18832 Federal Register / Vol. 76, No. 65 / Tuesday, April 5, 2011 / Rules and Regulations 

DEPARTMENT OF LABOR 

Office of the Secretary 

29 CFR Part 4 

Wage and Hour Division 

29 CFR Parts 516, 531, 553, 778, 779, 

780, 785, 786, and 790 

RIN 1215–AB13, 1235–AA00 

Updating Regulations Issued Under 

the Fair Labor Standards Act 

AGENCY: Wage and Hour Division, 

Department of Labor. 

ACTION: Final rule. 

SUMMARY: In this final rule, the 

Department of Labor (Department or 

DOL) revises regulations issued 

pursuant to the Fair Labor Standards 

Act of 1938 (FLSA) and the Portal-toPortal Act of 1947 (Portal Act) that have 

become out of date because of 

subsequent legislation. These revisions 

conform the regulations to FLSA 

amendments passed in 1974, 1977, 

1996, 1997, 1998, 1999, 2000, and 2007, 

and Portal Act amendments passed in 

1996. 

DATES: Effective Date: These rules are 

effective on May 5, 2011. 

FOR FURTHER INFORMATION CONTACT: 

Montaniel Navarro, Wage and Hour 

Division, U.S. Department of Labor, 

Room S–3502, 200 Constitution Avenue, 

NW., Washington, DC 20210; telephone: 

(202) 693–0067 (this is not a toll-free 

number). Copies of this final rule may 

be obtained in alternative formats (Large 

Print, Braille, Audio Tape or Disc), upon 

request, by calling (202) 693–0023 (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 regulations issued by 

this agency may be directed to the 

nearest Wage and Hour Division (WHD) 

District Office. Locate the nearest office 

by calling our toll-free help line at (866) 

4USWAGE ((866) 487–9243) between 

8 a.m. and 5 p.m. in your local time 

zone, or log onto the WHD’s Web site for 

a nationwide listing of Wage and Hour 

District and Area Offices at: http:// 

www.dol.gov/esa/contacts/whd/ 

america2.htm. 

SUPPLEMENTARY INFORMATION: The 

Regulatory Information Number (RIN) 

identified for this rulemaking changed 

with the publication of the 2010 Spring 

Regulatory Agenda due to an 

organizational restructuring. The old 

RIN was assigned to the Employment 

Standards Administration, which no 

longer exists. A new RIN has been 

assigned to the WHD. 

I. Overview of Changes 

The FLSA requires covered employers 

to pay their nonexempt employees a 

Federal minimum wage and overtime 

premium pay of time and one-half the 

regular rate of pay for hours worked in 

excess of forty (40) in a work week. The 

FLSA also contains a number of 

exemptions from the minimum wage 

and overtime pay requirements. 

Over the years, Congress has amended 

the FLSA to refine or to add to these 

exemptions and to clarify the minimum 

wage and overtime pay requirements. A 

1974 amendment to section 13(b)(10) of 

the FLSA, 29 U.S.C. 213(b)(10), 

extended an overtime exemption to 

include any salesman primarily engaged 

in selling boats and eliminated the 

overtime exemption for partsmen and 

mechanics servicing trailers or aircraft. 

Congress also in 1974 revised aspects of 

the FLSA’s tip credit provisions, 29 

U.S.C. 203(m) and (t), which were 

further revised by amendments enacted 

in 1977 and 1996. As part of the Small 

Business Job Protection Act of 1996, 

Congress amended section 4(a) of the 

Portal Act, 29 U.S.C. 254(a), to define 

circumstances under which pay is not 

required for employees who use their 

employer’s vehicle for home-to-work 

commuting purposes. The 1996 Act also 

created a youth opportunity wage of 

$4.25 per hour under section 6(g) of the 

FLSA, 29 U.S.C. 206(g). In 1997, 

Congress amended section 13(b)(12) of 

the FLSA, 29 U.S.C. 213(b)(12), to 

expand the exemption from overtime 

pay for workers on ditches, canals, and 

reservoirs when 90% (rather than 100%) 

of the water is used for agricultural 

purposes. In 1998, Congress added 

section 3(e)(5) to the FLSA, 29 U.S.C. 

203(e)(5), to provide that the term 

‘‘employee’’ does not include 

individuals who volunteer to private 

non-profit food banks solely for 

humanitarian purposes and who receive 

groceries from those food banks. In 

1999, Congress added section 3(y) to the 

FLSA, 29 U.S.C. 203(y), to define an 

employee who is engaged in ‘‘fire 

protection activities.’’ In 2000, Congress 

added section 7(e)(8) to the FLSA, 29 

U.S.C. 207(e)(8), that treats stock 

options meeting certain criteria as an 

additional type of remuneration that is 

excludable from the computation of the 

regular rate. As part of the U.S. Troop 

Readiness, Veterans’ Care, Katrina 

Recovery, and Iraq Accountability 

Appropriations Act, 2007, Congress 

increased the FLSA minimum wage in 

three steps: to $5.85 per hour effective 

July 24, 2007; to $6.55 per hour effective 

July 24, 2008; and to $7.25 per hour 

effective July 24, 2009. 

Additionally, a number of courts have 

examined the interpretation of the 

FLSA’s compensatory time provisions 

in section 7(o)(5) concerning public 

agency employers’ obligation to grant 

employees’ requests to use ‘‘comp time’’ 

within a ‘‘reasonable period after making 

the request if the use of the 

compensatory time does not unduly 

disrupt the operations of the public 

agency.’’ 29 U.S.C. 207(o)(5). Finally, the 

regulations governing the ‘‘fluctuating 

workweek’’ method of computing halftime overtime pay for salaried 

nonexempt employees, who work 

variable or fluctuating hours from week 

to week need updating to delete 

outmoded examples. 

