back-of-the-house
workers may now be receiving tips,
employers may offset this increase in
total compensation by reducing the
direct wage that they pay back-of-thehouse workers (as long as they do not
reduce their wage below the applicable
minimum wage). This could allow
employers to capture some of the
transfer. The Department estimates that
regulatory familiarization costs
associated with this proposed rule
would be $3.86 million in the first year.
For purposes of Executive Order 13771,
it is expected that this proposed rule
would, if finalized as proposed, qualify
as a deregulatory action.
II. Background
A. Section 3(m)
As explained above, the FLSA
generally requires covered employers to
pay employees at least the Federal
minimum wage, which is currently
$7.25 per hour. Section 3(m) (now
3(m)(2)(A)) of the FLSA, however,
permits an employer to count a limited
amount of an employee’s tips (up to
$5.12 per hour) as a partial credit, called
a ‘‘tip credit,’’ to satisfy the difference
between the direct cash wage paid and
the Federal minimum wage. This partial
credit is known as a tip credit. An
employer may take a tip credit only for
a ‘‘tipped employee,’’ which section 3(t)
of the FLSA defines as ‘‘any employee
engaged in an occupation in which he
customarily and regularly receives more
than $30 a month in tips.’’ In addition,
an employer may take a tip credit under
section 3(m)(2)(A) only if, among other
things, the tipped employees retain all
the tips they receive. An employer
taking a tip credit is allowed, however,
to implement a mandatory tip pool in
which tips are shared only among
employees who ‘‘customarily and
regularly receive tips.’’
Section 3(m)(2)(B) of the FLSA, added
through the CAA, provides that ‘‘an
employer may not keep tips received by
its employees for any purposes,
including allowing managers or
supervisors to keep any portion of
employees’ tips.’’ See Div. S., Tit. XII,
§ 1201. Importantly, section 3(m)(2)(B)
applies regardless of whether an
employer takes a tip credit.

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Federal Register / Vol. 84, No. 195 / Tuesday, October 8, 2019 / Proposed Rules

B. Statutory and Regulatory History
i. 1966 and 1974 Amendments to the
FLSA 1
Congress created the FLSA’s tip credit
provision within the definition of
‘‘wages’’ in section 3(m) in 1966. See
Public Law 89–601, 101(a), 80 Stat. 830
(1966). In 1974, Congress amended
section 3(m) to provide that an
employer could not credit tips received
by its employees toward its Federal
minimum wage obligation unless,
among other things:
all tips received by such employee have been
retained by the employee, except that this
subsection shall not be construed to prohibit
the pooling of tips among employees who
customarily and regularly receive tips.

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Public Law 93–259, 13(e), 88 Stat. 55
(1974). As a result of the amendment, an
employer that takes a tip credit can
require a tipped employee to share tips
with other employees in occupations in
which they customarily and regularly
receive tips, but it cannot use
employees’ tips for any other purpose or
require tipped employees to share them
with employees who do not customarily
and regularly receive tips. As the text of
the statute makes plain, Congress only
intended to regulate employers who
take a tip credit, stating that those
employers cannot take employees’ tips
except to pool them among employees
who customarily and regularly receive
them. The text contains no indication
that Congress intended to regulate
employers who do not take a tip credit
and who use tip pools for other
purposes, such as by sharing tips with
‘‘back of the house’’ employees like
cooks and dishwashers.
The Department promulgated its
initial tip regulations in 1967, one year
after Congress created the tip credit. See
32 FR 13,575 (Sept. 28, 1967).
Consistent with the Department’s
understanding of the 1966 amendments,
the 1967 tip regulations permitted
agreements under which tips received
by employees would be transferred to
the employer. Immediately after the
1974 amendments, the Department’s
WHD stated in a number of opinion
letters that its 1967 regulations were
superseded to the extent they conflicted
with those amendments. See, e.g., WHD
Opinion Letter WH–310, 1975 WL
40934 (Feb. 18, 1974), at *1.
1 Congress amended section 3(m)’s tip credit
provision three times between 1974 and 2018, in
1977, 1989, and 1996. These amendments changed
only the applicable amount of tips received by
employees that could be used as a credit against an
employer’s minimum wage obligations. See Public
Law 95–151, 3(b), 91 Stat. 1245 (1977); Public Law
101–157, 5, 103 Stat. 938 (1989); Public Law 104–
188, 2105(b), 110 Stat. 1755 (1996).

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In 2010, the Ninth Circuit analyzed
section 3(m) and observed that ‘‘nothing
in the text of the FLSA purports to
restrict employee tip-pooling
arrangements when no tip credit is
taken.’’ Cumbie v. Woody Woo, Inc., 596
F.3d 577, 583 (9th Cir. 2010). The Ninth
Circuit reasoned that section 3(m)’s
‘‘plain text’’ merely ‘‘imposes conditions
on taking a tip credit and does not state
freestanding requirements pertaining to
all tipped employees.’’ Id. at 580–81.
The contrary position, the court
concluded, would render Section
203(m)’s ‘‘reference to the tip credit, as
well as its conditional language and
structure, superfluous.’’ Id. at 581. The
court thus held that the employer,
which did not take a tip credit, did not
violate section 203(m) by requiring its
tipped employees to contribute to a tip
pool that included employees who were
not customarily and regularly tipped.
See id.
ii. 2011 Regulations
In 2011, however, the Department
revised its 1967 tip regulations to reflect
its view of the 1974 amendments to the
FLSA. See 76 FR 18,832, 18,854–56
(Apr. 5, 2011). Notwithstanding the
Cumbie decision, the 2011 regulations
prohibited employers from, among other
things, establishing mandatory tip pools
that include employees who are not
customarily and regularly tipped—
regardless of whether employers took a
tip credit. See 29 CFR 531.52 (2011)
(‘‘The employer is prohibited from using
an employee’s tips, whether or not it has
taken a tip credit, for any reason other
than that which is statutorily permitted
in section 3(m): As a credit against its
minimum wage obligations to the
employee, or in furtherance of a valid
tip pool.’’); see also § 531.54 (providing
that ‘‘an employer . . . may not retain
any of the employees’ tips’’); § 531.59
(‘‘With the exception of tips contributed
to a valid tip pool as described in
§ 531.54, the tip credit provisions of
section 3(m) also require employers to
permit employees to retain all tips
received by the employee.’’). The
Department acknowledged that section
3(m) did not expressly address the use
of an employee’s tips when an employer
does not take a tip credit and pays a
direct cash wage equal to or greater than
the Federal minimum wage, but stated
that the regulation would fill a ‘‘gap’’
that the Department then believed to
exist in the statutory scheme. 76 FR at
18,841–42.
Multiple lawsuits have involved
challenges to the Department’s authority
under section 3(m) to regulate
employers that pay a direct cash wage
of at least the Federal minimum wage.

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The parties challenging the validity of
the 2011 regulations argued, and courts
ruling in favor of such parties have held,
that the text of section 3(m) reflected
Congress’ intent to impose conditions
only on employers that take a tip credit.
See, e.g., Trinidad v. Pret A Manger
(USA) Ltd., 962 F. Supp. 2d 545, 562
(S.D.N.Y. 2013) (‘‘Although the Court
need not resolve this issue definitively
. . . [it] finds Pret’s argument more
persuasive: The DOL regulations are
contrary to the plain language of
§ 203(m).’’).
On February 23, 2016, a divided
Ninth Circuit panel upheld the validity
of the 2011 regulations. See Oregon
Rest. & Lodging Ass’n (ORLA) v. Perez,
816 F.3d 1080, 1090 (9th Cir. 2016).
Although the Ninth Circuit declined en
banc review of the decision, ten judges
dissented on the ground that the FLSA
authorized the Department to address
tip pooling and tip retention only when
an employer takes a tip credit. See
ORLA, 843 F.3d 355, 356 (9th Cir. 2016)
(O’Scannlain, J., dissenting from denial
of reh’g en banc). The dissent noted the
Ninth Circuit’s decision in Cumbie that
the FLSA ‘‘clearly and unambiguously
permits employers who forgo a tip
credit to arrange their tip-pooling affairs
however they see fit.’’ Id. at 358 (citing
Cumbie, 596 F.3d at 579 n.6, 581, 581
n.11, 582, 583). The dissent therefore
concluded that ‘‘because the
Department has not been delegated
authority to ban tip pooling by
employers who forgo the tip credit, the
Department’s assertion of regulatory
jurisdiction is manifestly contrary to the
statute and exceeds its statutory
authority.’’ Id. at 363 (internal quotation
marks omitted). On January 19, 2017,
the National Restaurant Association, on
behalf of itself and other ORLA
plaintiffs, sought Supreme Court review.
See Pet’n for Writ of Cert., ORLA sub
nom. Nat’l Rest. Ass’n v. U.S. DOL, (Jan.
19, 2017) (No. 16–920).
On June 30, 2017, the Tenth Circuit
ruled that the Department’s 2011 tip
regulations were invalid to the extent
they barred an employer from using or
sharing tips with employees who do not
customarily and regularly receive tips
when the employer pays a direct cash
wage of at least the Federal minimum
wage and does not take a section 3(m)
tip credit. See Marlow v. New Food Guy,
Inc., 861 F.3d 1157, 1159 (10th Cir.
2017). The Tenth Circuit held that the
text of the FLSA limits an employer’s
use of tips only when the employer
takes a tip credit, ‘‘leaving [the
Department] without authority to
regulate to the contrary.’’ See Marlow,
861 F.3d at 1163–64.

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On July 20, 2017, the Department
adopted a nationwide ‘‘nonenforcement
policy’’ under which the Department
would ‘‘not enforce’’ the 2011
regulations in any context in which an
employer pays its employees a direct
cash wage of at least the Federal
minimum wage. See 82 FR 57395, 57399
(Dec. 5, 2017).
On May 22, 2018, the government
responded to the petition for certiorari
in ORLA, then captioned as Nat’l Rest.
Ass’n (NRA) et al. v. Dept. of Labor et
al, explaining that the Department had
reconsidered its defense of the 2011
regulations in light of the ten-judge
dissent from denial of rehearing in
ORLA and the Tenth Circuit’s decision
in Marlow, and that it believed that it
had exceeded its statutory authority in
promulgating the 2011 regulations as
they apply to employers that do not take
a tip credit against their Federal
minimum wage obligations. The
government explained that ‘‘until the
2018 [congressional] amendments,
Section 203(m) placed limits only on
employers that took a tip credit,’’ and
that ‘‘[n]either Section 203(m) nor any
other provision of the FLSA prevents an
employer that pays at least the
minimum wage from instituting a
nontraditional tip pool [that includes
back-of-the-house employees like cooks
and janitors] for employees’ tips.’’ Br.
for the Respondents at 26–27, NRA (No.
16–920). On June 25, 2018, the Supreme
Court denied the petition for certiorari.

such as dishwashers or cooks. See, e.g.,
82 FR 57399.
A number of commenters on the
NPRM supported allowing employers to
establish these tip pools. Several
commenters pointed out that these
workers contribute to each customer’s
overall service, which directly affects
the size of the customer’s tip. Many
commenters, however, expressed
concern that without regulatory
protections in place, an employer would
take tips received by employees for its
own purposes.
During a hearing on March 6, 2018,
before the Subcommittee on Labor,
Health and Human Services, and
Education of the U.S. House of
Representatives Committee on
Appropriations, Secretary of Labor R.
Alexander Acosta was asked about the
proposed rulemaking. The Secretary
explained that the Tenth Circuit had
made clear in Marlow, in reasoning the
Secretary found persuasive, that the
Department lacked statutory authority
for its 2011 regulations at issue, and that
the Secretary had concluded that
Congress has not authorized the
Department to fully regulate in this
space. The Secretary, however,
explained that Congress had the
authority to implement a solution, and
he suggested that Congress enact
legislation providing that
establishments, whether or not they take
a tip credit, may not keep any portion
of employees’ tips.2

iii. 2017 Notice of Proposed Rulemaking

C. The CAA’s Amendments to the FLSA

On December 5, 2017, the Department
published an NPRM proposing to
rescind the portions of its 2011 tip
regulations that imposed restrictions on
employers that pay a direct cash wage
of at least the full Federal minimum
wage and do not take a tip credit against
their minimum wage obligations. See 82
FR 57395 (Dec. 5, 2017). The
Department issued the 2017 NPRM in
part because of its concerns, in light of
the ORLA rehearing dissent and the
Tenth Circuit’s decision in Marlow, that
it had misconstrued the statute when it
promulgated the 2011 regulations. 82 FR
57399. The Department stated that
where ‘‘an employer has paid a direct
cash wage of at least the full Federal
minimum wage and does not take the
employee tips directly, a strong
argument exists that the statutory
protections of section 3(m) do not
apply.’’ 82 FR 57402. The Department
also proposed allowing these employers
to establish tip pools that include
employees who contribute to the
customers’ experience but do not
customarily and regularly receive tips—

On March 23, 2018, Congress
amended the FLSA through the CAA to
further address employers’ practices
with respect to their employees’ tips.
Public Law 115–141, Div. S., Tit. XII,
sec. 1201. The Department issued a FAB
that provided guidance concerning
WHD enforcement of the CAA
amendments on April 6, 2018. See FAB
No. 2018–3 (Apr. 6, 2018).

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i. Amendments to Section 3(m) of the
FLSA
The CAA left unchanged the existing
text of section 3(m), but recodified it as
section 3(m)(2)(A). Thus, the CAA did
not alter the FLSA’s longstanding
requirements that apply to employers
that take a tip credit.
The CAA did, however, add new
requirements for all employers. The
CAA added a new section to the FLSA,
3(m)(2)(B). This provision expressly
prohibits employers—regardless of
whether they take a tip credit under
2 A recording of the testimony is available at:
https://www.congress.gov/committees/video/houseappropriations/hsap00/6Weo1vfNM1k.

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section 3(m)—from keeping tips
received by their employees, including
by distributing them to managers or
supervisors: ‘‘An employer may not
keep tips received by its employees for
any purposes, including allowing
managers or supervisors to keep any
portion of employees’ tips, regardless of
whether or not the employer takes a tip
credit.’’ CAA, Div. S, Tit. XII, § 1201(a)
(codified as amended at 29 U.S.C.
203(m)(2)(B)); see FAB No. 2018–3.
ii. Effect on Regulations
The CAA amendments also expressly
addressed the portions of the
Department’s 2011 regulations that
restricted tip pooling when employers
pay tipped employees a direct cash
wage of at least the full FLSA minimum
wage and do not take a tip credit. CAA,
Div. S, Tit. XII, § 1201(c). Section
1201(c) of the CAA provides that the
portions of WHD’s regulations at 29 CFR
531.52, 531.54, and 531.59 that were
‘‘not addressed by section 3(m) . . . (as
such section was in effect on April 5,
2011), shall have no further force or
effect until any future action taken by
[the Department of Labor].’’ The
Department explained in a FAB that this
statutory language had the effect of
depriving of any further force or effect
the Department’s existing regulations
prohibiting employers that pay tipped
employees the full Federal minimum
wage from including back-of-the-house
workers, such as cooks and
dishwashers, in a tip pool. See FAB No.
2018–3.
iii. Amendments to Section 16 of the
FLSA
The CAA also amended section 16(b)
of the FLSA, which provides in part that
an employee may sue for unpaid
minimum wages or overtime
compensation. The amendment to this
provision states that ‘‘[a]ny employer
who violates section 3(m)(2)(B) shall be
liable to the employee or employees
affected in the amount of the sum of any
tip credit taken by the employer and all
such tips unlawfully kept by the
employer, and in an additional equal
amount as liquidated damages.’’ CAA,
Div. S, Tit. XII, sec. 1201(b)(1). The
amendment thus permits employees to
sue for double the sum of any tips
illegally kept by their employer and the
amount of any tip credit taken by such
employer.
Section 16(c) of the FLSA authorizes
the Department to enforce the proper
payment of unpaid minimum wages
and/or unpaid overtime compensation.
The CAA amended section 16(c) by
adding to the Department’s enforcement
authority: ‘‘The authority and

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requirements described in this
subsection shall apply with respect to a
violation of section 3(m)(2)(B), as
appropriate, and the employer shall be
liable for the amount of the sum of any
tip credit taken by the employer and all
such tips unlawfully kept by the
employer, and an additional equal
amount as liquidated damages.’’ CAA,
Div. S, Tit. XII, sec. 1201(b)(2).
Accordingly, when an employer
unlawfully keeps an employee’s tips in
violation of section 3(m)(2)(B), the
Department may recover on behalf of
the employee the same doubled sum of
any tips kept and tip credit taken by the
employer.
Section 16(e)(2) provides that any
person who repeatedly or willfully
violates the minimum wage or overtime
provisions of the FLSA shall be subject
to a civil money penalty not to exceed
$1,100 for each such violation.3 The
CAA amended this section to add: ‘‘Any
person who violates section 3(m)(2)(B)
shall be subject to a civil penalty not to
exceed $1,100 for each such violation,
as the Secretary determines appropriate,
in addition to being liable to the
employee or employees affected for all
tips unlawfully kept, and an additional
equal amount as liquidated damages[.]’’
CAA, Div. S, Tit. XII, sec. 1201(b)(3).
The amendment thus added a new civil
money penalty for violations of section
3(m)(2)(B).
III. Withdrawal of the 2017 NPRM
As noted above, on December 5, 2017,
the Department published an NPRM
which proposed to rescind the parts of
its tip regulations that applied to
employers that pay a direct cash wage
of at least the full Federal minimum
wage and do not take a tip credit.
The CAA amendments to the statutory
text of the FLSA, which were signed
into law on March 23, 2018, directly
impacted the subject of the 2017
proposed rulemaking—employers that
pay at least the full Federal minimum
wage and do not take a tip credit under
section 3(m). For that reason, the
Department is withdrawing the 2017
NPRM and is addressing the 2018 CAA
amendments through this rulemaking.

