The U.S. Department of Labor (DOL) has officially delayed a rule that would make it easier for restaurants and other hospitality businesses to allow “back-of-the-house” workers—such as cooks and dishwashers—and other nontipped workers to share in gratuities under the Fair Labor Standards Act (FLSA).
The DOL’s action is consistent with a presidential directive asking all federal agencies to freeze proposed regulations and those with pending effective dates, according to a measure published in The Federal Register delaying the rule until April 30.
President Joe Biden’s chief of staff, Ronald Klain, said in January that the president’s appointees should “have the opportunity to review any new or pending rule.”
The DOL said that “delaying the effective date of the tip rule would provide the department additional opportunity to review and consider the questions of law, policy and fact raised by the rule.”
We’ve rounded up resources and articles from SHRM Online and other trusted outlets on the news.
The final rule was issued toward the end of the Trump administration and was scheduled to take effect on March 1. The final rule addresses changes to the FLSA’s tip-credit regulations that were made under the Consolidated Appropriations Act of 2018. The rule would allow hospitality workers who are traditionally not tipped to share in gratuities under the FLSA. Eligible employers would have to pay participants in the tip pool the full minimum wage instead of taking a so-called tip credit, which allows employers that meet certain criteria to pay servers, bartenders and other tipped workers less than minimum wage, as long as their tips make up the difference. The final rule would prohibit management from keeping any portion of employees’ tips regardless of whether the employer takes a tip credit and codify DOL guidance on how the tip credit applies to employees who perform a mix of tipped and nontipped duties.
States Challenge Tip-Sharing Rule
The final rule codified DOL guidance eliminating the 80/20 rule, which only allowed employers to take a tip credit for workers who spent no more than 20 percent of their time on nontipped duties. The new rule would more broadly allow employers to take a tip credit when tipped employees perform related side jobs (such as rolling silverware) either during, just before or a reasonable time after tipped duties. On Jan. 19, eight states and the District of Columbia filed a lawsuit challenging the rule, claiming it will lower wages for tipped workers. The lawsuit claims that the DOL didn’t adequately identify and weigh the costs and benefits of eliminating the 80/20 rule, and therefore, the DOL arbitrarily eliminated the rule in violation of the Administrative Procedures Act.
A final rule is also expected to be delayed that would make it easier for businesses to classify workers as independent contractors rather than employees. Employees are covered by the FLSA’s minimum wage and overtime requirements, whereas independent contractors are not. The final rule was slated to take effect on March 8, and the department has proposed delaying the rule until May 7.
DOL Withdraws Three Opinion Letters
The DOL recently withdrew three opinion letters that were issued in the last days of the prior administration. The letters addressed tipped workers and independent contractors under the FLSA and applied the standards used in the now-delayed final rules. “These letters were issued prematurely because they are based on rules that have not gone into effect,” according to the department.
DOL Lifts Limits on Subregulatory Guidance
Employers can expect to have new compliance obligations in the wake of the Biden administration’s lifting of certain limits that the Trump administration had put on subregulatory guidance—guidance that hasn’t gone through the notice-and-comment period. The Trump administration tried reducing the number of subregulatory guidance documents issued, with the notable exception of opinion letters, which the Trump administration increased. Employers may find other forms of subregulatory guidance to be less helpful and more burdensome than opinion letters.