The Department published a notice of 

proposed rulemaking (NPRM) in the 

Federal Register on July 28, 2008 (73 FR 

43654 (Jul. 28, 2008)), inviting 

comments on revisions to the 

regulations to implement these statutory 

amendments and to address the issues 

raised by the courts. Comments were 

due on or before September 11, 2008. In 

response to a number of requests for an 

extension of the time period for filing 

written comments, the Department on 

August 22, 2008 (73 FR 49621 (Aug. 22, 

2008)) extended the deadline 15 days to 

September 26, 2008. The Department 

received approximately 30 substantive 

comments in response to the NPRM 

from a variety of sources, including 

labor unions and other employee 

representatives, employees, employer 

organizations, governmental 

representatives, Members of Congress, 

and law firms. Comments may be 

viewed at http://www.regulations.gov, 

by searching for docket id: WHD–2008– 

0003. 

The comments reflected a wide 

variety of views on the merits of 

particular sections of the proposed 

regulations. Many included substantive 

analyses of the proposed revisions. The 

Department acknowledges that there are 

strongly held views on several of the 

issues presented in this rulemaking, and 

it has carefully considered all of the 

comments, analyses, and arguments 

made for and against the proposed 

changes in developing this final rule. 

The Department has narrowed the scope 

of this final rule to address those 

sections which require change to reflect 

statutory enactment or outdated 

examples contained in the regulations 

and therefore is not proceeding with 

some of the changes proposed in the 

NPRM including proposed changes to 

regulations regarding compensatory 

time, the fluctuating workweek, and 

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meal credits. The Department is also not 

proceeding with the proposed rule that 

service managers, service writers, 

service advisors, and service salesman 

are exempted from the overtime 

provision. We have also further clarified 

the tip credit provision to reflect longstanding and settled WHD policy 

concerning the ownership of tips. 

II. Summary of Comments 

This section presents a topical 

summary of the major comments 

received on the proposed revisions, 

together with a discussion of the 

changes that have been made in the 

final regulatory text in response to the 

comments received. 

1. 2007 Amendment to the FLSA 

Minimum Wage 

The U.S. Troop Readiness, Veterans’ 

Care, Katrina Recovery, and Iraq 

Accountability Appropriations Act, 

2007, Public Law 110–28, 121 Stat. 112 

(May 25, 2007), included an amendment 

to the FLSA that increased the 

applicable Federal minimum wage 

under section 6(a) of the FLSA in three 

steps: to $5.85 per hour effective July 

24, 2007; to $6.55 per hour effective July 

24, 2008; and to $7.25 per hour effective 

July 24, 2009. This legislation did not 

change the definition of ‘‘wage’’ in 

section 3(m) of the FLSA for purposes 

of applying the tip credit formula in 

determining the wage paid to a 

qualifying tipped employee. Thus, the 

minimum required cash (or ‘‘direct’’) 

wage for a tipped employee under the 

FLSA remains $2.13 per hour. The 

maximum allowable tip credit for 

Federal purposes under the FLSA 

increased as a result of the 2007 

legislation, and is determined by 

subtracting $2.13 from the applicable 

minimum wage provided by section 

6(a)(1) of the FLSA. See 29 U.S.C. 

203(m). 

The Department proposed changes in 

several of the FLSA’s implementing 

regulations that cite to the applicable 

minimum wage to reflect these statutory 

changes, including at 29 CFR 516.28, 

531.36, 531.37, 778.110, 778.111, 

778.113, and 778.114, as well as 

changes to the McNamara-O’Hara 

Service Contract Act regulations to 

eliminate outdated references to the 

FLSA minimum wage in 29 CFR 4.159 

and 4.167. The Department did not 

receive any comments specifically 

addressing these non-substantive 

conforming updates, although several 

commenters did commend the 

Department generally for its effort to 

update the regulations. See, e.g., Littler 

Mendelson, P.C., Chamber of 

Commerce, International Public 

Management Association for Human 

Resources (IMPA–HR), the International 

Municipal Lawyers Association (IMLA), 

and the National League of Cities (NLC). 

Therefore, the final rule adopts the 

technical updates in these sections as 

proposed. 

2. Small Business Job Protection Act of 

1996 

On August 20, 1996, Congress enacted 

the Small Business Job Protection Act of 

1996 (SBJPA), Public Law 104–188, 100 

Stat. 1755. SBJPA amended the Portal 

Act to define circumstances under 

which pay is not required for employees 

who use their employer’s vehicle for 

home-to-work commuting purposes. It 

also amended the FLSA by creating a 

youth opportunity wage and modifying 

the allowable tip credit. 

A. Employee Commuting Flexibility Act 

of 1996 

Sections 2101 through 2103 of Title II 

of SBJPA, entitled the ‘‘Employee 

Commuting Flexibility Act of 1996,’’ 

amended section 4(a) of the Portal Act, 

29 U.S.C. 254(a). The amendment, 

effective upon enactment, provides that 

The use of an employer’s vehicle for travel 

by an employee and activities performed by 

an employee which are incidental to the use 

of such vehicle for commuting shall not be 

considered part of the employee’s principal 

activities if the use of such vehicle for travel 

is within the normal commuting area for the 

employer’s business or establishment and the 

use of the employer’s vehicle is subject to an 

agreement on the part of the employer and 

the employee or representative of such 

employee. 

Employee Commuting Flexibility Act of 

1996, Section 2102, 29 U.S.C. 254(a). 

The House Committee Report states 

that the purpose of the amendment is to 

clarify how the Portal Act applies to 

‘‘employee use of employer-provided 

vehicles for commuting at the beginning 

and end of the workday.’’ H.R. Rep. No. 

104–585, at 6 (1996). It states that such 

travel time is to be considered 

noncompensable if the use of the 

vehicle is ‘‘conducted under an 

agreement between the employer and 

the employee or the employee’s 

representative.’’ Id. at 4. The agreement 

may be a formal written agreement, a 

collective bargaining agreement, or an 

understanding based on established 

industry or company practices. Id.; see 

Rutti v. LoJack Corp., Inc., 596 F.3d 

1046, 1052 (9th Cir. 2010). In addition, 

‘‘the work sites must be located within 

the normal commuting area of the 

employer’s establishment.’’ H.R. Rep. 

No. 104–585, at 4. Activities that are 

merely incidental to the use of the 

vehicle for commuting at the start or 

end of the day are similarly 

noncompensable, such as 

communication between the employee 

and employer to obtain assignments or 

instructions, or to report work progress 

or completion. Id. at 5. 