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IV. Section-by-Section Analysis of
Proposed Regulatory Revisions
This section describes in detail the
Department’s proposed changes to its
3 The Federal Civil Penalties Inflation Adjustment
Act of 1990 (Pub. L. 101–410), as amended by the
Debt Collection Improvement Act of 1996 (Pub. L.
104–134, sec. 31001(s)) and the Federal Civil
Penalties Inflation Adjustment Act Improvement
Act of 2015 (Publ. L. No. 114–74, sec. 701), requires
that inflationary adjustments be made annually in
these civil money penalties according to a specified
cost-of-living formula.

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tip regulations to implement the CAA
amendments and address other issues.
As discussed above, the CAA
amendments deprived of any further
force or effect the portions of the
Department’s 2011 regulations that
restricted tip pooling when employers
pay tipped employees a direct cash
wage of at least the full FLSA minimum
wage and do not take a tip credit, until
future action by the WHD
Administrator. At the same time, the
CAA amendments expressly prohibit
employers from keeping tips received by
their employees for any purposes,
regardless of whether the employer
takes a tip credit. Pursuant to section
1201(c) of the CAA amendments and
consistent with its position articulated
in the 2017 NPRM, the Department
proposes to strike the portions of its
current regulations that prohibit
employers that pay their tipped
employees a direct cash wage at least
equal to the Federal minimum wage and
do not take a tip credit from establishing
mandatory tip pools with employees
who do not customarily and regularly
receive tips, such as dishwashers and
cooks.
The Department also proposes to
amend § 531.52 to implement newly
added section 3(m)(2)(B), which
prohibits employers—regardless of
whether they take a tip credit—from
keeping employees’ tips for any
purposes, including allowing managers
and supervisors to keep the tips. The
proposed regulation defines an
individual who is a manager or
supervisor, and therefore may not keep
employees’ tips under section
3(m)(2)(B), as an individual who meets
the duties test at § 541.100(a)(2)–(4) or
§ 541.101.
The Department also proposes to
amend § 531.54 to reflect the new
statutory provision, section 3(m)(2)(B).
Proposed § 531.54(b) clarifies that
section 3(m)(2)(B)’s prohibition on
keeping tips applies regardless of
whether the employer takes a tip credit
and precludes employers from
including themselves, managers, and/or
supervisors in employer-mandated tip
pools. Proposed § 531.54(b) also
explains that although section
3(m)(2)(B) prohibits employers from
sharing employees’ tips with
supervisors, managers, and employers,
an employer may institute a mandatory
tip pool that requires employees to
share or pool tips with other eligible
employees. Proposed § 531.54(b) further
provides that any employer that collects
tips to facilitate a mandatory tip pool
must fully redistribute the tips, no less
often than when it pays wages, to avoid

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‘‘keep[ing]’’ the tips in violation of
section 3(m)(2)(B).
Proposed §§ 531.54(c) and (d) would
also set forth the different tip pooling
requirements for employers that take a
tip credit and for those that do not.
Because the CAA did not substantively
amend the statutory requirements under
3(m)(2)(A) that apply to employers that
take a tip credit, the Department does
not propose to change its existing tip
pooling requirements in § 531.54 that
apply to those employers. Those
existing requirements, in relevant part,
state that employers can only require
tipped employees to contribute tips to a
‘‘traditional’’ tip pool, comprised of
employees who customarily and
regularly receive tips. In contrast, under
the CAA amendments, an employer that
chooses not to take a tip credit may
require tipped employees to contribute
tips to a ‘‘nontraditional’’ pool that
includes employees, such as
dishwashers and cooks, who are not
employed in an occupation in which
employees customarily and regularly
receive tips. The proposed regulation
clarifies that an employer that requires
such a tip pool must pay a direct cash
wage of at least the full Federal
minimum wage to any tipped employee
who contributes tips to the pool.
The Department is also proposing to
amend § 531.56(e) to reflect recent
guidance that an employer may take a
tip credit for time that an employee in
a tipped occupation performs related,
non-tipped duties contemporaneously
with or a reasonable time immediately
before or after performing the tipped
duties. The proposed regulation would
also address which non-tipped duties
are related to a tip-producing
occupation.
The Department additionally
proposes incorporating into its
regulations the CAA amendments that
provide for civil money penalties for
violations of section 3(m)(2)(B). Since
the Department is proposing to revise its
regulations to reflect this new CMP
provision, which, as proposed, would
apply only to repeated and willful
violations, the Department also
proposes to revise its existing CMP
regulations to address courts of appeals’
decisions that have raised concerns that
some of the regulations’ statements
regarding willful violations are
inconsistent with Supreme Court
authority and how the Department
actually litigates willfulness.
Finally, the Department proposes to
amend the provisions of § 10.28, which
addresses the payment of tipped
employees under Executive Order 13658
(Establishing a Minimum Wage for
Contractors), to make them consistent

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with its proposed rescissions to the
FLSA regulations, to remove similar
restrictions on an employer’s use of
nontraditional tip pools, to otherwise
align those regulations with the
authority provided in the Executive
Order, and to incorporate the
Department’s recent guidance on when
an employee performing non-tipped
work is a tipped employee.
The Department seeks public
comment on these proposed regulatory
changes. The Department asks
commenters to define in their comments
any terms they use to describe practices
regarding tips. This NPRM uses the term
‘‘tip pooling’’ to describe any scenario
in which a tip provided by a customer
is shared, in whole or in part, among
employees. The Department recognizes,
however, that in some workplaces or
under state laws, the term ‘‘tip pooling’’
may refer to a narrower set of practices,
and that employers and workers may
use other terms—for example ‘‘tip out,’’
‘‘tip sharing,’’ or ‘‘tip jar’’—to describe
certain practices regarding tips.
A. Rescission of Portions of Sections
531.52, 531.54, and 531.59

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As noted above, section 1201(c) of the
CAA provides that the portions of the
Department’s regulations at 29 CFR
531.52, 531.54, and 531.59 that were
‘‘not addressed by section 3(m)’’ ‘‘shall
have no further force or effect[.]’’ CAA,
Div. S, Tit. XII, sec. 1201(c). This
statutory language deprives of any
further force or effect the portions of
§§ 531.52, 531.54, and 531.59 that
impose restrictions on an employer’s
use of employees’ tips when the
employer does not take a tip credit. As
the Department explained in its FAB,
under the CAA amendments, employers
that do not take a tip credit may now
establish mandatory tip pools that
include employees who do not
customarily and regularly receive tips,
such as back-of-the-house workers like
cooks and dishwashers. See FAB No.
2018–3. Section 1201(c) of the CAA did
not impact the portions of §§ 531.52,
531.54, and 531.59 that apply to
employers that do take a tip credit.
Consistent with the statutory
language, as well as the Department’s
statements in the 2017 NPRM,4 the
Department proposes to rescind the
language in § 531.52 that bars employers
4 As explained above, the government’s brief in
response to the petition for certiorari in the NRA
litigation explained that the Department had
reconsidered its defense of the 2011 regulations,
and that it believed that it had exceeded its
statutory authority in promulgating the 2011
regulations as they apply to employers that do not
take a tip credit against their Federal minimum
wage obligations.

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from establishing mandatory tip pools
that include employees who are not
customarily and regularly tipped,
‘‘whether or not it takes a tip credit,’’
and to make additional minor clarifying
edits; to revise §§ 531.54 to clarify that
the restrictions and notice requirements
for tip pools apply only to employers
that take a tip credit; and to revise
§ 531.59 to provide that the bar on
including employees who are not
customarily and regularly tipped in a
mandatory tip pool applies only to
employers that take a tip credit.
B. Proposed Section 531.52—General
Restrictions on an Employer’s Use of Its
Employees’ Tips
i. An Employer May Not Keep Tips,
Regardless of Whether It Takes a Tip
Credit
Section 3(m)(2)(B) prohibits an
employer, regardless of whether it takes
a tip credit, from ‘‘keeping’’ tips
received by its employees ‘‘for any
purposes, including allowing managers
and supervisors to keep any portion of
employees’ tips.’’ Under the amended
statute, an employer does not ‘‘keep’’
employees’ tips in violation of section
3(m)(2)(B) merely by requiring an
employee who receives a tip to share it
with other eligible employees who also
contributed to the service provided to
the customer. In those circumstances,
the employees, not the employer, keep
the tips. Section 3(m)(2)(B), however,
prohibits an employer from using its
employees’ tips for any other purpose.
An employer would ‘‘keep’’ tips, for
example, by using tips to cover its own
general operating expenses, using tips to
pay for capital improvements, or
directing the tips to an individual who
is not an employee, such as a vendor.
This is true for tips provided through a
credit card transaction, as well as for
cash tips. The Department proposes to
amend § 531.52 to include the new
statutory language prohibiting an
employer from keeping employees’ tips,
and to clarify that an employer may
exert control over employees’ tips only
to distribute tips to the employee who
received them, require employees to
share tips with other eligible employees,
or, where the employer facilitates tip
pooling by collecting and redistributing
employees’ tips, distribute tips to
employees in a tip pool.
The statutory language prohibits an
‘‘employer’’ from ‘‘keep[ing] tips
received by its employees.’’ The term
‘‘employer’’ is defined in section 3(d) of
the FLSA to mean ‘‘any person [or
entity] acting directly or indirectly in
the interest of an employer in relation
to an employee . . . .’’ Therefore, a

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53961

person or entity that meets the
definition of a section 3(d) employer
may not keep or receive tips from a tip
pool.
ii. Managers and Supervisors May Not
Keep Tips
As explained above, section
3(m)(2)(B) prohibits employers,
regardless of whether they take a tip
credit, from keeping tips, ‘‘including
allowing managers or supervisors to
keep any portion of employees’ tips.’’ 29
U.S.C. 203(m)(2)(B). This prohibition
applies to managers or supervisors
obtaining employees’ tips directly or
indirectly, such as via a tip pool. The
Department’s current enforcement
policy under FAB No. 2018–3 is to use
the duties test under the executive
employee exemption of FLSA section
13(a)(1), as defined at 29 CFR
541.100(a)(2)–(4), to determine whether
an employee is a manager or supervisor
for purposes of section 3(m)(2)(B).
Proposed § 531.52 would reflect this
policy. Because an employee who
satisfies the executive duties test
manages and supervises other
employees, the test effectively identifies
those employees whom Congress sought
to preclude from keeping tips. The
Department does not propose to use the
salary requirements at § 541.100(a)(1) to
help determine whether an employee is
a manager or supervisor for purposes of
section 3(m)(2)(B). Accordingly, this
proposal would interpret the terms
‘‘manager’’ and ‘‘supervisor’’ under
section 3(m)(2)(b) more broadly—and to
encompass more employees—than the
term ‘‘executive’’ as used in Section
13(a)(1).
Sections 541.100(a)(2)–(4) provide
that a manager or supervisor satisfies
the duties test of the executive
employee exemption if (1) the
employee’s primary duty is managing
the enterprise, or managing a
customarily recognized department or
subdivision of the enterprise (see
§ 541.100(a)(2)); (2) the employee
customarily and regularly directs the
work of at least two or more other fulltime employees or their equivalent (see
§ 541.100(a)(3)); and (3) the employee
has the authority to hire or fire other
employees, or the employee’s
suggestions and recommendations as to
the hiring, firing, advancement,
promotion, or any other change of status
of other employees are given particular
weight (see § 541.100(a)(4)). In addition,
an employee who owns at least a bona
fide 20-percent equity interest in the
enterprise in which she is employed,
regardless of the type of business
organization (e.g., corporation,
partnership, or other), and who is

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actively engaged in its management, as
defined under 29 CFR 541.101, would
be considered a manager or supervisor
for purposes of section 3(m)(2)(B). The
Department believes that these wellestablished criteria would effectively
identify employees who manage or
supervise other employees and therefore
those whom Congress sought to prevent
from keeping other employees’ tips. The
Department additionally believes that
employers can readily use these criteria
to determine whether an employee is a
manager or supervisor for purposes of
section 3(m)(2)(B) because employers
are generally familiar with these
longstanding regulations. Moreover, the
Department’s staff is highly trained, and
has extensive experience, in applying
and enforcing these longstanding
regulations.
The Department requests comments
regarding whether other criteria may
also be appropriate to determine
whether an employee is a manager or
supervisor for purposes of section
3(m)(2)(B), particularly in the varied
situations where tipping is common.

