Submitted via www.regulations.gov
Division of Regulations, Legislation, and Interpretation
Wage and Hour Division
U.S. Department of Labor
200 Constitution Avenue NW,
Washington, DC 20210
Re: Tip Regulations Under the Fair Labor Standards Act (FLSA); Partial Withdrawal (RIN 1235-AA21)
Dear Miss. DeBisschop,
The Economic Policy Institute (EPI) is a nonprofit, nonpartisan think tank created in 1986 to include the needs of low- and middle-income workers in economic policy discussions. EPI conducts research and analysis on the economic status of working America, proposes public policies that protect and improve the economic conditions of low- and middle-income workers, and assesses policies with respect to how well they further those goals. EPI submits these comments on the Department of Labor’s (DOL/Department) request for comment on the proposal to withdraw and re-propose one portion of the Tip Regulations Under the Fair Labor Standards Act (2020 Tip Final Rule) related to the determination of when a tipped employee is employed in dual jobs under the Fair Labor Standards Act (FLSA). 1
In the notice of proposed rulemaking (NPRM), the Department proposes to withdraw and re-propose portions of the 2020 Tip Final that amends the Department’s dual jobs regulations to address the application of the FLSA tip credit to tipped employees who perform both tipped and non-tipped duties. Specifically, the Department proposes to clarify that an employer may only take a tip credit when tipped employees perform work that produces tips or work that directly supports tip-producing work, so long as the employee does not perform the “directly supporting” work for a substantial amount of time. Further, the Department strengthens the dual jobs regulation by defining “substantial amount of time” as either exceeding 20 percent of all the hours worked during the employee’s workweek or exceeding 30 continuous minutes.3 EPI strongly supports the Department’s withdrawal and re-purpose of the 2020 Tip Final Rule related to the determination of when a tipped employee is employed in dual jobs under the FLSA.
The federal minimum wage for tipped workers has been frozen at a meager $2.13 per hour since 1991, and all but eight states have a subminimum wage for tipped workers.4 Women—disproportionately women of color—represent nearly 70% of tipped workers nationwide and are more likely to experience poverty than their male counterparts.5 Further, tipped workers’ economic security is precarious given that they are especially vulnerable to discrimination and wage theft.6 And the Department routinely identifies significant wage violations in industries with large concentrations of tipped workers, where employers have been able to violate rules with near impunity.7 For these reasons, EPI is encouraged by the Department’s commitment to strengthen protections for tipped workers as outlined in the proposed rule.
In the 2020 Tip Final Rule, the Department updated its dual jobs regulations by eliminating the long-standing 80/20 rule, which provided employers guidance on the use of tip credit for non-tipped work. The protection provided by the 80/20 rule is critical for tipped workers, because it places a limit on the amount of non-tipped duties employers can assign to tipped workers at a subminimum wage. However, the 2020 Tip Final Rule allowed tipped workers to be paid the subminimum tipped wage while performing an unlimited amount of non-tipped duties, as long as those non-tipped duties are performed “contemporaneously with tipped duties or for a reasonable time immediately before or after performing the tipped duties.”8 However, the “reasonable time” was not defined in the final rule, and its ambiguity would make it difficult to enforce, providing employers an immense loophole that would be costly to workers. EPI estimated that the elimination of the 80/20 rule would allow employers to capture more than $700 million annually from workers.9 It should be noted that these estimates were calculated prior to the COVID-19 pandemic and the impact of the 2020 Final Tip Rule could be much worse for tipped workers during the COVID-19 pandemic, since non-tipped work now makes up a much greater share of work being done in establishments that employ tipped workers (for example, restaurants have shifted their services from dine-in to takeout). Further, this loss would be especially harmful for women and people of color who are both disproportionately represented in the tipped workforce and have borne the brunt of the pandemic’s devastating impacts.10
Our estimate that the elimination of the 80/20 rule would allow employers to capture more than $700 million annually from workers is very much in line with the Department’s estimate that potential transfer from tipped employees to employers would be up to $714 million annually. The Department provided a very thoughtful discussion about whether its estimate is likely an overestimate or an underestimate, describing many factors on both sides. The Department concluded that the reasons their estimate is an overestimate outweigh the reasons the estimate is an underestimate. We agree there are factors on both sides but believe that two additional factors that were not discussed in the NPRM tilt the scales toward the estimate being an underestimate. Most importantly, This data issue makes a large underestimation of the amount of tips that employers would capture likely. Further, these estimates assume that eliminating the 80/20 rule would only have an effect if the employer is already taking a tip credit, ignoring the fact that some employers may be incentivized to start using the tip credit if the 80/20 rule were eliminated, knowing that without the rule they would be able to capture more tips.