This statutory amendment to the 

Portal Act affects certain regulations in 

29 CFR parts 785 and 790 issued 

pursuant to the FLSA and the Portal 

Act. Current section 785.9(a) explains 

the statutory provisions that exclude 

from work time certain ‘‘preliminary’’ 

and ‘‘postliminary’’ activities performed 

prior to or subsequent to the workday. 

The NPRM proposed to add to that 

section a new provision that activities 

incidental to the use of an employerprovided vehicle for commuting are not 

considered principal activities, and are 

not compensable, when they meet the 

requirements of the 1996 amendment. 

Current § 785.34 discusses the effect of 

section 4 of the Portal Act on 

determining whether time spent in 

travel is working time. The NPRM 

proposed to add a reference to the 

statutory conditions under which 

commuting in an employer-provided 

vehicle will not be considered part of 

the employee’s principal activities and 

therefore not compensable. The NPRM 

also proposed to revise §§ 785.50 and 

790.3 to incorporate the 1996 

amendment into the quotation of section 

4 of the Portal Act. 

A number of commenters addressed 

this proposal. Several commenters 

noted that the proposal simply quotes 

the statutory text in the regulation, and 

they stated that the proposal therefore 

does not provide adequate guidance 

regarding the limited impact of this 

amendment. See National Employment 

Lawyers Association (‘‘NELA’’), 

American Federation of Labor and 

Congress of Industrial Organizations 

(‘‘AFL–CIO’’), National Employment 

Law Project (‘‘NELP’’), and Comments 

from Members of United States 

Congress. A variety of commenters 

representing employees suggested that 

the Department should emphasize the 

narrow nature of this amendment by 

stating that, under the continuous 

workday principle, it does not affect the 

compensability of hours worked within 

the workday (the time between when an 

employee commences a principal 

activity and the time the employee 

ceases a principal activity). See, e.g., 

NELA, NELP, North Carolina Justice 

Center, and Service Employees 

International Union (‘‘SEIU’’). They also 

suggested that the Department should 

include clarifying language, such as the 

statement that ‘‘otherwise noncompensable [traveling] is not 

compensable merely because the 

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employee uses his employer’s vehicle 

* * * Likewise, otherwise compensable 

travel time does not become noncompensable simply through the use of 

an employer-owned vehicle.’’ See, e.g., 

NELP (quoting Burton v. Hillsborough 

County, 181 Fed. Appx. 829, 835 (11th 

Cir. 2006) (unpublished)), NELA, North 

Carolina Justice Center, and Greater 

Boston Legal Services. They also 

emphasized that the amendment did not 

change the analysis of what constitutes 

a ‘‘principal’’ work activity that is 

compensable. See NELP, SEIU, and 

NELA. These commenters cited court 

decisions addressing commuting time 

issues, some of which they thought were 

correctly decided and some of which 

they thought were wrong. Many of the 

commenters suggested that the 

Department should withdraw its 

proposal and reissue a new NPRM that 

would provide concrete examples of 

what constitutes an activity that is 

‘‘incidental’’ to commuting and what 

activities are compensable. See, e.g., 

AFL–CIO, SEIU, NELP, and NELA. 

Commenters representing employers 

approved of the addition of language to 

the regulations to conform them to the 

Employee Commuting Flexibility Act. 

See Chamber of Commerce, Littler 

Mendelson, P.C., Society for Human 

Resource Management (‘‘SHRM’’), and 

National Automobile Dealers 

Association. Both the Chamber of 

Commerce and Littler Mendelson stated 

that it would be helpful for the 

Department to provide further guidance 

regarding issues such as what types of 

activities are incidental to the use of a 

vehicle for commuting, how the normal 

commuting area of the employer’s 

business is determined, and what 

constitutes an agreement regarding the 

use of an employer-provided vehicle. 

Both commenters cited court decisions 

addressing these issues (holding, for 

example, that transporting tools and 

equipment during a commute is 

incidental; that normal commuting area 

is determined on a case-by-case basis; 

and that a formal written agreement is 

not necessary). 

SHRM also suggested that the final 

rule should state that employees should 

not incur any out-of-pocket expenses 

related to commuting, such as for gas, 

tolls, parking or maintaining the 

employer’s vehicle. The Department 

notes that the House Committee Report 

similarly stated that ‘‘[i]t is the intent of 

the Committee that the employee incur 

no out-of-pocket or direct cost for 

driving, parking or otherwise 

maintaining the employer’s vehicle in 

connection with commuting in 

employer-provided vehicles.’’ H.R. Rep. 

No. 104–585, at 5. While the 

Department has not added language to 

this effect to the final rule, it notes that 

its longstanding interpretation of the 

amendment comports with both the 

Committee report and SHRM’s 

comment. See Wage and Hour Opinion 

Letter 2001–11 (April 18, 2001). 

As the comments from both employee 

and employer representatives show, the 

question of the compensability of 

employees’ commuting time is an 

important issue. Therefore, the 

Department does not believe that it 

would be helpful or appropriate to leave 

the regulations inconsistent with the 

statute while it simply starts the NPRM 

process anew, as a number of employee 

representatives suggested. Rather, in 

order to avoid confusion and needless 

litigation, the Department continues to 

believe that it is important to update the 

regulations to reflect the current state of 

the law by incorporating the statutory 

provisions of the Employee Commuting 

Flexibility Act into the regulations. 

Furthermore, the cases that both 

employee and employer representatives 

cited show that issues related to the 

compensability of driving time and 

other activities are very fact-specific and 

must be resolved on a case-by-case 

basis, in light of all the factors present 

in the particular situation. As a result, 

the Department does not believe that it 

would be useful to include examples in 

the regulatory text. The Department will 

consider providing additional guidance 

at a later date on these and other issues, 

such as commuting distance, costs, 

incidental activities, and the nature of 

the agreement through non-regulatory 

means. Similarly, because the 

regulations in 29 CFR part 790 already 

fully address issues related to the 

continuous workday principle and 

principal activities, the Department 

does not believe it is necessary to add 

to those regulations. The Department 

does observe, however, that nothing in 

the Employee Commuting Flexibility 

Act or this regulation alters or 

supersedes continuous workday 

principles. Only commuting time that 

occurs before the first principle activity 

or after the last principle activity in the 

workday is excluded from compensable 

time. Therefore, the final rule adopts the 

changes to §§ 785.9(a), 785.34, 785.50 

and 790.3 as proposed. 