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C. Proposed Section 531.54—Tip
Pooling
The Department also proposes to
amend § 531.54, which generally
addresses tip pooling, to reflect the CAA
amendments. Proposed § 531.54
incorporates section 3(m)(2)(B)’s
prohibition on employers keeping tips,
including allowing managers or
supervisors to keep employees’ tips.
This prohibition applies regardless of
whether the employer takes a tip credit,
and therefore governs any employer that
facilitates or operates a mandatory tip
pool. Proposed § 531.54 also contains
other specific requirements for
employers that establish mandatory tip
pools, depending on whether they
include employees who do not
customarily and regularly receive tips.
i. Requirements When an Employer
Collects and Redistributes Tips
The Department recognizes that
employers operate a variety of tip
pooling and tip sharing arrangements
and that some employers may wish to
pool tips received by one set of
employees and redistribute them to
another. Section 3(m)(2)(B) does not
prohibit an employer from doing so, as
long as the employer fully redistributes
the tips no less often than when it pays
wages. In those circumstances, the
employees’ tips are only temporarily
within the employer’s possession, and
the employer does not ‘‘keep’’ the tips.
When an employer collects employees’
tips but fails to distribute them within
this time period, however, and instead

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holds the tips, the employer ‘‘keeps’’
them in violation of section 3(m)(2)(B).
For example, an employer may not
maintain a reserve of collected tips from
one pay period to pay out in a
subsequent pay period.
Proposed § 531.54(b)(1) provides that
an employer that collects tips to
administer a tip pool must fully
distribute any tips the employer collects
at the regular payday for the workweek,
or when the pay period covers more
than a single workweek, at the regular
payday for the period in which the
particular workweek ends. To the extent
that it is not possible for an employer to
ascertain the amount of tips received or
how tips should be distributed prior to
processing payroll, the proposed rule
requires the distribution of those tips to
employees as soon as practicable after
the regular payday. Thus, for a twoweek pay period, an employer must
fully distribute any tips the employer
collects during those two weeks on the
regular payday for that period, or to the
extent that it is not possible to ascertain
the amount or distribution of the tips, as
soon as possible following that payday.
This proposed requirement aligns with
the Department’s current guidance on
how soon an employer must provide
tips charged on credit cards to tipped
employees. See WHD Field Operations
Handbook (FOH) 30d05.
Because the proposal defines ‘‘keep’’
within the meaning of section
3(m)(2)(B), the proposed requirement
that an employer fully and promptly
distribute any tips it collects would
apply regardless of whether the
employer takes a tip credit, and
regardless of whether the employer
requires employees to participate in a
‘‘traditional’’ tip pool or in a
‘‘nontraditional’’ tip pool.
The Department requests comments
on this proposed requirement, and
requests information about how this
requirement might affect employers’
current practices for administering tip
pools and tip distribution.
ii. Additional Requirements for
Mandatory Tip Pools When an
Employer Takes a Tip Credit
Current § 531.54 provides that an
employer, regardless of whether it takes
a tip credit, may only require its tipped
employees to share tips with other
employees who customarily and
regularly receive tips. The employer
also must notify its employees of any
required tip pool contribution amount,
may only take a tip credit for the
amount of tips each employee
ultimately receives, and may not retain
any of the employees’ tips for any other
purpose. Although, as discussed above,

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the CAA amendments deprived of any
further force or effect these regulatory
tip pooling requirements as they apply
to employers that do not take a tip
credit, the CAA did not affect these
requirements as they apply to employers
that do take a tip credit. Therefore,
proposed § 531.54(c) retains these
requirements but clarifies that they
apply only to employers that take a tip
credit.
iii. Conditions Under Which an
Employer May Mandate Participation in
a Nontraditional Tip Pool
As explained above, as a result of the
CAA amendments to the FLSA,
employers that do not take a tip credit
may now require tipped employees to
participate in nontraditional tip pools
that include employees who do not
customarily and regularly receive tips,
such as cooks and dishwashers, so long
as the pools do not include employers,
managers, or supervisors. Proposed
§ 531.54(d) implements these
conditions.
As explained above, the CAA did not
substantively amend the FLSA’s
existing tip credit provision, which
states that employers may only take a
tip credit against their minimum wage
obligations to employees who are
employed in an occupation in which
they customarily and regularly receive
tips, such as bussers and servers, and
that employers that take a tip credit may
only require tip pooling among such
employees. See 29 U.S.C. 203(m)(2)(A).
Over the years, the Department has
developed guidance for itself on how to
identify customarily and regularly
tipped employees. See, e.g., WHD
Opinion Letter FLSA 2009–12, 2009 WL
649014 (Jan. 15, 2009); WHD Opinion
Letter FLSA 2008–18, 2008 WL 5483058
(Dec. 19, 2008); WHD FOH 30d04(b), (f)
(listing occupations that do, and do not,
meet these criteria). This guidance is
based in large part on the legislative
history of the FLSA’s tip credit
provision. See S. Rep. No. 93–690, at 43
(1974).5 According to this guidance,
employers may not take a tip credit for
back-of-the-house employees who
receive tips through a tip pool because
those employees are not employed in an
occupation in which they customarily
and regularly receive tips. Similarly,
employers may not include those noncustomarily and regularly tipped
employees in a traditional section
3(m)(2)(A) tip pool.
5 Since the CAA did not change the FLSA’s
existing tip credit provision, that guidance is still
applicable to an employer that takes a tip credit.

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D. Proposed Section 516.28—
Recordkeeping Requirements for
Employers That Have Employees Who
Receive Tips
The Department is proposing
revisions to the recordkeeping
requirements in § 516.28 to provide
consistent and effective administration
of section 3(m)(2)(B) of the FLSA.
Section 516.28 imposes certain
recordkeeping requirements on only
those employers that take a tip credit.
Among other things, § 516.28(a) requires
that the employer identify each
employee for whom the employer takes
a tip credit (see § 516.28(a)(1)) and
maintain records regarding the weekly
or monthly amount of tips received, as
reported by the employee to the
employer (see § 516.28(a)(2)). The
employer may use information on IRS
Form 4070 (Employee’s Report of Tips
to Employer) to satisfy the requirements
under § 516.28(a)(2).6
The Department proposes to apply
similar recordkeeping requirements for
employers that do not take a tip credit
but still collect employees’ tips to
operate a mandatory tip pool. Proposed
§ 516.28(b)(1) would require these
employers to identify on their payroll
records each employee who receives
tips. Proposed § 516.28(b)(2) would
require employers that do not take a tip
credit but that collect tips to operate a
mandatory tip pool to keep records of
the weekly or monthly amount of tips
received by each employee as reported
by the employee to the employer (this
may consist of reports from the
employees to the employer on IRS Form
4070). The proposed recordkeeping
requirements would help the
Department determine whether
employers are complying with their tip
pooling obligations. The Department
requests comments on these proposed
requirements.
E. Proposed Section 531.56(e)—Dual
Jobs
The Department proposes to amend
§ 531.56(e) to reflect recent guidance,
which addresses whether an employer
can take a tip credit for the time that a
tipped employee spends performing
duties in a tipped occupation that do
not produce tips. 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.’’ 29 U.S.C.
203(t). Current § 531.56(e) recognizes
6 For information regarding IRS Form 4070, see
https://www.irs.gov/pub/irs-access/f4070_
accessible.pdf.

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that an employee may be employed both
in a tipped occupation and in a nontipped occupation, providing that in
such a ‘‘dual jobs’’ situation, the
employee is a ‘‘tipped employee’’ for
purposes of section 3(t) only while he or
she 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. In addition to addressing
dual jobs, the current regulation also
recognizes that an employee in a tipped
occupation may perform related duties
that are ‘‘themselves not 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.’’
The regulation distinguishes this
situation, in which the employee is still
engaged in the tipped occupation of
serving, from a dual jobs situation, in
which the employee is engaged part of
the time in a non-tipped occupation. 29
CFR 531.56(e).
The Department has in the past
provided enforcement guidance on
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.
Previously, the Department advised that
an employer may not take a tip credit
for the time an employee spent
performing related duties that do not
produce tips if that time exceeded 20
percent of the employee’s workweek.
However, this policy 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. One
court described it as ‘‘infeasible,’’
observing that the policy would
‘‘present a discovery nightmare’’ and
require employers to ‘‘keep the
employee under perpetual surveillance
or require them to maintain precise time
logs accounting for every minute of their
shifts.’’ Pellon v. Bus. Representation
Int’l, Inc., 528 F. Supp. 2d 1306, 1314
(S.D. Fla. 2007), aff’d, 291 F. App’x 310
(11th Cir. 2008). The Department
believes that such a situation would
help neither employer nor employee.
See WHD Opinion Letter FLSA 2018–
27, 2018 WL 5921455, at *3 (Nov. 8,
2018).
In November 2018, the Department
issued an opinion letter addressing
these issues.7 The Department
7 The

Department had provided the same
guidance initially in WHD Opinion Letter

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subsequently issued a FAB and revised
its Field Operations Handbook (FOH) to
reflect the interpretation of related
duties in the opinion letter. See FAB
2019–2 (Feb. 15, 2019); WHD FOH
30d00(f). In these guidance documents,
the Department explained that it 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 FAB
2019–2, at *2 (Feb. 15, 2019) (‘‘[Section]
531.56(e) includes non-tipped duties in
the tip credit unless they are unrelated
to the tipped occupation or part of a
separate, non-tipped occupation in a
‘dual job’ scenario. Accordingly, an
employer may take a tip credit for any
duties that an employee performs in a
tipped occupation that are related to
that occupation and either performed
contemporaneous with the tipproducing activities or for a reasonable
time immediately before or after the
tipped activities.’’); see also WHD FOH
30d00(f) WHD Opinion Letter
FLSA2018–27, 2018 WL 5921455, at *3–
4 (Nov. 8, 2018). The Department
believes this policy is consistent with
the plain statutory text, which permits
employers to take a tip credit based on
whether an employee is engaged in a
tipped ‘‘occupation,’’ not on whether
the employee is performing certain
kinds of duties within the tipped
occupation.
In its recent guidance, the Department
also explained that, in addition to the
examples listed in 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.
O*NET is a comprehensive database of
worker attributes and job characteristics,
and is available to the public online at
www.onetonline.com. O*NET includes
information on work activities for over
900 occupations based on the Standard
Occupational Classification system, a
statistical standard used by federal
agencies to classify workers into
occupational categories for the purpose
of collecting, calculating, or
disseminating data.
The Department is proposing to revise
§ 531.56(e) to reflect the guidance on
related duties in the recent opinion
letter, FAB, and FOH revisions.
Proposed § 531.56(e) would retain
current language on dual jobs providing
that when an individual is employed in
FLSA2009–23, which was issued on January 16,
2009 and was withdrawn on March 2, 2009 ‘‘for
further consideration.’’

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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. It
would also continue to distinguish such
a dual jobs scenario from one in which
an employee performs duties that are
related to her tipped occupation but not
themselves directed toward producing
tips. The proposed regulation would
clarify that an employer may take a tip
credit for any amount of time that an
employee performs related, non-tipped
duties contemporaneously with his or
her tipped duties, or for a reasonable
time immediately before or after
performing the tipped duties. Proposed
§ 531.56(e) would also provide that, in
addition to the examples listed in the
regulation, a non-tipped duty is related
to a tip-producing occupation if the
duty is listed as a task of the tipproducing occupation in the
Occupational Information Network
(O*NET).
The Department requests comments
on these proposed changes to
§ 531.56(e). The Department is
particularly interested in comments on
how to identify related duties for
occupations that may qualify as tipped
occupations, but which lack a
description in the O*NET database,
perhaps because they are newly
emerging. In its enforcement guidance,
the Department has stated that when an
O*NET description does not exist for an
occupation, the Department will
consider any duties usually and
customarily performed by employees in
that occupation to be related duties so
long as the duties are consistent with
the related duties for similar
occupations listed in O*NET.
F. Proposed Parts 578, 579, and 580—
Civil Money Penalties
Section 1201(b)(3) of the CAA
amended FLSA section 16(e)(2) by
adding a new penalty provision: ‘‘Any
person who violates section 3(m)(2)(B)
shall be subject to a civil penalty not to
exceed $1,100 for each such violation,
as the Secretary determines appropriate,
in addition to being liable to the
employee or employees affected for all
tips unlawfully kept, and an additional
equal amount as liquidated damages, as
described in subsection (b).’’
The CAA thus provides the
Department with discretion to impose
CMPs up to $1,100 8 when employers
unlawfully keep employee tips,
including when they allow managers or
supervisors to keep any portion of
8 This number is adjusted by inflation annually as
required by the authorities in footnote 5 of this
NPRM.

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employees’ tips. See 29 U.S.C.
203(m)(2)(B). In assessing CMPs for
violations of section 3(m)(2)(B) under
amended section 16(e)(2), the
Department proposes to follow the same
guidelines and procedures that it
follows for assessing CMPs for violation
of the minimum wage (section 6) and
overtime (section 7) provisions of the
FLSA, and to issue CMPs only when it
determines there has been a willful or
repeated violation of section 3(m)(2)(B).
The Department has been assessing
CMPs for repeated or willful violations
of the minimum wage and overtime
provisions of the FLSA using the
guidelines in part 578 and procedures in
part 580 for nearly three decades. As
such, employers are generally familiar
with these regulations, and the
Department’s staff and Administrative
Law Judges have experience applying
them.
Part 578 of the Department’s
regulations (§§ 578.1–578.4) sets out the
criteria the Department uses when
determining whether a minimum wage
or overtime violation is repeated or
willful and thus subject to a CMP, as
well as the amount of any CMP it
assesses, and part 580 (§§ 580.1–580.18)
sets out the procedures for assessing and
contesting CMPs. Additionally,
§ 579.1(a) lists the maximum allowable
CMPs for violations of the FLSA’s child
labor, minimum wage, and overtime
provisions. See 29 CFR 579.1. The
Department proposes to revise § 578.1 to
provide that section 1201 of the CAA
authorizes the Department to issue
CMPs for violations of section
3(m)(2)(B); to revise § 578.3(a)(1) to
provide that any person who willfully
or repeatedly violates section 3(m)(2)(B)
shall be subject to a CMP not to exceed
$1,100 (as adjusted for inflation under
the IAA); to revise §§ 578.3(b)–(c) to
provide that the Department will use the
criteria therein to determine whether an
employer’s violation of section
3(m)(2)(B) is repeated or willful and
thus subject to a civil penalty; and to
revise § 578.4 to provide that the
Department will determine the amount
of the penalty for repeated or willful
violations of section 3(m)(2)(B)
according to the guidelines set forth in
that section. The Department proposes
to revise §§ 579.1(a) and 579.1(a)(2) to
provide that, consistent with the CAA
amendments, any person who willfully
or repeatedly violates section 3(m)(2)(B)
shall be subject to a CMP not to exceed
$1,100. Additionally, the Department
proposes to revise §§ 580.2, 580.3,
580.12, and 580.18 to provide that the
assessment of civil penalties for
violations of section 3(m)(2)(B) shall be

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governed by the rules and procedures
set forth therein. Finally, the
Department proposes additional,
nonsubstantive changes to § 578.1 to
better reflect the history of amendments
to the civil money penalty for violations
of section 6 (minimum wage) and
section 7 (overtime) of the Act.
Since the Department is proposing to
revise parts 578 and 579 to reflect the
new CMP provision that the CAA added
to the FLSA, the Department also
proposes to revise §§ 578.3(c)(2) and (3),
and identical language in § 579.2, to
address courts of appeals’ concerns that
some of the regulations’ statements
regarding willful violations are
inconsistent with Supreme Court
authority and how the Department
actually litigates willfulness.
When it initially promulgated
§ 578.3(c) to provide guidance for
assessing CMPs for violations of the
FLSA’s minimum wage or overtime pay
requirements, the Department based its
definition of a ‘‘willful’’ violation on the
Supreme Court’s decision in
McLaughlin v. Richland Shoe Co., 486
U.S. 128 (1988). See 57 FR 49,129 (Oct.
29, 1992). In Richland Shoe, the
Supreme Court held that a violation is
willful if the employer ‘‘knew or
showed reckless disregard’’ for whether
its conduct was prohibited by the FLSA.
486 U.S. at 133. Section 578.3(c)(1)
incorporates this holding and provides
that ‘‘[a]ll of the facts and circumstances
surrounding the violation shall be taken
into account in determining whether a
violation was willful.’’ Section
578.3(c)(2) provides that ‘‘an employer’s
conduct shall be deemed knowing’’ if
the employer received advice from the
WHD that its conduct is unlawful.
Section 578.3(c)(3) provides that ‘‘an
employer’s conduct shall be deemed to
be in reckless disregard’’ of the FLSA’s
requirements if the employer should
have inquired further into whether its
conduct complied with the FLSA and
failed to make adequate further inquiry.
An appellate court has identified an
‘‘incongruity’’ between §§ 578.3(c)(2)
and (3) and ‘‘the Richland Shoe
standard on which the regulation is
based.’’ Baystate Alt. Staffing, Inc. v.
Herman, 163 F.3d 668, 680 (1st Cir.
1998). The court expressed ‘‘significant
reservations about [§ 578.3(c)(2)’s]
blanket assertion that a party’s decision
not to comply with [WHD’s] advice
constitutes a ‘knowing’ violation’’ under
Richland Shoe. Id. The court further
stated that § 578.3(c)(3) ‘‘by its terms—
specifically, that a party ‘should have
inquired further’ about the legality of its
conduct—embraces a negligence
standard of liability,’’ which Richland
Shoe ‘‘expressly rejected.’’ Id. at 680–81

