Labor & Employment Law Daily DOL finalizes delay in tip rule’s effective date until April 30, 2021
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Tuesday, March 2, 2021

DOL finalizes delay in tip rule’s effective date until April 30, 2021

By Pamela Wolf, J.D.

Of the 19 organizations that submitted timely comments to the proposed delay, 17 supported it.

After reviewing comments submitted in response to its February 5, 2020, proposal, the Department of Labor is delaying the effective date of its December 30, 2020, final rule, “Tip Regulations Under the Fair Labor Standards Act (FLSA),” until April 30, 2021, in order to review issues of law, policy, and fact raised by the rule before it takes effect.

The move falls under President Biden’s directive, as expressed in the January 20, 2021, “Regulatory Freeze Pending Review,” according to the notice scheduled for publication in the Federal Register February 26, 2021.

Final tip rule. The controversial final rule would have, among other things:

  • Removed portions of the regulations that prohibited employers that do not take a tip credit from implementing mandatory “nontraditional” tip pools—tip pools that include employees who do not customarily and regularly receive tips;
  • Explicitly prohibited employers—regardless of whether they take a tip credit—from keeping employees’ tips for any purpose, including prohibiting managers and supervisors from keeping tips received by employees;
  • Amended regulations to state that an 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 “keep[ing]” the tips in violation of section 3(m)(2)(B);
  • Incorporated new requirements regarding civil money penalties (CMP) and revised additional portions of the CMP regulations to address court decisions that have raised concerns;
  • Incorporated a new recordkeeping requirement for employers that do not take a tip credit but collect employees’ tips to operate a mandatory tip pool;
  • Codified recent guidance explaining that an employer may take a tip credit for time that an employee in a tipped occupation performs related but nontipped duties, either contemporaneously with or for a “reasonable time” immediately before or after performing tipped duties; the final rule also states that, in addition to the examples listed in the regulation, a non-tipped duty is presumed to be related to a tip-producing occupation if it is listed as a task of the tip-producing occupation in O*NET;
  • Amended regulations that address payment of tipped employees under Executive Order 13658 (Establishing a Minimum Wage for Contractors) to reflect corresponding changes in FLSA regulations and to otherwise align those regulations with the Executive Order.

Effective date delay well supported. In response to its proposed delay of the tip rule’s effective date, the DOL received timely comments from 19 organizations, 17 of which supported the delay, and two of which opposed it. After reviewing the comments, the DOL agreed with those who supported the delay because the final rule raises multiple issues of law, policy, and fact that warrant additional review and consideration in accordance with the Regulatory Freeze Memo. These issues include the tip rule’s:

  • Codification of Wage and Hour Division guidance on the tip credit’s application to tipped employees who perform tipped and non-tipped duties;
  • Revisions to portions of its CMP regulations on willful violations;
  • Incorporation of Consolidated Appropriations Act of 2018 language on CMPs for Section 3(m)(2)(B) violations into the DOL’s regulations; and
  • Analysis of the economic impact of codifying the WHD’s guidance on the tip credit’s application to tipped employees who perform tipped and non-tipped duties.

Further, as numerous advocacy organizations and the Attorneys’ General for eight states and the District of Columbia noted in their comments, a delay in the tip rule’s effective date would also give the DOL more time to review the issues of law raised in the AGs’ January 19, 2021, complaint, which alleged that the DOL violated the Administrative Procedure Act in promulgating the final rule.

Moreover, permitting the tip rule to go into effect while the DOL undertakes a review of these issues identified by commenters could lead to confusion among workers and employers in the event that the department hereafter proposes to revise the final rule; delaying the tip rule would avoid such confusion. The DOL also agreed with the National Employment Law Project that a delay in the final rule’s effective date would prevent employers from incurring potentially unnecessary additional costs to familiarize themselves with the tip rule if the DOL elects to propose revisions following its review.

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