B. Youth Opportunity Wage 

Section 2105 of the SBJPA amended 

the FLSA by adding section 6(g), which 

provides that ‘‘[a]ny employer may pay 

any employee of such employer, during 

the first 90 consecutive calendar days 

after such employee is initially 

employed by such employer, a wage 

which is not less than $4.25 an hour.’’ 

29 U.S.C. 206(g)(1). This subminimum 

wage ‘‘shall only apply to an employee 

who has not attained the age of 20 

years.’’ 29 U.S.C. 206(g)(4). The 

amendment also protects current 

workers by prohibiting employers from 

taking action to displace employees, 

including reducing hours, wages, or 

employment benefits, for the purpose of 

hiring workers at the opportunity wage. 

29 U.S.C. 206(g)(2). It also states that 

any employer violating this subsection 

shall be considered to have violated the 

anti-discrimination provisions of 

section 15(a)(3) of the FLSA. 29 U.S.C. 

206(g)(3). 

The NPRM proposed to add a new 

subpart G to 29 CFR part 786 to set forth 

the provisions of the youth opportunity 

wage. The Department received one 

comment regarding this update. The 

National Automobile Dealers 

Association stated that it supported the 

proposal. The final rule adopts the new 

subpart G as proposed but changes the 

title to ‘‘Miscellaneous Exemptions and 

Exclusions from Coverage.’’ 

C. Tip Credit Amendments of 1996 

Section 2105 of Title II of the SBJPA 

also amended section 3(m) of the FLSA, 

29 U.S.C. 203(m), by providing 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—(1) the cash wage paid such 

employee which for purposes of such 

determination shall be not less than the cash 

wage required to be paid such an employee 

on the date of the enactment of this 

paragraph; and (2) an additional amount on 

account of the tips received by such 

employee which amount is equal to the 

difference between the wage specified in 

paragraph (1) and the wage in effect under 

section 6(a)(1). The additional amount on 

account of tips may not exceed the value of 

the tips actually received by an employee. 

The preceding 2 sentences shall not apply 

with respect to any tipped employee unless 

such employee has been informed by the 

employer of the provisions of this subsection, 

and 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. 

Public Law 104–188, § 2105(b) (1996). 

Prior to the 1996 amendments, section 

3(m) of the FLSA required an employer 

to pay its tipped employees a cash wage 

equal to 50 percent of the minimum 

wage (then $4.25 an hour). See Public 

Law 101–157, § 5 (1989). As amended, 

section 3(m)(1) provides that an 

employer’s minimum cash wage 

obligation to its tipped employees is the 

minimum cash wage required on August 

20, 1996, the date of the SBJPA 

enactment. Thus, section 3(m)(1) 

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established an employer’s minimum 

cash wage obligations to tipped 

employees at the pre-SBJPA amount: 50 

percent of the then-minimum wage of 

$4.25 per hour, or $2.13 per hour. See 

29 U.S.C. 203(m)(1). 

Subsection (2) of the 1996 

amendments bases an employer’s 

maximum allowable tip credit on a 

specific formula in relation to the 

applicable minimum wage, stating that 

an employer may take a tip credit equal 

to the difference between the required 

minimum cash wage specified in 

paragraph 3(m)(1) ($2.13) and the 

minimum wage ($7.25 effective July 24, 

2009). Thus, the maximum Federal tip 

credit that an employer currently is 

permitted to claim under the FLSA is 

$7.25 minus $2.13, or $5.12 per hour. 

As explained in the NPRM, this 1996 

amendment affects certain regulations 

in 29 CFR part 531. Current § 531.50(a) 

quotes section 3(m) of the FLSA as it 

appeared in 1967, when the regulation 

was published. To incorporate the 1996 

amendment, the NPRM proposed to 

replace the old statutory language with 

the current statutory provision. Current 

§§ 531.56(d), 531.59, and 531.60 refer to 

the pre-1996 statutory language setting 

the tip credit at 50 percent of the 

minimum wage. The proposed rule 

deleted or changed these references to 

reflect the current statutory 

requirements (maximum tip credit 

equaling the difference between the 

minimum wage required by section 

6(a)(1) of the FLSA and the $2.13 

required cash wage). Additional changes 

related to tipped employees are 

discussed in this preamble at sections 

7B and 8, infra. 

The Department received many 

comments relating to tipped employees; 

however, those comments generally 

addressed the issues discussed infra in 

sections 7B and 8 of this preamble, not 

the technical changes to the formula for 

computing the tip credit addressed here. 

The Chamber of Commerce and Littler 

Mendelson, P.C., stated that they 

supported these changes to the 

regulations to conform them to the 

statutory amendments, thereby 

clarifying that employers are only 

required to pay $2.13 per hour in cash 

wages regardless of what the minimum 

wage is. The Chamber of Commerce also 

noted that there was a typographical 

error in § 531.59(b); the cross-reference 

to § 531.31 should have referred to 

§ 531.54. Because the Department 

received no other substantive comments 

relating to these issues, and having the 

regulations consistent with the statute 

will help to eliminate confusion, the 

final rule adopts the changes to 

§§ 531.50(a), 531.56(d), 531.59 and 

531.60 related to the statutory tip credit 

calculation as proposed, except for the 

correction of a typographical error in 

531.50(a) and the cross-reference in 

§ 531.59. 

3. Agricultural Workers on Water 

Storage/Irrigation Projects 

Section 105 of The Departments of 

Labor, Health and Human Services, 

Education, and Related Agencies 

Appropriations Act, Public Law 105–78, 

111 Stat. 1467 (Nov. 13, 1997), amended 

section 13(b)(12) of the FLSA, 29 U.S.C. 