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(citing 486 U.S. at 133–35). Describing
§§ 578.3(c)(2) and (3) as ‘‘incomplete’’
and ‘‘unhelpful,’’ the court urged the
Department ‘‘to reconsider [them] to
ensure that they comport with the
Court’s reading of . . . ‘willful’ in
Richland Shoe.’’ Id. at 681 n.16.
In several cases addressing this issue,
the Department has argued that advice
from WHD to an employer that its
conduct was unlawful ‘‘would not
necessarily be dispositive of
willfulness’’ in a future enforcement
action, and that the employer would
have the opportunity ‘‘to contest the
assertion that the violation was willful
notwithstanding its receipt of such
advice.’’ See, e.g., Br. for Appellee at
22–23, Rhea Lana, Inc. v. DOL, 824 F.3d
1023 (DC Cir. 2016) (No. 15–5014), 2015
WL 4052846, at *22–23. The
Department stated that § 578.3(c)(2)
‘‘simply reflects the commonsense
principle that, in the absence of
persuasive and relevant evidence
presented by an employer, notice from
the agency of a FLSA violation may be
used to establish willfulness,’’ and that
such notice is ‘‘but one piece of
evidence.’’ Id. at 26. In Rhea Lana, the
court did not reject outright the
Department’s reading of § 578.3(c), but
pointed out that it was possible to read
the regulation as ‘‘a stand-alone trigger
for willfulness penalties’’ in a future
enforcement action against the
employer. 824 F.3d at 1031–32.
In light of Baystate, Rhea Lana, and
§ 578.3(c)(1)’s command that ‘‘[a]ll of
the facts and circumstances surrounding
the violation shall be taken into account
in determining whether a violation was
willful,’’ the Department proposes to
revise §§ 578.3(c)(2) and (3) to clarify
that no single fact or circumstance is
automatically dispositive as to
willfulness to the exclusion of
consideration of all other facts and
circumstances. Revising §§ 578.3(c)(2)
and (3) as proposed would ensure
consistency between the regulation and
how the Department litigates and briefs
the issue of willfulness under the FLSA;
resolve concerns that the regulation is
inconsistent with Richland Shoe; and
provide greater clarity to the regulated
community regarding the standard for
willfulness under the FLSA, including
by specifying that no one fact or
circumstance will preclude an employer
from arguing that its conduct was not
willful. To ensure consistent guidance
regarding willful violations, the
Department proposes to similarly revise
identical language in § 579.2 addressing
the proper assessment of CMPs for
willful violations of the FLSA’s child
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G. Additional Proposed Regulatory
Revisions
Section 531.50 currently sets forth the
provisions of the FLSA that apply to
tips and tipped employees. The
Department proposes to revise § 531.50
to reflect the language that the CAA
added to the FLSA. The Department
also proposes to update §§ 531.50,
531.51, 531.52, 531.55, 531.56, 531.59,
and 531.60 to reflect the new statutory
citation to the FLSA’s existing tip credit
provision, previously cited as section
3(m), as section 3(m)(2)(A). The
Department also proposes to clarify
references in §§ 531.56(d), 531.59(a) and
(b), and 531.60 to the amount an
employer can take as a tip credit under
section 3(m) (now 3(m)(2)(A)). The
Department’s regulations currently state
that the an employer can take a tip
credit for each employee equal to the
difference between the minimum wage
required by section 6(a)(1) of the FLSA
(currently $7.25 an hour) and $2.13 an
hour. To ensure that the Department’s
regulations clearly state employers’
obligations under the FLSA, the
Department proposes to revise
§§ 531.56(d), 531.59(a) and (b), and
531.60 to provide, consistent with the
text of the statute, that the tip credit
permitted by section 3(m)(2)(A) is equal
to the difference between the Federal
minimum wage and the cash wage paid
by the employer. That cash wage must
be at least $2.13 per hour, but the statute
does not preclude an employer from
paying more.
Finally, the Department proposes to
amend the tip provisions of its
Executive Order 13658 regulations.
Executive Order 13658 raised the hourly
minimum wage paid by contractors to
workers performing work on or in
connection with covered Federal
contracts. 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. Section 4(c) of the Executive
Order encourages the Department, when
promulgating regulations under that
Order, to incorporate existing
‘‘definitions, procedures, remedies, and
enforcement processes’’ from a number
of laws that the agency enforces,
including the FLSA. The Department’s
current Executive Order 13658
regulations are modeled after the
Department’s current FLSA tip
regulations, and prohibit covered
employers from implementing tip pools
that include employees who are not
customarily and regularly tipped. The
Department proposes to amend § 10.28,
consistent with its proposed rescissions
to portions of the Department’s FLSA

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regulations, to remove similar
restrictions on an employer’s use of
such tip pools and to otherwise align
those regulations with the authority
provided in the Executive Order.
Federal contractors covered by the
FLSA would, of course, also be subject
to the FLSA regulations proposed
herein. The Department also proposes to
amend § 10.28, consistent with its
proposed revisions to § 531.56(e), to
reflect its current guidance on when an
employee performing non-tipped work
constitutes a tipped employee for the
purposes of 3(t).
V. 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, 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.9 Persons
are not required to respond to the
information collection requirements
until the Office of Management and
Budget (OMB) approves them under the
PRA. This NPRM would revise the
existing information collection burden
estimates previously approved under
OMB control number 1235–0018
(Records to be Kept by Employers—Fair
Labor Standards Act) because employers
may choose to pay the full Federal
minimum wage and not take a tip credit,
and collect tips to operate an employerrequired, mandatory tip pooling
arrangement, thereby triggering the
recordkeeping requirement in proposed
§ 516.28(b). The Department has opened
OMB control number 1235–0NEW for
this action. As the PRA requires, the
Department has submitted the
information collection revisions to OMB
for review to reflect changes that would
result from this proposed rule. The
Department proposes a slight burden
increase for employers keeping records
concerning employees who receive tips,
as well as a regulatory familiarization
burden.
Summary: FLSA section 11(c)
requires covered employers to make,
keep, and preserve records of employees
and their wages, hours, and other
conditions of employment, as
prescribed by regulation. The
Department’s regulations at 29 CFR part
516 establish the basic FLSA
9 See

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recordkeeping requirements. Section
516.28(a) currently requires employers
to keep certain records concerning
tipped employees for whom the
employer takes a tip credit under the
FLSA. Among other things, § 516.28(a)
requires that the employer identify each
employee for whom the employer takes
a tip credit, identify the hourly tip
credit for each such employee, and
maintain records regarding the weekly
or monthly amount of tips received
(which may consist of IRS Form 4070)
as reported by the employee to the
employer. The adoption of proposed
§ 516.28(b)(1) and (b)(2) would require
an employer that does not take a tip
credit, but that collects employees’ tips
to operate a mandatory tip pooling
arrangement, to indicate on its pay
records each employee who receives
tips and to maintain records of the
weekly or monthly amount of tips that
each such employee receives (this may
consist of reports that the employees
make to the employer on IRS Form
4070). The increase in the number of
respondents and, accordingly, the
burden hours associated with records to
be kept under the proposed
§ 516.28(b)(1)–(2), is attributable to an
expanding economy increasing the
number of establishments employing
individuals who receive tips since the
last PRA revision of this recordkeeping
requirement.
Purpose and Use: WHD and
employees use employer records to
determine whether covered employers
have complied with various FLSA
requirements. Employers use the
records to document compliance with
the FLSA, and in the case of this NPRM,
the Department would use the records
regarding employees who receive tips to
determine compliance with sections
3(m)(2)(A) and 3(m)(2)(B).
Technology: The regulations prescribe
no particular order or form of records,
and employers may preserve records in
forms of their choosing, provided that
facilities are available for inspection and
transcription of the records.
Minimizing Small Entity Burden:
Although the FLSA recordkeeping
requirements do involve small
businesses, including small state and
local government agencies, the
Department minimizes respondent
burden by requiring no specific order or
form of records in responding to this
information collection.
Public Comments: As part of its
continuing effort to reduce paperwork
and respondent burden, the Department
conducts a preclearance consultation
program to provide the general public
and Federal agencies with an
opportunity to comment on proposed

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and continuing collections of
information in accordance with the
PRA. This program helps to ensure that
requested data can be provided in the
desired format, reporting burden (time
and money) is minimized, collection
instruments are clearly understood, and
the impact of collection requirements on
respondents can be properly assessed.
The Department seeks public comments
regarding the burdens imposed by the
information collections associated with
this NPRM. Commenters may send their
views about this information collection
to the Department in the same manner
as all other comments (e.g., through the
regulations.gov website). All comments
received will be made a matter of public
record and posted without change to
http://www.regulations.gov and http://
www.reginfo.gov, including any
personal information provided.
As previously noted, an agency may
not conduct an information collection
unless it has a currently valid OMB
approval, and the Department has
submitted information-collection
requests under OMB control number
1235–0NEW to update them to reflect
this rulemaking and provide interested
parties a specific opportunity to
comment under the PRA. See 44 U.S.C.
3507(d); 5 CFR 1320.11. Interested
parties may receive a copy of the full
supporting statement by sending a
written request to the mail address
shown in the ADDRESSES section at the
beginning of this preamble. In addition
to having an opportunity to file
comments with the Department,
comments about the paperwork
implications may be addressed to OMB.
Comments to OMB should be directed
to: Office of Information and Regulatory
Affairs, Attention OMB Desk Officer for
the Wage and Hour Division, Office of
Management and Budget, Room 10235,
725 17th Street NW, Washington, DC
20503; by Fax: 202–395–5806 (this is
not a toll-free number); or by email:
[email protected]. OMB
will consider all written comments that
the agency receives within 30 days of
publication of this proposed rule.
Commenters are encouraged, but not
required, to send the Department a
courtesy copy of any comments sent to
OMB. The courtesy copy may be sent
via the same channels as comments on
the rule.
The Department is particularly
interested in comments that:
• Evaluate whether the proposed
collections of information are necessary
for the proper performance of the
functions of the agency, including
whether the information will have
practical utility;

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• Evaluate the accuracy of the
agency’s estimate of the burden of the
proposed collection of information,
including the validity of the
methodology and assumptions used;
• Enhance the quality, utility, and
clarity of the information to be
collected; and
• Minimize the burden of the
collection of information on those who
are to respond, including through the
use of appropriate automated,
electronic, mechanical, or other
technological collection techniques or
other forms of information technology,
e.g., permitting electronic submission of
responses.
Total annual burden estimates, which
reflect both the existing and new
responses for the recordkeeping
information collection, are summarized
as follows:
Type of Review: Revision of a
currently approved collection.
Agency: Wage and Hour Division,
Department of Labor.
Title: Records to be Kept by
Employers—Fair Labor Standards Act.
OMB Control Number: 1235–0NEW.
Affected Public: Private Sector:
businesses or other for-profits, farms,
and not-for-profit institutions: State,
Local and Tribal governments; and
individuals or households.
Estimated Number of Respondents:
3,860,288 (102,994 from this
rulemaking).
Estimated Number of Responses:
43,799,221 (248,032 from this
rulemaking).
Estimated Burden Hours: 1,007,512
hours (24,593 from this rulemaking).
Estimated Time per Response:
Various (unaffected by this rulemaking).
Frequency: Various (unaffected by
this rulemaking).
Other Burden Cost: $0.
VI. Analysis Conducted in Accordance
With Executive Order 12866,
Regulatory Planning and Review,
Executive Order 13563, Improved
Regulation and Regulatory Review, and
Executive Order 13771, Reducing
Regulation and Controlling Regulatory
Costs
A. Introduction
Under Executive Order 12866, OMB’s
Office of Information and Regulatory
Affairs determines whether a regulatory
action is significant and, therefore,
subject to the requirements of the
Executive Order and OMB review.10
Section 3(f) of Executive Order 12866
defines a ‘‘significant regulatory action’’
as an action that is likely to result in a
10 58

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rule that: (1) Has an annual effect on the
economy of $100 million or more, or
adversely affects 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) creates serious inconsistency or
otherwise interferes with an action
taken or planned by another agency; (3)
materially alters the budgetary impacts
of entitlement grants, user fees, or loan
programs, or the rights and obligations
of recipients thereof; or (4) raises novel
legal or policy issues arising out of legal
mandates, the President’s priorities, or
the principles set forth in the Executive
Order. Because the annual effect of this
proposed rule would be greater than
$100 million, this proposed rule would
be economically significant under
section 3(f) of Executive Order 12866.
Executive Order 13563 directs
agencies to 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
achieving the regulatory objectives; and
that, in choosing among alternative
regulatory approaches, the agency has
selected the approaches that maximize
net benefits. Executive Order 13563
recognizes that some 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.
This proposed rule is expected to be
an Executive Order 13771 deregulatory
action, because it provides more
flexibility to employers in structuring
their employee tip pools. Details on the
estimated costs and transfers, as well as
qualitative discussions of cost savings of
this proposed rule, can be found in the
economic analysis below. The
unquantified cost savings are expected
to outweigh the quantified costs. Cost
savings include reduced turnover of
back-of-the-house employees, greater
flexibility for tip pooling, and reduced
effort spent ensuring that the tip pool is
limited to only customarily and
regularly tipped employees.
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B. Economic Analysis
i. Introduction
In March 2018, Congress amended
section 3(m) and sections 16(b), (c), and
(e) of the FLSA to prohibit employers
from keeping their employees’ tips, to
permit recovery of tips that an employer
unlawfully keeps, and suspend the

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operations of the portions of the 2011
final rule that restricted tip pooling
when employers do not take a tip credit.
This analysis examines the economic
impact associated with the Department’s
proposed implementation of those
amendments, specifically the transfers
resulting from employers that do not
claim a tip credit and previously did not
have a mandatory tip pool, or that only
had a traditional tip pool limited to
‘‘front-of-the-house’’ employees (i.e.,
servers and bartenders) implementing a
nontraditional tip pool that includes
‘‘back-of-the-house’’ employees (i.e.,
janitors, chefs, dishwashers, and foodpreparation workers). Thus, a transfer of
tip income will occur from ‘‘front-ofthe-house’’ employees. The Department
also quantified rule familiarization costs
and qualitatively discusses additional
costs, cost savings, and benefits. To
perform this analysis, the Department
compares the impact relative to a prestatutory baseline (i.e., before Congress
amended the FLSA in March 2018). If
the Department were to look at
economic impacts relative to a poststatutory baseline, there would likely be
no impact aside from rule
familiarization costs, as the transfers
arise from the changes put forth in the
statute.
The Department is also proposing to
amend its regulations to reflect guidance
which provides that an employer may
take a tip credit for any amount of time
that an employee in a tipped occupation
performs related, non-tipped duties
contemporaneously with his or her
tipped duties, or for a reasonable time
immediately before or after performing
the tipped duties. This interpretation
was promulgated in a November 2018
opinion letter and subsequent FAB, and
reflects WHD’s enforcement position. As
explained below, the Department lacks
data to quantify any potential costs,
benefits, or transfers which may be
associated with the implementation of
this policy; therefore, the Department
discusses potential costs, benefits, and
transfers qualitatively. The Department
welcomes comments on the impact of
this proposal, including data on
employers’ responses to the codification
of this policy.
The economic analysis covers
employees 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 Bureau of Labor Statistics (BLS)

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Standard Occupational Classification
(SOC) codes SOC 35–3031 (Waiters and
Waitresses) and SOC 35–3011
(Bartenders).11 The Department
considered these two occupations
because they constitute a large
percentage of total tipped workers and
a large percentage of the workers in
these occupations receive tips (see Table
1 for shares of workers in these
employees who may receive tips). The
Department understands that there are
other occupations beyond servers and
bartenders with tipped workers, such as
SOC 35–9011 (Dining room and
Cafeteria Attendants and Bartender
Helpers), SOC 35–9031 (Hosts and
Hostesses, Restaurant, Lounge, and
Coffee Shop), and others, as well as
other industries that employ workers
who receive tips, such as NAICS 722515
(snack and nonalcoholic beverage bars),
NAICS 722513 (limited service
restaurants), NAICS 721110 (hotels and
motels), and NAICS 713210 (casinos);
thus, the Department welcomes
comments and suggestions on whether
this analysis should extend to such
occupations and industries.
The analysis covers ten years to
ensure that it captures major costs and
transfers. When summarizing the costs
and transfers of the proposed rule, the
Department presents the first year’s
impact, as well as the 10-year
annualized costs and transfers with 3
percent and 7 percent discounting.12
ii. Estimated Transfers
Under the regulations proposed in
this NPRM, transfers would arise when
employers that already pay the full
Federal minimum wage and previously
did not have a mandatory tip pool or
only had a traditional tip pool institute
nontraditional tip pools in which tipped
employees such as servers and
bartenders are required to share tips
with employees who do not customarily
and regularly receive tips, such as cooks
and dishwashers. The Department
believes that including back-of-thehouse workers in tip pools could help
equalize income among the employees
within the establishment, and could
also help promote cooperation and
collaboration among employees.
Because the statute prohibits employers
from keeping employee tips, directlyobservable transfers will only occur
11 In the Current Population Survey, 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).
12 Discount rates are directed by OMB. See
Circular A–4, OMB (Sept. 17, 2003).