Under the current proposal, the Department clarifies that employers can only take a tip credit when tipped workers perform work that is part of the worker’s tipped occupation. The Department further specifies this as when a tipped employee’s work produces tips or when the tipped employee engages in non-tipped work that directly supports tip-producing work, so long as the employee does not perform it for a substantial amount of time. The Department defines the “substantial amount of time” as exceeding 20 percent of all the hours worked during the employee’s workweek or exceeding 30 continuous minutes of work. Effectively, the Department’s proposal reinstates and codifies the long-standing 80/20 rule, and further strengthens protections for tipped workers by proposing that non-tipped work cannot exceed 30 continuous minutes. We estimate that in doing so, the Department is protecting at least $700 million per year of earnings workers would have lost under the 2020 Tip Final Rule. While we are unable to estimate the impact of limiting non-tipped activities to no more than 30 continuous minutes of work, based on the fact it would limit the amount of non-tipped work paid at a subminimum wage, we assume this language would increase our $700 million estimate and provide further protections for tipped workers’ earnings.
EPI strongly supports the Department’s proposal to limit the amount of non-tipped work that a tipped employee can perform when an employer is taking a tip credit. These amendments and clarifications of the dual jobs regulations are critical for tipped workers, as they place a limit on the amount of non-tipped duties tipped workers may partake in at a subminimum wage. The proposal would protect at least $700 million per year in earnings that workers would have lost under the 2020 Tip Final Rule. The proposal would largely benefit women and people of color who are both disproportionately represented in the tipped workforce and have borne the brunt of the pandemic’s devastating impacts. For these reasons, EPI strongly supports the Department’s withdrawal and re-purpose of the 2020 Tip Final Rule related to the determination of when a tipped employee is employed in dual jobs under the FLSA.
Thank you for the opportunity to comment on this important issue.
Senior Economist and Director of Policy
Economic Policy Institute
Economic Policy Institute
1. 86 Fed. Reg. 32818.
2. 86 Fed. Reg. 32820.
3. 86 Fed. Reg. 32820.
4. Economic Policy Institute, “Minimum Wage Tracker” (webpage), last modified on August 3, 2021.
5. National Women’s Law Center, One Fair Wage: Women Fare Better in States with Equal Treatment for Tipped Workers, February 2021.
6. See M. Lynn, M. Sturman, C. Ganley, E. Adams, M. Douglas, and J. McNeil. 2008. “Consumer Racial Discrimination in Tipping: A Replication and Extension.” Journal of Applied Social Psychology 38, 1045–1060. https://doi.org/10.1111/j.1559-1816.2008.00338.x and David Cooper and Teresa Kroeger, Employers Steal Billions from Workers’ Paychecks Each Year, Economic Policy Institute, May 2017.
7. See generally, e.g., David Weil, Improving Workplace Conditions Through Strategic Enforcement (May 2010), https://www.dol.gov/whd/resources/strategicEnforcement.pdf.
8. 85 Fed. Reg. 86756.
9. Heidi Shierholz and David Cooper, “Workers will lose more than $700 million dollars annually under proposed DOL rule,” Working Economics (Economic Policy Institute blog), November 30, 2019.
10. David Cooper, Zane Mokhiber, and Ben Zipperer, Raising the Federal Minimum Wage to $15 by 2025 Would Lift the Pay of 32 Million Workers, Economic Policy Institute, March 2021.
11. Heidi Shierholz and David Cooper, “Workers will lose more than $700 million dollars annually under proposed DOL rule,” Working Economics (Economic Policy Institute blog), November 30, 2019.