213(b)(12), which provides an overtime 

exemption for agricultural employees 

and employees employed in connection 

with the operation or maintenance of 

certain waterways used for supply and 

storing of water for agricultural 

purposes. The 1997 amendment deleted 

‘‘water for agricultural purposes’’ and 

substituted ‘‘water, at least 90 percent of 

which was ultimately delivered for 

agricultural purposes during the 

preceding calendar year.’’ Thus, this 

amendment makes the exemption from 

overtime pay requirements applicable to 

workers on water storage and irrigation 

projects when at least 90 percent of the 

water is used for agricultural purposes, 

rather than when the water is used 

exclusively for agricultural purposes. 

The NPRM proposed to update the 

regulations in 29 CFR part 780, Subpart 

E to incorporate the statutory 

amendment. Thus, proposed § 780.400 

correctly quoted the statute, including 

the amendment. Proposed § 780.401 

provided an updated general 

explanatory statement of the history of 

the exemption. Proposed § 780.406 

deleted the last sentence of the current 

rule, which refers to the 1966 

amendments, as no longer necessary. 

Proposed § 780.408 was updated to 

describe the ‘‘at least 90 percent’’ 

requirement for using the water for 

agricultural purposes. 

The Department received one 

comment addressing this proposal. The 

AFL–CIO noted that current § 780.408 

states that if a small amount of water is 

used by the farmer for domestic 

purposes, this does not prevent the 

application of the exemption. The AFL– 

CIO stated that the ‘‘[t]olerance for a 

‘small amount’ of water that is used for 

domestic purposes may have made 

sense under the old statutory provision, 

which required exclusive use of the 

water for agricultural purposes. 

However, now that Congress has 

amended the exemption to permit 10 

percent of the water for non-agricultural 

purposes, there is no longer any 

justification for this exception. Any 

water that is used for ‘domestic 

purposes’ (that is, non-agricultural 

purposes) should count toward the new 

statutory 10 percent tolerance.’’ 

The Department agrees that, in light of 

the 10 percent tolerance for water used 

for non-agricultural purposes, there is 

no longer any need for the specific 

tolerance of domestic use by a farmer. 

Therefore, the final rule further modifies 

proposed § 780.408 to delete the three 

sentences relating to domestic use on 

farms. The final rule adopts §§ 780.400, 

780.401 and 780.406 as proposed. 

4. Certain Volunteers at Private NonProfit Food Banks 

Section 1 of the Amy Somers 

Volunteers at Food Banks Act, Public 

Law 105–221, 112 Stat. 1248 (Aug. 7, 

1998), amended section 3(e) of the 

FLSA, 29 U.S.C. 203(e), by adding 

section (5) to provide that the term 

‘‘employee’’ does not include 

individuals volunteering solely for 

humanitarian purposes at private nonprofit food banks and who receive 

groceries from those food banks. 29 

U.S.C. 203(e)(5). The proposed rule 

renamed 29 CFR part 786 

‘‘Miscellaneous Exemptions and 

Exclusions From Coverage’’ and added 

subpart H to set forth this exclusion 

from FLSA coverage. The Department 

did not receive any comments 

specifically addressing this section of 

the NPRM. The final rule adopts subpart 

H as proposed. 

5. Employees Engaged in Fire Protection 

Activities 

In 1999, Congress amended section 3 

of the FLSA, 29 U.S.C. 203, by adding 

section (y) to define ‘‘an employee in fire 

protection activities.’’ This amendment 

states that an ‘‘employee in fire 

protection activities’’ means 

an employee, including a firefighter, 

paramedic, emergency medical technician, 

rescue worker, ambulance personnel, or 

hazardous material worker, who—(1) is 

trained in fire suppression, has the legal 

authority and responsibility to engage in fire 

suppression, and is employed by a fire 

department of a municipality, county, fire 

district, or State; and (2) is engaged in the 

prevention, control, and extinguishment of 

fires or response to emergency situations 

where life, property, or the environment is at 

risk. 

Public Law 106–151, 113 Stat. 1731 

(1999); 29 U.S.C. 203(y). Such 

employees may be covered by the 

partial overtime exemption allowed by 

§ 7(k) or the overtime exemption for 

public agencies with fewer than five 

employees in fire protection activities 

pursuant to § 13(b)(20). 29 U.S.C. 207(k); 

213(b)(20). 

The NPRM proposed to make several 

revisions to 29 CFR part 553, subpart C, 

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to incorporate this amendment. In the 

first sentence of proposed § 553.210(a), 

the statutory amendment language was 

substituted for the current four-part 

regulatory definition of the term ‘‘any 

employee * * * in fire protection 

activities.’’ The proposed rule also 

deleted the last sentence of current 

§ 553.210(a) stating that, ‘‘[t]he term 

would also include rescue and 

ambulance service personnel if such 

personnel form an integral part of the 

public agency’s fire protection services,’’ 

and it deleted the cross-reference to 

§ 553.215. The ‘‘integral part’’ test for the 

public agency employees is no longer 

needed because the new statutory 

standards define when such rescue and 

ambulance personnel qualify as 

employees in fire protection activities. 

Section 553.215(a) of the current rule 

discusses ambulance and rescue service 

employees who are employees of a 

public agency other than a fire 

protection or law enforcement agency. 

The section 3(y) amendment, however, 

specifically states that one of the 

requirements to be an ‘‘employee in fire 

protection activities’’ is that the 

employee is employed by a fire 

department of a municipality, county, 

fire district, or State. The proposed rule, 

therefore, deleted § 553.215(a) because it 

permits non-fire department public 

agencies to treat their ambulance and 

rescue service employees as employees 

engaged in fire protection activities, 

contrary to the new statutory provision. 

The proposed rule also deleted 

§§ 553.215(b) (stating that rescue service 

employees of hospitals and nursing 

homes cannot qualify for the exemption) 

and 553.215(c) (stating that ambulance 

and rescue service employees of private 

organizations do not come within the 

exemption) as unnecessary in light of 

the clear statutory requirement for 

employment by a fire department. 