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among employees. However, because
back-of-the-house workers could now be
receiving tips, employers may offset this
increase in total compensation by
reducing the direct wage that they pay
back-of-the-house workers (as long as
they do not reduce these employees’
wages below the applicable minimum
wage); offsets of this type are implied in
the model underlying the quantitative
estimates below. To the extent that
wages are sticky in the short run, backof-the-house employees are recipients of
transfers, but across a longer time
horizon, market adjustments
increasingly allow employers to capture
the transfer.
The analysis assumes that employers
will institute nontraditional tip pools
with employees who do not customarily
and regularly receive tips only in
situations that are beneficial to them.
Accordingly, it assumes that employers
will include back-of-the-house
employees in their tip pools only if they
believe that they can do so without
losing their front-of-the-house staff. To
attract and retain the tipped workers
that they need, employers must pay
these workers as much as their ‘‘outside
option,’’ or the hourly earnings that they
could receive in a non-tipped job with
a similar skill level requirement to their
current position. For each tipped
worker, the Department assumes a
transfer will occur only if their total
earnings, including tips, is greater than
the predicted outside-option wage from
a non-tipped job. This methodology was
informed by comments submitted as
part of the Department’s 2017 NPRM
that discussed using outside options to
determine potential transfer of tips.
The transfer calculation excludes any
workers who are paid a direct cash wage
below the full FLSA minimum wage of
$7.25, because under the amended
statute and the Department’s proposed
rule, employers who do take a tip credit
are still subject to section 3(m)(2)(A)’s
restrictions on tip pools. Some
employers may begin paying their
tipped workers a direct cash wage of at
least the full FLSA minimum wage in
order to institute a tip pool with backof-the-house workers. This potential
transfer is not quantified due to
uncertainty regarding how many
employers would choose to no longer
use the tip credit. Choosing to no longer
take a tip credit would require a change
to employers’ payroll systems and
methods of compensation to which
employers and employers are
accustomed, which could discourage
employers from making this change.
The Department requests comments on
the prevalence of this adjustment.

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The transfer calculation also excludes
any workers who are paid a direct cash
wage by their employers, exclusive of
any tips received, that exceeds the
applicable minimum wage (either the
Federal or applicable State minimum
wage). The Department assumes that
because these employers are already
paying more than required under
applicable law for these workers, any
reduction in compensation would result
in these workers leaving that
employment. These employees will
therefore not have their tips
redistributed through a nontraditional
tip pool. The Department requests
comments and data on this assumption.
The Department does not attempt to
definitively interpret individual state
law; it is assumed, however, that some
wait staff and bartenders work in a state
that either prohibits mandatory tip
pooling or imposes stricter limits on
who can participate in a mandatory tip
pool than are proposed in this NPRM,13
or in a state that is in the Tenth
Circuit 14 where, as a result of Marlow
v. New Food Guy, Inc., 861 F.3d at 1159,
employers that do not take a tip credit
were already permitted to institute
nontraditional tip pools at the time
Congress amended the FLSA. The
transfer estimate excludes tipped
employees in these states whom the
changes proposed in this NPRM may
not affect—amounting to about 43
percent of a $0.5 billion intermediate
estimate of the potential transfer
amount.15 Thus, the Department first
determined total transfers for all wait
staff and bartenders using the
methodology described above. The
Department then excluded workers
whom the proposed changes will not
affect due to their respective state laws.
The Department welcomes comments
with more information regarding the
13 See, e.g., Minn. Stat. § 177.24, subd. 3 (‘‘No
employer may require an employee to contribute or
share a gratuity received by the employee with the
employer or other employees or to contribute any
or all of the gratuity to a fund or pool operated for
the benefit of the employer or employees.’’); Mass.
Gen. Laws ch. 149, § 152A(c) (‘‘No employer or
person shall cause, require or permit any wait staff
employee, service employee, or service bartender to
participate in a tip pool through which such
employee remits any wage, tip or service charge, or
any portion thereof, for distribution to any person
who is not a wait staff employee, service employee,
or service bartender.’’)
14 The jurisdiction of the Tenth Circuit includes
the six states of Oklahoma, Kansas, New Mexico,
Colorado, Wyoming, and Utah. See About Us, The
United States Court of Appeals for the Tenth
Circuit, https://www.ca10.uscourts.gov/clerk (last
visited May 9, 2019).
15 Arkansas, California, Colorado, Delaware,
Hawaii, Kansas, Kentucky, Massachusetts,
Minnesota, New Hampshire, New Mexico, New
York, North Carolina, North Dakota, Oklahoma,
Utah, and Wyoming.

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effects of this proposed rule in specific
states. Finally, the Department further
reduced the total transfer amount to
account for the fact that an uncertain
number of employers will decline to
change their tip pooling practices even
when it is seemingly economically
beneficial for them to do so because it
will require changes to practices to
which employees are accustomed, as
well as payroll and recordkeeping
changes.
To compute potential tip transfers, the
Department used individual-level
microdata from the 2017 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 Merged Outgoing Rotation
Group (CPS–MORG) and provide more
detailed information about those
surveyed.16 The Department used 2017
CPS data to calculate the transfer
because the CAA went into effect in
March 2018. Although 2018 CPS data is
available, 2017 is the most recent full
year of data that is prior to the statutory
change. In this analysis, 2017 wage data
are inflated to $2018 using the GDP
deflator. For purposes of rule
familiarization costs, the Department
used the most recent year of data (2018)
to reflect employers reading the rule
after it is published.
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.17 CPS data are not available
16 See Current Population Survey, U.S. Census
Bureau, https://www.census.gov/programs-surveys/
cps.html (last visited August 13, 2019); CPS Merged
Outgoing Rotation Groups, NBER, http://
www.nber.org/data/morg.html (last visited August
13, 2019).
17 This question is only asked of hourly
employees and consequently nonhourly workers are
excluded from the transfer estimate. The
Department did not quantify transfers from
nonhourly workers because 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 13
percent of wait staff and bartenders in restaurants
and drinking places are nonhourly and the
Department believes nonhourly workers may have
a lower probability of receiving tips.

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separately for overtime pay, tips, and
commissions, but the Department
assumes very few bartenders and wait
staff at restaurants and drinking places
receive commissions, and the number
who receive overtime pay but not tips
is also assumed to be minimal.18
Therefore, when bartenders and wait
staff responded affirmatively to this

question, the Department assumed that
they receive tips.
All data tables in this analysis include
estimates for the year 2017 as the
baseline. Table 1 presents the estimates
of the share of bartenders and wait staff
in restaurants and drinking places who
reported that they usually earned OTTC
in 2017. Approximately 64 percent of
bartenders and 55 percent of wait staff
reported usually earning OTTC in 2017.

These numbers include workers in all
states, including states whom the
changes proposed in this NPRM may
not affect. These numbers also include
workers who are paid a direct cash wage
below the full FLSA minimum wage of
$7.25 (i.e., employers whose employers
are using a tip credit). Both these
populations are excluded from the
transfer calculation.

TABLE 1—SHARE OF BARTENDERS AND WAITERS/WAITRESSES IN RESTAURANTS AND DRINKING PLACES WHO EARNED
OVERTIME PAY, TIPS, OR COMMISSIONS
Total workers
(millions)

Occupation

Total .................................................................................................................
Bartenders ................................................................................................
Waiters/Waitresses ...................................................................................

Workers
responding
to question
on OTTC
(millions)

2.21
0.34
1.88

1.92
0.27
1.65

Report Earning OTTC
Workers
(millions)

Percent

1.08
0.17
0.91

56.5
63.5
55.4

Source: CEPR, 2017 CPS–MORG.
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 1.08 million bartenders and
wait staff who receive OTTC, only
688,000 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 2, 54 percent
of bartenders’ earnings (an average of

$276 per week) and 49 percent of
waiters’ and waitresses’ earnings (an
average of $234 per week) were from
overtime pay, tips, and commissions in
2017. 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 (54 or 49 percent)
was applied to their weekly total
income to estimate weekly tips.
Nonhourly workers, who are not asked
the question on receipt of OTTC, are
assumed to not be tipped employees.

TABLE 2—PORTION OF INCOME FROM OVERTIME PAY, TIPS, AND COMMISSIONS FOR BARTENDERS AND WAITERS/
WAITRESSES IN RESTAURANTS AND DRINKING PLACES
Those who report the amount earned in OTTC
Occupation
Workers

Total .................................................................................................................
Bartenders ................................................................................................
Waiters and waitresses ............................................................................

688,171
105,787
582,384

Average
weekly
earnings
$478.34
512.29
472.17

Average
weekly
OTTC

Percent of
earnings
attributable
to OTTC

$240.15
275.65
233.71

50%
54
49

Source: CEPR, 2017 CPS–MORG, inflated to $2018 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).

As discussed above, to determine
potential transfers of tips, the
Department assumes that employers
will only redistribute tips from tipped
employees to employees who are not
customarily and regularly tipped in a
nontraditional tip pool if the tipped
employee’s total earnings, including the
tips the employee retains, are greater
than the ‘‘outside-option wage’’ that the

tipped employee could earn in a nontipped job. To model a worker’s outsideoption wage, the Department used
robust 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

18 According to BLS Current Population Survey
data, in 2017, workers in service occupations
worked an average of 35 hours per week. See
https://www.bls.gov/cps/aa2017/cpsaat23.htm.

19 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/nontipped workers.

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1. Outside-Option Wage Calculation

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workers.19 The Department restricted
the regression sample to workers
earning at least the Federal minimum
wage of $7.25 per hour (inclusive of
OTTC), and those who are employed.
This analysis excludes states where the
law prohibits non-tipped back-of-thehouse employees from being included
in the tip pool, and states governed by
the Marlow decision were also excluded
from the regression analysis.

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In calculating the outside-option wage
for tipped workers, the Department
defined the comparator sample for
tipped workers in two different ways:
(1) All non-tipped workers (i.e., workers
who are either not waiters/waitresses or
bartenders, or do not work in
restaurants or drinking places), and (2)
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 Occupational Information Network
(O*NET) system for occupations that
share important similarities with
waiters and waitresses and bartenders—
the occupations had to require
‘‘customer and personal service’’
knowledge and ‘‘service orientation’’
skills.20 The list was further reduced by
eliminating occupations that are not
comparable to the waitress and
bartender occupations in terms of
education and training, as waiter and
waitress and bartender occupations do
not require formal education or training.
See Appendix Table 1 for a list of these
occupations. The transfer estimates
presented in this analysis use this
sample of limited occupations to predict
each tipped worker’s outside-option
wage, that is, the wage that the tipped
worker could earn in a non-tipped job.
The Department also ran the regression
to predict the outside-option wage using
all non-tipped workers as the outsideoption sample, and found that transfers
are approximately 30 percent lower in
that specification.
The regression calculates a
distribution of outside-option wages for
each worker. The Department
considered two methods: (1) Using the
50th percentile and (2) using 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.21 The second
method accounts for the fact that two
workers may have the exact same
characteristics (age, race, education,
20 For a full list of all occupations on O*NET, see
https://www.onetcenter.org/taxonomy/2010/
updated.html.
21 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.

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etc.), but one worker may have a higher
or lower outside-option wage because
he or she is a more or less effective
employee. This method assumes that a
worker’s position in the wage
distribution for wait staff and bartenders
in restaurants and drinking places
reflects their position in the wage
distribution for the outside-option
occupations. The Department believes
this method is more appropriate than
the 50th percentile method.22
2. Transfer Calculation
After determining each tipped
worker’s outside-option wage, the
Department calculated the potential
transferrable tips as the lesser of the
following four numbers:
1. The positive differential between a
worker’s current earnings (wage plus
tips) and their predicted outside-option
wage,
2. The positive differential between a
worker’s current earnings and the state
minimum wage,
3. The total tips earned by the worker,
or
4. Zero if the worker currently earns
a direct cash wage above the full
applicable minimum wage.
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 will not earn less than their
applicable state minimum wage. 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. For
hourly-paid workers, the Department
subtracted predicted overtime pay to
better estimate total tips.23 For workers
who reported receiving overtime, tips,
and commissions, but did not report the
amount they earned, the Department
applied the ratio of tipped earnings to
total earnings for all waiters and
waitresses and bartenders in their state
(see Table 2).
The Department set the transfer to
zero if the worker currently earns a
direct cash wage above the full
applicable minimum wage. If the
employer is paying a tipped employee a
direct cash wage above the required full
minimum wage, this indicates the wage
is set at the market clearing wage and
any reduction in the wage (e.g., by
requiring tips to be transferred to backof-the-house workers) would cause the
22 The 50th percentile method results in a higher
transfer estimate ($173 million compared with $107
million).
23 Predicted overtime pay is calculated as (1.5 ×
base wage) × weekly hours worked over 40.

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employee to quit and look for other
work. Therefore, where an employer is
paying a tipped employee above the full
applicable minimum wage, the
employer would generally not require
the employee to contribute tips to a
nontraditional tip pool.
To determine the annual total tip
transfer, the Department first multiplied
a weighted sum of weekly tip transfers
for all wait staff and bartenders who
work at full-service restaurants and bars
in the United States by 45.2 weeks—the
average weeks worked in a year for
waiters and waitresses and bartenders in
the 2017 CPS Annual Social and
Economic Supplement. The Department
then reduced this total by 43 percent to
account for wait staff and bartenders
who work in a state that prohibits
mandatory tip pooling or imposes
stricter limits on who can participate in
a mandatory tip pool than the limits
proposed in this NPRM or a state that
is in the Tenth Circuit. Using this
methodology, the total potential transfer
from front-of-the-house employees
associated with this proposed rule is
$213.4 million. This represents the
transfers that the Department expects
would occur if every employer that does
not take a tip credit, and for whom it
was economically beneficial, instituted
tip pools that include back-of-the-house
workers. In reality, even when it is
seemingly economically beneficial,
many employers may not change their
tip pooling practices, because it would
require changes to the current practice
to which their employees are
accustomed, as well as their payroll and
recordkeeping systems.
The Department was unable to
determine what proportion of the total
tips estimated to be potentially
transferred from these workers will
realistically be transferred. The
Department assumes that the likely
potential transfers are somewhere
between a minimum of zero and a
maximum of $213.4 million, and
therefore used the midpoint as a better
estimate of likely transfers. The
Department accordingly estimates that
transfers of tips from front-of-the-house
workers will be around $107 million in
the first year that this rule is effective.
Assuming these transfers occur
annually, and there is no real wage
growth, this results in 10-year
annualized transfers of $107 million at
both the 3 percent and 7 percent
discount rates. The Department requests
comments on whether the midpoint is
the appropriate adjustment.
The Department acknowledges that
some employers could respond to the
proposed rule by decreasing back-of-thehouse workers’ wages, as the rule will

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allow employers to supplement these
employees’ wages with tips. Some
employers may consider exchanging
back-of-the-house workers’ hourly
wages for tips, but tips fluctuate at any
given time. Thus, employers’ ability to
do so would be limited by market
forces, such as, potentially, workers’
aversion to risk and the endowment
effect (workers potentially valuing their
set wages more than tips of the same
average amount). Because of a lack of
data to quantify the extent to which this
will occur, the Department has not
included this possibility in the present
analysis.
The Department welcomes comments
and information regarding whether and
to what extent employers will choose to
expand existing tip pools to include
back-of-the-house employees or
otherwise change their current
compensation structures.
iii. Estimated Costs, Cost Savings, and
Benefits
In this subsection, the Department
addresses costs attributable to the
proposed rule, by quantifying regulatory
familiarization costs and qualitatively
discussing additional recordkeeping
costs. The Department qualitatively

discusses benefits and cost savings
associated with this proposed rule.
Lastly, the Department qualitatively
discusses the potential costs, transfers,
and benefits associated with its
proposed revision to its regulations to
reflect its guidance that an employer
may take a tip credit for any amount of
time that an employee in a tipped
occupation performs related, non-tipped
duties performed contemporaneously
with his or her tipped duties, or for a
reasonable time immediately before or
after performing the tipped duties.
1. Regulatory Familiarization Costs
Regulatory familiarization costs
represent direct costs to businesses
associated with reviewing the new
regulation. It is not clear whether
regulatory familiarization costs are a
function of the number of
establishments or the number of firms.24
Presumably, the headquarters of a firm
will conduct the regulatory review for
businesses with multiple restaurants,
and may also require chain restaurants
to familiarize themselves with the
regulation at the establishment level. To
be conservative, the Department used
the number of establishments in its cost
estimate—which is larger than the

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number of firms—and assumes that
regulatory familiarization occurs at both
the headquarters and establishment
levels.
The Department assumes that all
establishments will incur some
regulatory familiarization costs
regardless of whether the employer
decides to change its tip pooling
practices as a result of the proposed
rule.25 There may be differences in
familiarization cost by the size of
establishments; however, our analysis
does not compute different costs for
establishments of different sizes. To
estimate the total regulatory
familiarization costs, the Department
used (1) the number of establishments
in the two industries, Drinking Places
(Alcoholic Beverages) and Full-Service
Restaurants; (2) the wage rate for the
employees reviewing the rule; and (3)
the number of hours that it estimates
employers will spend reviewing the
rule. Table 3 shows the number of
establishments in the two industries. To
estimate the number of potentially
affected establishments, the Department
used data from BLS’s Quarterly Census
of Employment and Wages (QCEW) for
2018.

TABLE 3—NUMBER OF ESTABLISHMENTS WITH TIPPED WORKERS
Industry

Establishments

NAICS 722410 (Drinking Places (Alcoholic Beverages)) ..............................................................................................................
NAICS 722511 (Full-service Restaurants) ....................................................................................................................................

42,826
247,237

Total ........................................................................................................................................................................................

290,063

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Source: QCEW, 2018

The Department assumes that a
Compensation, Benefits, and Job
Analysis Specialist (SOC 13–1141) (or a
staff member in a similar position) with
a mean wage of $32.65 per hour in 2018
will review the rule.26 Given the change
proposed, the Department assumes that
it will take on average about 15 minutes
to review the final rule. The Department
has selected a small time estimate
because it is an average for both
establishments making changes to their
compensation structure and those who
are not (and consequently will have
negligible or no regulatory
familiarization costs). Further, the

change effected by this regulation is
unlikely to cause major burdens or
costs. Assuming benefits are paid at a
rate of 46 percent of the base wage, and
overhead costs are 17 percent of the
base wage, the reviewer’s effective
hourly rate is $53.22; thus, the average
cost per establishment is $13.30 for 15
minutes of review time. The number of
establishments in the selected industries
was 290,063 in 2018. Therefore,
regulatory familiarization costs in Year
1 are estimated to be $3.86 million
($13.30 × 290,063 establishments),
which amounts to a 10-year annualized
cost of $452,422 at a discount rate of 3

percent or $549,471 at a discount rate of
7 percent. Regulatory familiarization
costs in future years are assumed to be
de minimis.

24 An establishment is commonly understood as
a single economic unit, such as a farm, a mine, a
factory, or a store, that produces goods or services.
Establishments are typically at one physical
location and engaged in one, or predominantly one,
type of economic activity for which a single
industrial classification may be applied. An
establishment is in contrast to a firm, or a company,
which is a business and may consist of one or more
establishments, where each establishment may

participate in a different predominant economic
activity. See BLS, ‘‘Quarterly Census of
Employment and Wages: Concepts,’’ https://
www.bls.gov/opub/hom/cew/concepts.htm.
25 This includes establishments in states excluded
from the transfer calculation.
26 A Compensation/Benefits Specialist ensures
company compliance with federal and state laws,
including reporting requirements; evaluates job

positions, determining classification, exempt or
non-exempt status, and salary; plans, develops,
evaluates, improves, and communicates methods
and techniques for selecting, promoting,
compensating, evaluating, and training workers. See
BLS, ‘‘13–1141 Compensation, Benefits, and Job
Analysis Specialists,’’ https://www.bls.gov/oes/
current/oes131141.htm (last visited August 14,
2019).

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2. Other Costs
The Department also assumes that
there will be a minimal increase in
recordkeeping costs associated with this
proposed rule. Under the Department’s
current regulations, employers are only
required to keep records of which
employees receive tips and how much
each employee receives if the employer
takes a tip credit. If this rule is finalized
as proposed, employers that do not take

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a tip credit but collect tips to institute
a mandatory tip pool must keep records
showing which employees are included
in the tip pool, and the amount of tips
they receive, as reported by employees
to the employer. As such records are
already required under IRS Form 4070,
there will be minimal recordkeeping
costs for employers that pay the full
Federal minimum wage in direct cash
wages and choose to institute a
nontraditional tip pool.
Employers may incur some training
costs associated with familiarizing first
line managers and staff with the
proposed rule; however, the Department
believes these costs will be de minimis.
The Department welcomes data on these
costs.

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3. Benefits
Section 3(m)’s tip credit provision
allows an employer to meet a portion of
its Federal minimum wage obligation
from the tips customers give employees.
If an employer takes a tip credit, section
3(m)(2)(A) applies, along with its
requirement that only employees who
customarily and regularly receive tips
be included in any mandatory tip pool.
When an employer does not take a tip
credit, however, the proposed rule
would allow the employer to act in a
manner currently prohibited by
regulation—that is, by distributing tips
to employees who are employed in
occupations in which they do not
customarily and regularly receive tips
(e.g., cooks or dishwashers) through a
tip pool. The proposed rule, therefore,
provides employers greater flexibility in
determining their pay policies for
tipped and non-tipped workers.
Full-service restaurants commonly
have a tip pool. One study suggests that
tip pooling contributes to increased
service quality, along with enhanced
interaction and cooperation between
coworkers, especially when team
members rely on input or task
completion from each other.27 Another
study indicates that tip pooling may
foster customer-focused service,
promote employee camaraderie, and
increase productivity.28 Additionally,
under the proposed changes, the
employer will be able to distribute
customer tips to back-of-the-house
employees like cooks and dishwashers,
possibly resulting in increased earnings
27 Samuel Estreicher & Jonathan Nash, The Law
and Economics of Tipping: The Laborer’s
Perspective, Am. Law & Econ. Ass’n Annual
Meetings. (2004), https://law.bepress.com/cgi/
viewcontent.cgi?referer=&httpsredir=1&
article=1068&context=alea.
28 Ofer H. Azar, The Implications of Tipping for
Economics and Management, 30 (10) Int’l J. Soc.
Econ., 1084–94 (2003), http://
individual.utoronto.ca/diep/c/azar2003.pdf.

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for those employees. The Department
believes that allowing employers to
expand tip pools beyond customarily
and regularly tipped workers like
servers and bartenders could help
incentivize back-of-the-house workers,
which may improve the customer’s
experience.
4. Cost Savings
The cost savings associated with this
rule would result from the increased
earnings for back-of-the-house
employees. Higher earnings for these
employees could result in reduced
turnover, which reduces hiring and
training costs for employers. This
proposed rule would also give
employers greater flexibility for tip
pooling, and could reduce effort spent
ensuring that the tip pool is limited to
only customarily and regularly tipped
employees. The Department believes
that the cost savings would outweigh
any increased rule-familiarization and
recordkeeping costs.
This rule may also reduce deadweight
loss. Deadweight loss is the loss of
economic efficiency that occurs when
the perfectly competitive equilibrium in
a market for a good or service is not
achieved. Minimum wages may prevent
the market from reaching equilibrium
and thus result in fewer hours worked
than would otherwise be efficient.
Allowing nontraditional tip pools may
cause a shift in the labor demand and/
or supply curves for wait staff and
bartenders. This could result in the
market moving closer to the competitive
market equilibrium. The Department
did not quantify the potential reduction
in deadweight loss because of
uncertainty (e.g., what are the
appropriate demand and supply
elasticities).
5. Costs, Benefits, and Potential
Transfers Associated With Revision to
Dual Jobs Regulation
The Department proposes to amend
its regulations to reflect its recent
guidance removing the limit on the
amount of time that an employee for
whom an employer takes a tip credit can
perform related, non-tipped duties has
potential benefits. Under the previous
guidance, in order to ensure they were
in compliance, employers may have
tracked how tipped employees were
spending their time, which could be
difficult and costly. Removing the time
requirement will eliminate this
monitoring cost. Additionally, the
revisions add clarity by providing a
reference list of applicable related
duties through O*NET. Although
employers will reference this list of
duties to ensure that their employees’

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non-tipped duties are related to their
tipped occupations, this would likely be
less of a burden than constantly
monitoring their employee’s time.
The removal of the twenty percent
time limit may result in tipped workers
such as wait staff and bartenders
performing more of these non-tipped
duties such as ‘‘cleaning and setting
tables, toasting bread, making coffee,
and occasionally washing dishes or
glasses.’’ Consequently, employment of
workers currently performing these
duties, such as dishwashers and cooks,
may fall, possibly resulting in a transfer
of employment-related producer surplus
from those non-tipped workers to tipped
workers who work longer hours.
However, tipped workers might lose
tipped income by spending more of
their time performing duties where they
are not earning tips, while still receiving
cash wages of less than minimum wage.
For example, assume that prior to this
change, a restaurant server spends 12
minutes each hour of their shift (i.e., 20
percent) performing related, non-tipped
duties (e.g., clearing tables, washing
dishes, etc.), and 48 minutes providing
direct customer service. Assume the
server earns $12 per hour in tips (i.e.,
$0.25 per minute of customer service
work). With no 20 percent limit on the
performance of related, non-tipped
duties, an employee might spend more
than 12 minutes per hour performing
related, non-tipped duties, as long as
they still receive enough tips to earn at
least $7.25 per hour for the shift. Thus,
if an employee now spends 20 minutes
performing non-tipped work (i.e., 33
percent of their shift) and 40 minutes
interacting with customers, they would
be expected to lose $2 per hour in tips,
a decrease accounting for eight fewer
minutes per hour spent performing tipgenerating work (i.e., 8 minutes × $0.25
per minute). Similarly, employers that
had been paying the full minimum wage
to tipped employees performing related,
non-tipped duties could potentially pay
the lower direct cash wage for this time
and could pass these reduced labor cost
savings on to consumers. As mentioned
above, the Department lacks data to
quantify this potential reduction in tips.
For instance, data does not exist on the
amount of time that tipped employees
currently spend on tipped duties or
related, nontipped duties. Absent such
a baseline, the Department cannot
quantify how time spent by tipped
employees on related, nontipped duties
would change as a result of this
proposed rule. The Department
welcomes feedback on how employers
would adjust employees’ schedules as a
result of this recent guidance.

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iv. Summary of Transfers and Costs

53973

transfers and costs for the RIA. Transfer
costs in years two through ten are
assumed to be the same as in Year 1.

Below the Department provides a
summary table of the quantified

TABLE 4—SUMMARY OF TRANSFERS AND COSTS CALCULATIONS
[2018 dollars]
Potential tip
transfers
(Millions)
Year 1:
Preferred Estimate ................................................................................................................................
Lower-Bound ........................................................................................................................................
Upper-Bound ........................................................................................................................................
10-year Annualized Transfers (Preferred Est.):
3% Discount Rate ........................................................................................................................................
7% Discount Rate ........................................................................................................................................

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v. Additional Potential Impacts of This
Rulemaking
The Department believes that by
implementing section 3(m)(2)(B) and
providing clarification on tip pooling,
this proposal could affect the number of
employers who choose to implement tip
pools or otherwise affect their practices.
Because of the lack of data to determine
how employers would behave, the
Department welcomes comments that
provide insight into employers’
decisions to implement tip pools, and
how these decisions affect both
employers and employees.
C. Analysis of Regulatory Alternatives
In developing this NPRM, the
Department considered a regulatory
alternative that would be less restrictive
than what is currently proposed and one
that would be more restrictive. For the
less-restrictive option, the Department
considered excluding employers that do
not take a tip credit from the
requirement to keep records of the
weekly or monthly amount of tips
received by each employee as reported
by the employee to the employer.29 The
Department concluded, however, that
requiring all employers with tip pools to
keep records of the weekly or monthly
amount of tips received by employees
would ensure uniformity among these
employers and help the Department
administer section 3(m)(2)(B).
For a more restrictive alternative, the
Department considered requiring
employers that collect cash tips for a
mandatory tip pool to fully distribute
the tips on a daily basis. The
Department concluded, however, that
this requirement would be
unnecessarily onerous for employers.
29 Current § 516.28(a) requires employers that
take a tip credit under the FLSA to keep records of
the weekly or monthly amount of tips received by
employees.

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The Department’s proposal for full
distribution of cash and credit-card tips
on the regular payday or, in certain
cases, as soon as practicable afterward,
would be simpler for employers to
follow. It would align the policy for
cash tips with the current policy for
credit-card tips and allow employers to
pay tips the same day they otherwise
pay their employees. The Department
believes that the current proposal will
ensure that employers do not operate tip
pools in such a manner that they ‘‘keep’’
tips.
VII. Regulatory Flexibility 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
the regulatory requirements of the
proposed rule to determine whether
they would have a significant economic
impact on a substantial number of small
entities.
In its analysis, the Department used
the Small Business Administration size
standards, which determine whether a
business qualifies for small-business
status.30 According to the 2017
standards, Full-service Restaurants
(NAICS 722511) and Drinking Places
(Alcoholic Beverages) (NAICS 722410)
30 SBA, Summary of Size Standards by Industry
Sector, 2017, www.sba.gov/document/supporttable-size-standards.

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Regulatory
familiarization
costs
(Millions)

$106.7
0.0
213.4

$3.9
N/A
N/A

106.7
106.7

0.5
0.5

have a size standard of $7.5 million in
annual revenue.31 The Department used
this number to estimate the number of
small entities. Any establishments with
annual sales revenue less than this
amount were considered small entities.
The Department used the U.S. Census
Bureau’s 2012 Economic Census to
obtain the number of establishments
(operating the entire year) and annual
sales/receipts for the two industries in
the analysis: Full-service Restaurants
and Drinking Places (Alcoholic
Beverages).32 From annual receipts/
sales, the Department can estimate how
many establishments fall under the size
standard. Table 5 shows the number of
private, year-round establishments in
the two industries by revenue.33
The annual cost per establishment is
the regulatory familiarization cost of
$13.30 per establishment calculated in
section V.B.iii.1. The Department
applied this cost to all sizes of
establishments since each establishment
would incur this cost regardless of the
number of affected workers. Finally, the
impact of this provision was calculated
as the ratio of annual cost per
establishment to average sales receipts
per establishment. As shown, the
annual cost per establishment is less
than 0.03 percent of average annual
sales for establishments in all small
31 Id.,

Subsector 722.
Census Bureau, 2012 Economic Census,
Accommodation and Food Services: Subject
Series—Estab & Firm Size: Summary Statistics by
Sales Size of Establishments for the U.S.: 2012.
https://factfinder.census.gov/faces/tableservices/jsf/
pages/productview.xhtml?src=bkmk.
33 The small-business size standard for the two
industries is $7.5 million in annual revenue.
However, the final size category reported in the
table is $5 million–$9 million. This is a data
limitation because the 2012 Economic Census
reported this category of $5 million–$9 million and
not $5 million–$7.5 million. Thus, the total number
of firms shown may be slightly higher than the
actual number of small entities.
32 U.S.

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entity size classes. The impact of this
proposed rule on small establishments

will be de minimis. The Department
certifies that the proposed rule will not

have a significant economic impact on
a substantial number of small entities.