Finally, in §§ 553.221, 553.222, 553.223, 

and 553.226, the Department proposed 

to substitute ‘‘employee in fire 

protection activities’’ or ‘‘employees in 

fire protection activities,’’ respectively, 

wherever the terms ‘‘firefighter’’ or 

‘‘firefighters’’ appeared. 

The Department reexamined other 

regulations in part 553, Subpart C, in 

light of the section 3(y) amendment to 

assess whether any other changes were 

appropriate. Current § 553.210 

characterizes as exempt work-related 

incidental activities, such as equipment 

maintenance, lecturing and fire 

prevention inspections. Current 

§ 553.210 also recognizes that 

employees can be included within the 

exemption whether their status is 

‘‘trainee,’’ ‘‘probationary,’’ or 

‘‘permanent,’’ and regardless of their 

particular specialty or job title or 

assignment to certain support activities. 

The Department stated its belief in the 

NPRM that these provisions are 

consistent with statutory intent and 

remain the appropriate interpretation of 

the new statutory definition and, thus, 

the Department proposed no further 

changes to § 553.210. 

Current § 553.212 recognizes that 

exempt employees may engage in some 

nonexempt work, such as firefighters 

who work for public forest conservation 

agencies and who plant trees and 

perform other conservation activities 

unrelated to their firefighting duties 

during slack times, and set a 20% 

tolerance for such work. As explained in 

the NPRM, the Department reexamined 

this regulation, particularly in light of 

McGavock v. City of Water Valley, 452 

F.3d 423, 427–28 (5th Cir. 2006), in 

which the appellate court concluded 

that the 20% tolerance for nonexempt 

work in § 553.212 was rendered 

‘‘obsolete and without effect’’ by the 

statutory amendment. 73 FR 43658 (Jul. 

28, 2008); see also Huff v. DeKalb 

County, Ga., 516 F.3d 1273, 1278 (11th 

Cir. 2008) (agreeing that new section 

3(y) is a streamlined definition that 

made existing provisions in §§ 553.210 

and 553.212 obsolete). The proposed 

rule therefore deleted § 553.212 as 

unnecessary in light of these court 

decisions and the new statutory 

definition of ‘‘employee[s] in fire 

protection activities’’ in section 3(y) of 

the Act. 

The Department received several 

comments addressing these issues. The 

National Public Employment Labor 

Relations Association (‘‘NPELRA’’) 

stated that the removal of the 20 percent 

test was ‘‘an important clarification’’ 

because it was obsolete and yet some 

people still believe that it applies. This 

commenter suggested that the rules 

should go further in describing the 

terms ‘‘legal authority and responsibility 

to engage in fire suppression’’ (as 

meaning that the employee who has 

been trained may engage in such tasks) 

and ‘‘is engaged in the prevention, 

control or extinguishment of fires’’ 

(because a fire department at an airport 

may extinguish a fire only once per year 

or less). The IMPA–HR, IMLA, and NLC 

stated that it was important to 

distinguish between the section 3(y)(1) 

tests relating to ‘‘the status of employees 

who are trained in fire suppression— 

that they have the legal authority and 

responsibility to engage in fire 

suppression and be employed by a 

public fire department’’—and the 

disjunctive test in section 3(y)(2) 

relating to the duties of an employee, 

which require ‘‘that the employee either 

be engaged in firefighting or respond to 

emergencies.’’ They agreed with the 

court’s statement in McGavock that 

‘‘emergency personnel trained as 

firefighters could be exempt even if they 

‘spend one hundred percent of their 

time responding to medical 

emergencies.’ ’’ They suggested that the 

Department add a sentence in § 553.210 

providing that emergency medical 

personnel who are employed by a fire 

department and trained in fire 

suppression will be exempt as long as 

they either are engaged in firefighting or 

respond to emergency situations. 

On the other hand, William Pincus, 

an attorney representing firefighters, 

stated that the 20% test was not obsolete 

because, even after the section 3(y) 

amendment, it is still necessary to 

distinguish between exempt and 

nonexempt activities. The 20 percent 

test defines when employees who 

perform work that is nonexempt fall 

outside the exemption. This commenter 

cited a pre-amendment court decision 

holding that without the rule a public 

agency would be free to assign a 

firefighter to do any kind of work (road 

repair, sanitation, parks and recreation) 

without fear of losing the exemption, 

and stated that nothing in the 

amendment changes this analysis. The 

International Association of Fire 

Fighters (‘‘IAFF’’) commented that the 

second sentence of proposed 

§ 553.210(a) would create confusion 

because, by using the wording ‘‘the term 

includes’’, the proposal implies that 

employees engaged in incidental 

nonfirefighting functions such as 

equipment maintenance, attending 

community fire drills and inspecting 

homes for fire hazards are exempt even 

if they do not satisfy the section 3(y) 

statutory criteria. The IAFF also stated 

that the third sentence of this section is 

overbroad because is suggests that the 

term includes all ‘‘trainees.’’ The IAFF 

stated that ‘‘trainees who have not 

completed requisite training and have 

no certification in fire suppression are 

neither ‘trained,’ nor have the ‘legal 

authority * * * to engage,’ in fire 

suppression.’’ The commenter thus 

distinguished between a ten-year 

firefighter sent to a training course in 

hazardous materials who remains 

exempt and an untrained individual in 

an introductory fire suppression course 

before certification. This commenter 

further suggested that the third 

sentence, relating to employees assigned 

to support activities, is incorrect 

because ‘‘[w]here employees have been 

assigned to other jobs in which they do 

not have the authority or responsibility 

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to engage in fire suppression and/or 

they do not engage in fire protection 

activities or response to emergency 

situations, the employees do not fit the 

statutory definition.’’ Finally, the IAFF 

stated that existing § 553.210(b) is 

obsolete, and the Department should 

remove it or explain why it is retained. 