TABLE 5—COSTS TO SMALL ENTITIES

Annual revenue/sales/receipts

Number of
establishments

Average
annual
sales per
establishment
($)

Annual cost per
establishment
($)

[a]

[b]

[c]

Annual cost per
establishment
as percent of
sales/receipts

722511 Full-service Restaurants
< $100,000 ...............................................................................
100,000 to 499,999 ..................................................................
250,000 to 499,999 ..................................................................
500,000 to 999,999 ..................................................................
1,000,000 to 2,499,999 ............................................................
2,500,000 to 4,999,999 ............................................................
5,000,000 to 9,999,999 ............................................................

10,211
28,651
39,554
46,793
45,173
17,039
3,531

$68,356
193,823
405,727
792,561
1,729,025
3,750,831
7,128,700

$13.30
13.30
13.30
13.30
13.30
13.30
13.30

0.02
0.01
0.00
0.00
0.00
0.00
0.00

13.30
13.30
13.30
13.30
13.30
13.30
13.30

0.02
0.01
0.00
0.00
0.00
0.00
0.00

722410 Drinking Places (Alcoholic Beverages)
< 100,000 .................................................................................
100,000 to 249,999 ..................................................................
250,000 to 499,999 ..................................................................
500,000 to 999,999 ..................................................................
1,000,000 to 2,499,999 ............................................................
2,500,000 to 4,999,999 ............................................................
5,000,000 to 9,999,999 ............................................................

4,622
11,610
9,059
5,138
3,386
755
164

69,775
188,975
387,358
762,365
1,665,727
3,708,103
7,318,368

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[a] Limited to establishments operated for the entire year.
[b] Inflated to $2018 using the GDP deflator.
[c] The annual cost per establishment is the regulatory familiarization cost per establishment calculated in section V.B.iii.1.

VIII. Unfunded Mandates Reform Act
Analysis
The Unfunded Mandates Reform Act
of 1995, 2 U.S.C. 1532, requires agencies
to prepare a written statement, which
includes an assessment of anticipated
costs and benefits, before proposing any
Federal mandate that may result in
excess of $100 million (adjusted
annually for inflation) in expenditures
in any one year by state, local, and tribal
governments in the aggregate, or by the
private sector. This rulemaking is not
expected to affect state, local, or tribal
governments. While this rulemaking
would affect employers in the private
sector, it is not expected to result in
expenditures greater than $100 million
in any one year. See section V.B for an
assessment of anticipated costs and
benefits to the private sector.

X. Executive Order 13175, Indian
Tribal Governments

IX. 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.

29 CFR Part 531

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This proposed rule would 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.
List of Subjects
29 CFR Part 10
Administrative practice and
procedure, Construction industry,
Government procurement, Law
enforcement, Reporting and
recordkeeping requirements, Wages

For the reasons set forth above, the
Department proposes to amend Title 29,
Parts 10, 516, 531, 578, 579, and 580 of
the Code of Federal Regulations as
follows:
PART 10—ESTABLISHING A MINIMUM
WAGE FOR CONTRACTORS
1. The authority citation for Part 10 is
revised 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).

2. Amend § 10.28 by revising
paragraphs (b)(2), (c), (e), and (f) to read
as follows:

■

29 CFR Part 516

§ 10.28

Minimum wages, Reporting and
recordkeeping requirements, Wages

*

Wages
29 CFR Part 578
Penalties, Wages
29 CFR Part 579
Child labor, Penalties
29 CFR Part 580
Administrative practice and
procedure, Child labor, Penalties,
Wages.

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Tipped employees.

*
*
*
*
(b) * * *
(2)(i) In some situations an employee
is employed in a dual job, as for
example, where a maintenance person
in a hotel also works as a server. In such
a situation the employee, if he or she
customarily and regularly receives more
than $30 a month in tips for his or her
work as a server, is a tipped employee
only with respect to his or her
employment as a server. The employee
is employed in two occupations, and no
tip credit can be taken for his or her
hours of employment in the occupation
of maintenance person.

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Federal Register / Vol. 84, No. 195 / Tuesday, October 8, 2019 / Proposed Rules
(ii) Such a situation is distinguishable
from that of an employee who spends
time performing duties that are related
to his or her tip-producing occupation
but not themselves directed toward
producing tips. For example, a server
may spend part of his or her time
cleaning and setting tables, toasting
bread, making coffee and occasionally
washing dishes or glasses. Likewise, a
counter attendant may also prepare his
or her own short orders or may, as part
of a group of counter attendants, take a
turn as a short order cook for the group.
An employer may take a tip credit for
any amount of time that an employee
performs related, non-tipped duties
contemporaneously with his or her
tipped duties, or for a reasonable time
immediately before or after performing
the tipped duties.
(iii) ‘‘Related’’ duties defined. In
addition to the examples described in
(e)(ii), a non-tipped duty is related to a
tip-producing occupation if the duty is
listed as a task in the description of the
tip-producing occupation in the
Occupational Information Network
(O*NET) at www.onetonline.
Occupations not listed in O*NET may
qualify as tipped occupations. For those
occupations, duties usually and
customarily performed by employees
are related duties as long as they are
included in the list of duties performed
in similar O*NET occupations.
(c) Characteristics of tips. A tip is a
sum presented by a customer as a gift or
gratuity in recognition of some service
performed for the customer. It is to be
distinguished from payment of a fixed
charge, if any, made for the service.
Whether a tip is to be given, and its
amount, are matters determined solely
by the customer. Customers may present
cash tips directly to the employee or
may designate a tip amount to be added
to their bill when paying with a credit
card or by other electronic means.
Special gifts in forms other than money
or its equivalent such as theater tickets,
passes, or merchandise, are not counted
as tips received by the employee for
purposes of determining wages paid
under the Executive Order.
*
*
*
*
*
(e) Tip pooling. Where tipped
employees share tips through a tip pool,
only the amounts retained by the tipped
employees after any redistribution
through a tip pool are considered tips in
applying the provisions of FLSA section
3(t) and the wage payment provisions of
section 3 of the Executive Order. There
is no maximum contribution percentage
on mandatory tip pools. However, an
employer must notify its employees of
any required tip pool contribution

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amount, may only take a tip credit for
the amount of tips each employee
ultimately receives, and may not retain
any of the employees’ tips for any other
purpose.
(f) Notice. An employer is not eligible
to take the tip credit unless it has
informed its tipped employees in
advance of the employer’s use of the tip
credit. The employer must inform the
tipped employee of the amount of the
cash wage that is to be paid by the
employer, which cannot be lower than
the cash wage required by paragraph
(a)(1) of this section; the additional
amount by which the wages of the
tipped employee will be considered
increased on account of the tip credit
claimed by the employer, which amount
may not exceed the value of the tips
actually received by the employee; that
all tips received by the tipped employee
must be retained by the employee
except for a tip pooling arrangement;
and that the tip credit shall not apply to
any worker who has not been informed
of these requirements in this section.
PART 516—RECORDS TO BE KEPT BY
EMPLOYERS
3. Revise the authority section for Part
516 to read:

■

Authority: Sec. 11, 52 Stat. 1066, as
amended, 29 U.S.C. 211. Section 516.28 also
issued under 29 U.S.C. 203(m), as amended
by sec. 2105(b), Pub. L. 104–188, 110 Stat.
1755; sec. 8102(a), Pub. L. 110–28, 121 Stat.
112; and sec. 1201, Div. S., Tit. XII, Pub. L.
115–141, 132 Stat. 348. Section 516.33 also
issued under 52 Stat. 1060, as amended; 29
U.S.C. 201 et seq. Section 516.34 also issued
under Sec. 7, 103 Stat. 944, 29 U.S.C. 207(q).

4. Amend § 516.28 by revising the
section heading and paragraph (b) to
read as follows:

■

§ 516.28 Tipped employees and employeradministered tip pools.

*

*
*
*
*
(b) With respect to employees who
receive tips but for whom a tip credit is
not taken under section 3(m)(2)(A), any
employer that collects tips received by
employees to operate a mandatory tippooling or tip-sharing arrangement shall
maintain and preserve payroll or other
records containing the information and
data required in § 516.2(a) and, in
addition, the following:
(1) A symbol, letter, or other notation
placed on the pay records identifying
each employee who receive tips.
(2) Weekly or monthly amount
reported by the employee, to the
employer, of tips received (this may
consist of reports made by the
employees to the employer on IRS Form
4070).

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53975

PART 531—WAGE PAYMENTS UNDER
THE FAIR LABOR STANDARDS ACT
OF 1938
5. Revise the authority citation for Part
531 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.

6. Amend § 531.50 by:
a. Revising paragraph (a) introductory
text and adding paragraph (a)(3);
■ b. Redesignating paragraph (b) as
paragraph (c); and
■ c. Adding a new paragraph (b).
The revisions and additions read as
follows:
■
■

§ 531.50 Statutory provisions with respect
to tipped employees.

(a) With respect to tipped employees,
section 3(m)(2)(A) provides that, in
determining the wage an employer is
required to pay a tipped employee, the
amount paid such employee by the
employee’s employer shall be an
amount equal to—
* * *
(3) Section 3(m)(2)(A) also provides
that an employer that takes a tip credit
against its minimum wage obligations to
its tipped employees must inform those
employees of the provisions of that
subsection, and that the employees must
retain all of their tips, although the
employer may require those employees
to participate in a tip pool with other
tipped employees that customarily and
regularly receive tips.
(b) Section 3(m)(2)(B) provides that an
employer may not keep tips received by
its employees for any purposes,
including allowing managers and
supervisors to keep any portion of
employees’ tips, regardless of whether
the employer takes a tip credit under
section 3(m)(2)(A).
*
*
*
*
*
■ 7. Revise the first sentence of § 531.51
to read as follows:
§ 531.51 Conditions for taking tip credits
in making wage payments.

The wage credit permitted on account
of tips under section 3(m)(2)(A) may be
taken only with respect to wage
payments made under the Act to those
employees whose occupations in the
workweeks for which such payments
are made are those of ‘‘tipped
employees’’ as defined in section 3(t).
* * *

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■

Federal Register / Vol. 84, No. 195 / Tuesday, October 8, 2019 / Proposed Rules

8. Revise § 531.52 to read as follows:

§ 531.52 General restrictions on an
employer’s use of its employees’ tips.

(a) A tip is a sum presented by a
customer as a gift or gratuity in
recognition of some service performed
for the customer. It is to be
distinguished from payment of a charge,
if any, made for the service. Whether a
tip is to be given, and its amount, are
matters determined solely by the
customer. An employer that takes a tip
credit against its minimum wage
obligations is prohibited from using an
employee’s tips for any reason other
than that which is statutorily permitted
in section 3(m)(2)(A): As a credit against
its minimum wage obligations to the
employee, or in furtherance of a tip pool
limited to employees who customarily
and regularly receive tips. Only tips
actually received by an employee as
money belonging to the employee may
be counted in determining whether the
person is a ‘‘tipped employee’’ within
the meaning of the Act and in applying
the provisions of section 3(m)(2)(A)
which govern wage credits for tips.
(b) Section 3(m)(2)(B) of the Act
provides that an employer may not keep
tips received by its employees for any
purposes, regardless of whether the
employer takes a tip credit.
(1) An employer may exert control
over an employee’s tips only to
distribute tips to the employee who
received them, require employees to
share tips with other employees in
compliance with § 531.54, or, where the
employer facilitates tip pooling by
collecting and redistributing employees’
tips, distribute tips to employees in a tip
pool in compliance with § 531.54.
(2) An employer may not allow
managers and supervisors to keep any
portion of an employee’s tips, regardless
of whether the employer takes a tip
credit. For purposes of section
3(m)(2)(B), the term ‘‘manager’’ or
‘‘supervisor’’ shall mean any employee
whose duties match those of an
executive employee as described in
§ 541.100(a)(2) through (4) or § 541.101.
■ 9. Revise § 531.54 to read as follows:

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§ 531.54

Tip pooling.

(a) Monies counted as tips. Where
employees practice tip splitting, as
where waiters give a portion of their tips
to the busser, both the amounts retained
by the waiters and those given the
bussers are considered tips of the
individuals who retain them, in
applying the provisions of sections
3(m)(2)(A) and 3(t). Similarly, where an
accounting is made to an employer for
his information only or in furtherance of
a pooling arrangement whereby the

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employer redistributes the tips to the
employees upon some basis to which
they have mutually agreed among
themselves, the amounts received and
retained by each individual as his own
are counted as his tips for purposes of
the Act. Section 3(m)(2)(A) does not
impose a maximum contribution
percentage on mandatory tip pools.
(b) Meaning of ‘‘keep.’’ Section
3(m)(2)(B)’s prohibition against keeping
tips applies regardless of whether an
employer takes a tip credit. Section
3(m)(2)(B) expressly prohibits
employers from requiring employees to
share tips with managers or supervisors,
as defined in § 531.52(b)(2), or
employers, as defined in 29 U.S.C.
203(d). An employer does not violate
section 3(m)(2)(B)’s prohibition against
keeping tips if it requires employees to
share tips with other employees who are
eligible to receive tips.
(1) Full and prompt distribution of
tips. An employer that facilitates tip
pooling by collecting and redistributing
employees’ tips does not violate section
3(m)(2)(B)’s prohibition against keeping
tips if it fully distributes any tips the
employer collects no later than the
regular payday for the workweek in
which the tips were collected, or when
the pay period covers more than a single
workweek, the regular payday for the
period in which the workweek ends. To
the extent that it is not possible for an
employer to ascertain the amount of tips
that have been received or how tips
should be distributed prior to
processing payroll, tips must be
distributed to employees as soon as
practicable after the regular payday.
(c) Employers that take a section
3(m)(2)(A) tip credit. When an employer
takes a tip credit pursuant to section
3(m)(2)(A):
(1) The employer may require an
employee for whom the employer takes
a tip credit to contribute tips to a tip
pool only if it is limited to employees
who customarily and regularly receive
tips; and
(2) The employer must notify its
employees of any required tip pool
contribution amount, may only take a
tip credit for the amount of tips each
employee ultimately receives, and may
not retain any of the employees’ tips for
any other purpose.
(d) Employers that do not take a
section 3(m)(2)(A) tip credit. An
employer that pays its tipped employees
the full minimum wage and does not
take a tip credit may impose a tip
pooling arrangement that includes
dishwashers, cooks, or other employees
in the establishment who are not
employed in an occupation in which
employees customarily and regularly

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receives tips. An employer may not
participate in such a tip pool, and may
not include supervisors and managers in
the pool.
■ 10. Revise § 531.55(a) to read as
follows:
§ 531.55 Examples of amounts not
received as tips.

(a) A compulsory charge for service,
such as 15 percent of the amount of the
bill, imposed on a customer by an
employer’s establishment, is not a tip
and, even if distributed by the employer
to its employees, cannot be counted as
a tip received in applying the provisions
of sections 3(m)(2)(A) and 3(t).
Similarly, where negotiations between a
hotel and a customer for banquet
facilities include amounts for
distribution to employees of the hotel,
the amounts so distributed are not
counted as tips received.
*
*
*
*
*
■ 11. Amend § 531.56 by revising the
second and third sentences in paragraph
(a), and paragraphs (d) and (e) to read
as follows:
§ 531.56

‘‘More than $30 a month in tips.’’

(a) In general. * * * An employee
employed in an occupation in which the
tips he receives meet this minimum
standard is a ‘‘tipped employee’’ for
whom the wage credit provided by
section 3(m)(2)(A) may be taken in
computing the compensation due him
under the Act for employment in such
occupation, whether he is employed in
it full time or part time. An employee
employed full time or part time in an
occupation in which he does not receive
more than $30 a month in tips
customarily and regularly is not a
‘‘tipped employee’’ within the meaning
of the Act and must receive the full
compensation required by its provisions
in cash or allowable facilities without
any deduction for tips received under
the provisions of section 3(m)(2)(A).
*
*
*
*
*
(d) Significance of minimum monthly
tip receipts. More than $30 a month in
tips customarily and regularly received
by the employee is a minimum standard
that must be met before any wage credit
for tips is determined under section
3(m)(2)(A). It does not govern or limit
the determination of the appropriate
amount of wage credit under section
3(m)(2)(A) that may be taken for tips
under section 6(a)(1) (tip credit equals
the difference between the minimum
wage required by section 6(a)(1) and the
cash wage paid (at least $2.13 per
hour)).
(e) Dual jobs. (1) In some situations an
employee is employed in a dual job, as
for example, where a maintenance

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person in a hotel also works as a server.
In such a situation the employee, if he
or she customarily and regularly
receives more than $30 a month in tips
for his or her work as a server, is a
tipped employee only with respect to
his or her employment as a server. The
employee is employed in two
occupations, and no tip credit can be
taken for his or her hours of
employment in the occupation of
maintenance person.
(2) Such a situation is distinguishable
from that of an employee who spends
time performing duties that are related
to his or her tip-producing occupation
but not themselves directed toward
producing tips. For example, a server
may spend part of his or her time
cleaning and setting tables, toasting
bread, making coffee and occasionally
washing dishes or glasses. Likewise, a
counter attendant may also prepare his
or her own short orders or may, as part
of a group of counter attendants, take a
turn as a short order cook for the group.
An employer may take a tip credit for
any amount of time that an employee
performs related, non-tipped duties
contemporaneously with his or her
tipped duties, or for a reasonable time
immediately before or after performing
the tipped duties.
(3) ‘‘Related’’ duties defined. In
addition to the examples described in
(e)(2), a non-tipped duty is related to a
tip-producing occupation if the duty is
listed as a task in the description of the
tip-producing occupation in the
Occupational Information Network
(O*NET) at www.onetonline.
Occupations not listed in O*NET may
qualify as tipped occupations. For those
occupations, duties usually and
customarily performed by employees
are related duties as long as they are
included in the list of duties performed
in similar O*NET occupations.
■ 12. Revise § 531.59 to read as follows:

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§ 531.59

The tip wage credit.

(a) In determining compliance with
the wage payment requirements of the
Act, under the provisions of section
3(m)(2)(A) the amount paid to a tipped
employee by an employer is increased
on account of tips by an amount equal
to the formula set forth in the statute
(minimum wage required by section
6(a)(1) of the Act minus cash wage paid
(at least $2.13)), provided that the
employer satisfies all the requirements
of section 3(m)(2)(A). This tip credit is
in addition to any credit for board,
lodging, or other facilities which may be
allowable under section 3(m).
(b) As indicated in § 531.51, the tip
credit may be taken only for hours
worked by the employee in an

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occupation in which the employee
qualifies as a ‘‘tipped employee.’’
Pursuant to section 3(m)(2)(A), an
employer is not eligible to take the tip
credit unless it has informed its tipped
employees in advance of the employer’s
use of the tip credit of the provisions of
section 3(m)(2)(A) of the Act, i.e.: The
amount of the cash wage that is to be
paid to the tipped employee by the
employer; the additional amount by
which the wages of the tipped employee
are increased on account of the tip
credit claimed by the employer, which
amount may not exceed the value of the
tips actually received by the employee;
that all tips received by the tipped
employee must be retained by the
employee except for a tip pooling
arrangement limited to employees who
customarily and regularly receive tips;
and that the tip credit shall not apply to
any employee who has not been
informed of these requirements in this
section. The credit allowed on account
of tips may be less than that permitted
by statute (minimum wage required by
section 6(a)(1) minus the cash wage paid
(at least $2.13)); it cannot be more. In
order for the employer to claim the
maximum tip credit, the employer must
demonstrate that the employee received
at least that amount in actual tips. If the
employee received less than the
maximum tip credit amount in tips, the
employer is required to pay the balance
so that the employee receives at least
the minimum wage with the defined
combination of wages and tips. With the
exception of tips contributed to a tip
pool limited to employees who
customarily and regularly receive tips as
described in § 531.54, section 3(m)(2)(A)
also requires employers that take a tip
credit to permit employees to retain all
tips received by the employee.
■ 13. Revise § 531.60 to read as follows:
§ 531.60

Overtime payments.

When overtime is worked by a tipped
employee who is subject to the overtime
pay provisions of the Act, the
employee’s regular rate of pay is
determined by dividing the employee’s
total remuneration for employment
(except statutory exclusions) in any
workweek by the total number of hours
actually worked by the employee in that
workweek for which such compensation
was paid. (See part 778 of this chapter
for a detailed discussion of overtime
compensation under the Act.) In
accordance with section 3(m)(2)(A), a
tipped employee’s regular rate of pay
includes the amount of tip credit taken
by the employer per hour (not in excess
of the minimum wage required by
section 6(a)(1) minus the cash wage paid
(at least $2.13)), the reasonable cost or

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53977

fair value of any facilities furnished to
the employee by the employer, as
authorized under section 3(m) and this
part 531, and the cash wages including
commissions and certain bonuses paid
by the employer. Any tips received by
the employee in excess of the tip credit
need not be included in the regular rate.
Such tips are not payments made by the
employer to the employee as
remuneration for employment within
the meaning of the Act.
PART 578—[AMENDED]
14. The heading of Part 578 is revised
to read as follows:

■

PART 578—TIP RETENTION, MINIMUM
WAGE, AND OVERTIME
VIOLATIONS—CIVIL MONEY
PENALTIES
15. The authority citation for Part 578
is revised to read as follows:

■

Authority: 29 U.S.C. 216(e), as amended by
sec. 9, Pub. L. 101–157, 103 Stat. 938, sec.
3103, Pub. L. 101–508, 104 Stat. 1388–29,
sec. 302(a), Pub. L. 110–233, 122 Stat. 920,
and sec. 1201, Div. S., Tit. XII, Pub. L. 115–
141, 132 Stat. 348; Pub. L. 101–410, 104 Stat.
890 (28 U.S.C. 2461 note), as amended by
sec. 31001(s), Pub. L. 104–134, 110 Stat.
1321–358, 1321–373, and sec. 701, Pub. L.
114–74, 129 Stat 584.
■

16. Revise § 578.1 to read as follows:

§ 578.1

What does this part cover?

Section 9 of the Fair Labor Standards
Amendments of 1989 amended section
16(e) of the Act to provide that any
person who repeatedly or willfully
violates the minimum wage (section 6)
or overtime provisions (section 7) of the
Act shall be subject to a civil money
penalty not to exceed $1,000 for each
such violation. In 2001, WHD adjusted
this penalty for inflation pursuant to the
Federal Civil Penalties Inflation
Adjustment Act of 1990 (Pub. L. 101–
410), as amended by the Debt Collection
Improvement Act of 1996 (Pub. L. 104–
134, section 31001(s)). See 66 FR 63503
(Dec. 7, 2001). The Genetic Information
Nondiscrimination Act of 2008
amended section 16(e) of the Act to
reflect this increase. See Pub. L. 110–
233, sec. 302(a), 122 Stat. 920. Section
1201(b)(3) of the Consolidated
Appropriations Act, 2018, amended
section 16(e) to add that any person who
violates section 3(m)(2)(B) of the Act
shall be subject to a civil money penalty
not to exceed $1,100. The Federal Civil
Penalties Inflation Adjustment Act of
1990 (Pub. L. 101–410), as amended by
the Debt Collection Improvement Act of
1996 (Pub. L. 104–134, section 31001(s))
and the Federal Civil Penalties Inflation
Adjustment Act Improvement Act of

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Federal Register / Vol. 84, No. 195 / Tuesday, October 8, 2019 / Proposed Rules

2015 (Pub. L. 114–74, section 701),
requires that inflationary adjustments be
annually made in these civil money
penalties according to a specified costof-living formula. This part defines
terms necessary for administration of
the civil money penalty provisions,
describes the violations for which a
penalty may be imposed, and describes
criteria for determining the amount of
penalty to be assessed. The procedural
requirements for assessing and
contesting such penalties are contained
in part 580 of this chapter.
■ 17. Revise § 578.3 to read as follows:

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§ 578.3 What types of violations may result
in a penalty being assessed?

(a)(1) A penalty of up to $1,100 may
be assessed against any person who
repeatedly or willfully violates section
3(m)(2)(B) of the Act.
(2) A penalty of up to $1,964 per
violation may be assessed against any
person who repeatedly or willfully
violates section 6 (minimum wage) or
section 7 (overtime) of the Act. The
amount of the penalties stated in
paragraphs (a)(1) and (2) of this section
will be determined by applying the
criteria in § 578.4.
(b) Repeated violations. An
employer’s violation of section
3(m)(2)(B), section 6, or section 7 of the
Act shall be deemed to be ‘‘repeated’’
for purposes of this section:
(1) Where the employer has
previously violated section 3(m)(2)(B),
section 6, or section 7 of the Act,
provided the employer has previously
received notice, through a responsible
official of the Wage and Hour Division
or otherwise authoritatively, that the
employer allegedly was in violation of
the provisions of the Act; or
(2) Where a court or other tribunal has
made a finding that an employer has
previously violated section 3(m)(2)(B),
section 6, or section 7 of the Act, unless
an appeal therefrom which has been
timely filed is pending before a court or
other tribunal with jurisdiction to hear
the appeal, or unless the finding has
been set aside or reversed by such
appellate tribunal.
(c) Willful violations. (1) An
employer’s violation of section
3(m)(2)(B), section 6, or section 7 of the
Act shall be deemed to be ‘‘willful’’ for
purposes of this section where the
employer knew that its conduct was
prohibited by the Act or showed
reckless disregard for the requirements
of the Act. All of the facts and
circumstances surrounding the violation
shall be taken into account in
determining whether a violation was
willful.

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(2) For purposes of this section, the
employer’s receipt of advice from a
responsible official of the Wage and
Hour Division to the effect that the
conduct in question is not lawful is a
relevant fact and circumstance when
determining if the employer’s conduct is
knowing.
(3) For purposes of this section,
whether the employer should have
inquired further into whether its
conduct was in compliance with the Act
and failed to make adequate further
inquiry is a relevant fact and
circumstance when determining if the
employer’s conduct is in reckless
disregard of the requirements of the Act.
18. Revise § 578.4(a) to read as
follows:
§ 578.4

Determination of penalty.

(a) In determining the amount of
penalty to be assessed for any repeated
or willful violation of section 3(m)(2)(B),
section 6, or section 7 of the Act, the
Administrator shall consider the
seriousness of the violations and the
size of the employer’s business.
*
*
*
*
*
PART 579—CHILD LABOR
VIOLATIONS—CIVIL MONEY
PENALTIES
19. The authority citation for Part 579
is revised to read as follows:

■

Authority: 29 U.S.C. 203(m), (l), 211, 212,
213(c), 216; Reorg. Plan No. 6 of 1950, 64
Stat. 1263, 5 U.S.C. App; secs. 25, 29, 88 Stat.
72, 76; Secretary of Labor’s Order No. 01–
2014 (Dec. 19, 2014), 79 FR 77527 (Dec. 24,
2014); 28 U.S.C. 2461 Note (Federal Civil
Penalties Inflation Adjustment Act of 1990);
and Pub. L. 114–7, 129 Stat 584.

20. Amend § 579.1 by:
a. Revising paragraph (a) introductory
text;
■ b. Redesignating paragraph (a)(2) as
paragraph (a)(2)(i); and
■ c. Adding paragraph (a)(2)(ii).
The revisions and additions read as
follows:
■
■

§ 579.1

Purpose and scope.

(a) Section 16(e), added to the Fair
Labor Standards Act of 1938, as
amended, by the Fair Labor Standards
Amendments of 1974, and as further
amended by the Fair Labor Standards
Amendments of 1989, the Omnibus
Budget Reconciliation Act of 1990, the
Compactor and Balers Safety Standards
Modernization Act of 1996, the Genetic
Information Nondiscrimination Act of
2008, and the Consolidated
Appropriations Act of 2018, provides
for the imposition of civil money
penalties in the following manner:
*
*
*
*
*

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(2) * * *
(ii) Any person who repeatedly or
willfully violates section 203(m)(2)(B) of
the FLSA, relating to the retention of
tips, shall be subject to a civil penalty
not to exceed $1,100 for each such
violation.
*
*
*
*
*
■ 21. Amend § 579.2 by revising the
definition of ‘‘Willful violations’’ to read
as follows:
§ 579.2

Definitions.

*

*
*
*
*
Willful violations under this section
has several components. An employer’s
violation of section 12 or section 13(c)
of the Act relating to child labor or any
regulation issued pursuant to such
sections, shall be deemed to be willful
for purposes of this section where the
employer knew that its conduct was
prohibited by the Act or showed
reckless disregard for the requirements
of the Act. All of the facts and
circumstances surrounding the violation
shall be taken into account in
determining whether a violation was
willful. In addition, for purposes of this
section, the employer’s receipt of advice
from a responsible official of the Wage
and Hour Division to the effect that the
conduct in question is not lawful is a
relevant fact and circumstance when
determining if the employer’s conduct is
knowing. For purposes of this section,
whether the employer should have
inquired further into whether its
conduct was in compliance with the Act
and failed to make adequate further
inquiry is a relevant fact and
circumstance when determining if the
employer’s conduct is in reckless
disregard of the requirements of the Act.
PART 580—CIVIL MONEY
PENALTIES—PROCEDURES FOR
ASSESSING AND CONTESTING
PENALTIES
22. The authority citation for part 580
continues to read as follows:

■

Authority: 29 U.S.C. 9a, 203, 209, 211, 212,
213(c), 216; Reorg. Plan No. 6 of 1950, 64
Stat. 1263, 5 U.S.C. App; secs. 25, 29, 88 Stat.
72, 76; Secretary’s Order 01–2014 (Dec. 19,
2014), 79 FR 77527 (Dec. 24, 2014); 5 U.S.C.
500, 503, 551, 559; 103 Stat. 938.

23. Revise the first sentence of § 580.2
to read as follows:

■

§ 580.2
rules.

Applicability of procedures and

The procedures and rules contained
in this part prescribe the administrative
process for assessment of civil money
penalties for any violation of the child
labor provisions at section 12 of the Act
and any regulation thereunder as set

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forth in part 579, and for assessment of
civil money penalties for any repeated
or willful violation of the tip retention
provisions of section 3(m)(2)(B), the
minimum wage provisions of section 6,
or the overtime provisions of section 7
of the Act or the regulations thereunder
set forth in 29 CFR subtitle B, chapter
V. * * *
■ 24. Revise the first sentence of § 580.3
to read as follows:

§ 580.12 Decision and Order of
Administrative Law Judge.

*

§ 580.3 Written notice of determination
required.

Whenever the Administrator
determines that there has been a
violation by any person of section 12 of
the Act relating to child labor or any
regulation issued under that section, or
determines that there has been a
repeated or willful violation by any
person of section 3(m)(2)(B), section 6,
or section 7 of the Act, and determines

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that imposition of a civil money penalty
for such violation is appropriate, the
Administrator shall issue and serve a
notice of such penalty on such person
in person or by certified mail. * * *
■ 25. Amend § 580.12 by revising the
first sentence of paragraph (b) of to read
as follows:

*
*
*
*
(b) The decision of the Administrative
Law Judge shall be limited to a
determination of whether the
respondent has committed a violation of
section 12, or a repeated or willful
violation of section 3(m)(2)(B), section
6, or section 7 of the Act, and the
appropriateness of the penalty assessed
by the Administrator. * * *
*
*
*
*
*

26. Amend § 580.18 by revising the
third sentence in paragraph (b)(3) to
read as follows:

■

§ 580.18
penalty.

Collection and recovery of

*

*
*
*
*
(b) * * *
(3) * * * A willful violation of
sections 3(m)(2)(B), 6, 7, or 12 of the Act
may subject the offender to the penalties
provided in section 16(a) of the Act,
enforced by the Department of Justice in
criminal proceedings in the United
States courts. * * *
The following appendix will not
appear in the Code of Federal
Regulations.
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
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

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Federal Register / Vol. 84, No. 195 / Tuesday, October 8, 2019 / Proposed Rules

Signed in Washington, DC this 19th day of
September, 2019.
Cheryl M. Stanton,
Administrator, Wage and Hour Division.
[FR Doc. 2019–20868 Filed 10–7–19; 8:45 am]

jbell on DSK3GLQ082PROD with PROPOSALS4

BILLING CODE 4510–27–P

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