After careful review of the comments 

received on this issue and reexamining 

the legislative history of the section 3(y) 

amendment, it is the Department’s view 

that the statutory definition of an 

‘‘employee in fire protection activities’’ 

requires no further regulatory guidance 

at this time; however, the Department 

may provide additional guidance in the 

future, as appropriate. As a result, this 

final rule implements the proposed 

change to § 553.210(a) substituting the 

statutory amendment language for the 

current four-part regulatory definition of 

the term ‘‘any employee * * * in fire 

protection activities.’’ In addition, the 

Department is deleting the remainder of 

paragraph (a) as unnecessary due to the 

statutory definition. This change also 

removes language from the rule that 

commenters identified as confusing or 

inconsistent with FLSA section 3(y). 

Likewise, current paragraph (b) is 

deleted from this final rule because it is 

no longer necessary. Current paragraph 

(c) of § 553.210 will be redesignated as 

paragraph (b) in this final rule. 

With regard to the 20 percent test, the 

Department continues to believe that 

Congress defined, without further 

limitation, the particular criteria for 

when an employee qualifies as ‘‘an 

employee in fire protection activities’’ in 

section 3(y). Thus, an employee who 

performs the described duties under the 

circumstances and the conditions set 

forth in section 3(y) is ‘‘an employee in 

fire protection activities’’ without regard 

to the 20 percent tolerance for 

nonexempt work contained in § 553.212 

of the current rule. The specific 

definition adopted by Congress renders 

the 20 percent tolerance for nonexempt 

work applied under the former 

regulatory definition obsolete. However, 

§ 553.212 also applies to employees 

engaged in law enforcement activities, 

and the definition of ‘‘an employee in 

fire protection activities’’ in section 3(y) 

does not impact those employees. 

Therefore, the final rule does not delete 

§ 553.212(a) in its entirety; instead, it 

deletes from § 553.212(a) only the 

reference to employees engaged in ‘‘fire 

protection’’. The 20 percent tolerance for 

nonexempt work for employees engaged 

in law enforcement activities in section 

553.212(a) will remain in effect. 

Likewise, since section 3(y) did not 

impact the applicability of section 

7(p)(2)’s rule regarding the occasional or 

sporadic employment of public agency 

employees, including fire protection 

and law enforcement personnel, the 

final rule also retains § 553.212(b), 

which discusses this statutory 

provision. Section 553.212(b) does 

contain a reference to the 20 percent 

tolerance for nonexempt work, and the 

final rule makes a slight modification to 

that section to make clear that the 

20 percent tolerance is only applicable 

to law enforcement personnel. 

With regard to the IAFF comments, 

the current regulation at § 553.214 

directly addresses the status of trainees, 

and it clarifies that a trainee qualifies for 

exemption ‘‘only when the employee 

meets all the applicable tests described 

in § 553.210.’’ The Department is not 

aware of instances of the exemption 

being claimed for trainees who have not 

gained certification and therefore do not 

have the legal authority or responsibility 

to engage in fire suppression, or of 

confusion surrounding this issue since 

passage of the section 3(y) amendment. 

Moreover, the Department believes that 

the statutory terms, such as legal 

authority and responsibility, should 

continue to be interpreted and applied 

on a case-by-case basis, based upon the 

specific facts in each situation, as 

reflected in Wage and Hour Opinion 

Letter FLSA 2006–20 (June 1, 2006). 

Therefore, no additional changes are 

required to implement this statutory 

provision. 

6. Stock Options Excluded From the 

Computation of the Regular Rate 

The Worker Economic Opportunity 

Act, Public Law 106–202, 114 Stat. 308 

(May 18, 2000), amended §§ 7(e) and 

7(h) of the FLSA. 29 U.S.C. 207(e), (h). 

In § 7(e), a new subsection (8) adds to 

the types of remuneration that are 

excluded from the computation of the 

regular rate when determining overtime 

pay ‘‘[a]ny value or income derived from 

employer-provided grants or rights 

provided pursuant to a stock option, 

stock appreciation right, or bona fide 

employee stock purchase program’’ 

meeting particular criteria. In § 7(h), the 

amendment clarifies that the amounts 

excluded under § 7(e) may not be 

counted toward the employer’s 

minimum wage requirement under 

section 6, and that extra compensation 

excluded pursuant to the new 

subsection (8) may not be counted 

toward overtime pay under § 7. 

The proposed rule incorporated the 

amendments made by the Worker 

Economic Opportunity Act by adding to 

the regulatory provisions which simply 

quote the statute in § 778.200(a) and (b). 

Section 778.208 was also revised simply 

to update from ‘‘seven’’ to ‘‘eight’’ the 

number of types of remuneration 

excluded in computing the regular rate. 

Only two commenters addressed this 

section of the proposed rule. SHRM 

stated that ‘‘[t]his addition to the 

existing regulations is appropriate, and 

we encourage DOL to include it as 

proposed in its final rule.’’ The AFL– 

CIO stated that the Department should 

do more than just restate the statutory 

language, specifically noting the need to 

clarify how an employer must 

communicate to employees the ‘‘terms 

and conditions’’ of stock benefit 

programs and under what ‘‘other 

circumstances’’ an employee may 

exercise a stock option or stock 

appreciation right in less than six 

months. The AFL–CIO did not offer any 

regulatory language or suggested 

solutions that it thought would be 

helpful, but only stated that the 

Department should withdraw the 

proposal and reissue a new NPRM 

providing further guidance. 

The Department does not believe that 

it would be helpful or appropriate to 

leave the regulations inconsistent with 

the statute while it starts the NPRM 

process anew. Rather, in order to avoid 

confusion, the Department continues to 

believe that it is important to update the 

regulations to reflect the current state of 

the law by incorporating the Worker 

Economic Opportunity Act into the 

regulations. Therefore, the final rule 

adopts the changes to § 778.200 with 

minor editorial edits and § 778.208 as 

proposed. The Department will consider 

offering further guidance on the issues 

raised in the comments and other issues 

through non-regulatory means. 

7. Fair Labor Standards Act 

Amendments of 1974 

A. Service Advisors Working for 

Automobile Dealerships and Boat 

Salespersons 

On April 7, 1974, Congress enacted an 

amendment to section 13(b)(10) of the 

FLSA, 29 U.S.C. 213(b)(10). Public Law 

93–259, 88 Stat. 55 (1974). This 

amendment added an overtime 

exemption for salespersons primarily 

engaged in selling boats (in addition to 

the pre-existing exemption for sellers of 

trailers or aircraft). This amendment 

also eliminated the overtime exemption 

for partsmen and mechanics servicing 

trailers or aircraft. The proposed rule 

revised 29 CFR part 779, Subpart D— 

Exemptions for Certain Retail or Service 

Establishments—to conform the 

regulations to this 1974 amendment. 

Section 779.371(a) was revised to reflect 

the amendment’s addition of boat 

salespersons to the exemption. Proposed 

§ 779.372(a) clarified that ‘‘any 

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salesman, partsman, or mechanic’’ 

primarily engaged in selling or servicing 

automobiles, trucks, or farm implements 

are covered by the exemption; and that 

salespersons primarily engaged in 

selling trailers, boats, or aircraft are also 

exempt, but not partsmen or mechanics 

for such vehicles. Portions of 

§ 779.372(b) and (c) were also changed 

accordingly. 

Section 13(b)(10)(A) of the FLSA 

provides that ‘‘any salesman, partsman, 

or mechanic primarily engaged in 

selling or servicing automobiles, trucks, 

or farm implements, if he is employed 

by a nonmanufacturing establishment 

primarily engaged in the business of 

selling such vehicles or implements to 

ultimate purchasers’’ shall be exempt 

from the overtime requirements of the 

Act. 29 U.S.C. 213(b)(10)(A). The 

current regulation at 29 CFR 

779.372(c)(4) states that an employee 

described as a service manager, service 

writer, service advisor, or service 

salesman who is not primarily engaged 

in the work of a salesman, partsman, or 

mechanic is not exempt under section 

13(b)(10)(A). 

As discussed in the preamble to the 

proposed rule, three appellate courts 

have held that service advisors are 

exempt under section 13(b)(10)(A) 

because they are ‘‘salesmen’’ who are 

primarily engaged in servicing 

automobiles. 73 FR 43658 (Jul. 28, 

2008). Based upon the two earliest court 

decisions, the Wage and Hour Division 

in 1978 recognized in an Administratorissued opinion letter that in certain 

circumstances service advisors or 

writers ‘‘can be properly regarded as 

engaged in selling activities.’’ See Wage 

and Hour Opinion Letter WH–467, 1978 

WL 51403 (July 28, 1978). The opinion 

letter noted, however, that this ‘‘would 

not be true in the case of warranty work, 

since the selling of the warranty is done 

by the vehicle salesman when the 

vehicle is sold, not by the service 

writer.’’ Therefore, the NPRM proposed 

to change § 779.372(c), titled ‘‘Salesman, 

partsman, or mechanic,’’ to follow the 

courts’ holdings that employees 

performing the duties typical of service 

advisors are within the section 

13(b)(10)(A) exemption. Section 

779.372(c)(1) was revised to include 

such an employee as a salesman 

primarily engaged in servicing 

automobiles. Section 779.372(c)(4) was 

rewritten to clarify that such employees 

qualify for the exemption. 

A number of commenters addressed 

this issue. The National Automobile 

Dealers Association stated that the retail 

automobile and truck dealership 

industry has relied upon the 

Administrator’s 1978 opinion letter and 

that it supported the proposed 

clarification that such employees are 

exempt. Littler Mendelson, P.C., 

similarly stated that it supported the 

change, because it ‘‘will eliminate 

confusion resulting from the 

inconsistency between the [Field 

Operations Handbook] and the current 

regulatory guidance, and is not a change 

in the law.’’ 

Other commenters disagreed with the 

proposed rule. The AFL–CIO stated that 

the proposal ignored congressional 

intent ‘‘to carve a narrow exemption for 

salesmen who work at automobile 

dealerships.’’ The AFL–CIO, NELA, and 

NELP traced the legislative history, 

focusing on the addition of the 

requirement that the salesman must be 

‘‘primarily engaged in selling or 

servicing such vehicles.’’ These 

commenters disagreed with the court 

decisions interpreting the exemption, 

stating that service advisors merely 

coordinate between customers and the 

mechanics who actually perform the 

services, and that the exemption should 

not be extended to employees outside 

its plain language simply because they 

are ‘‘functionally similar’’ to an exempt 

employee. The AFL–CIO concluded that 

‘‘neither integration with exempt 

employees nor the performance of 

functions related to those of exempt 

employees qualifies an employee as one 

who is primarily engaged in either 

selling or servicing vehicles.’’ (Emphasis 

in original). NELA concluded that the 

exemption ‘‘requires an employee to 

either primarily service the vehicle or 

‘sell’ the vehicle—not sell the service of 

the vehicle, as Walton concluded.’’ 

Comments submitted by Members of the 

United States Congress similarly 

opposed the Department’s proposal, 

stating that the 1966 exemption only 

exempts salesmen who sell automobiles 

and mechanics who service 

automobiles, and not salesmen who sell 

services. They stated that the 

Department’s proposal ‘‘would abandon 

its longstanding and correct 

interpretation of Section 13(b)(10),’’ and 

would ignore the Supreme Court’s 

command to construe FLSA exemptions 

narrowly. Id. 

The AFL–CIO stated that, if the 

Department does treat service writers as 

salesmen primarily engaged in servicing 

vehicles, then it urged the Department 

to exclude any time spent in ‘‘selling’’ 

warranty work from the determination 

of whether the writer has spent the 

majority of his time in selling, since that 

right to free parts and service has 

already been sold by the salesman of the 

vehicle. NELA stated that the proposed 

regulatory text was confusing because it 

appears to exempt service writers only 

if they are selling the servicing of 

vehicles that the dealership sells, which 

would be difficult for both the employee 

and the employer to know. Both NELP 

and the North Carolina Justice 

Foundation commented that the 

proposal exempts service writers based 

upon their job title alone, rather than 

based upon an analysis of their actual 

job duties, which is contrary to the 

requirement to look at the 

circumstances of the whole activity. 

Upon further consideration of the 

issue, the Department has decided not 

to adopt the proposed change to 

§ 779.372(c)(4) to specifically include 

service managers, service writers, 

service advisors, or service salesmen as 

qualifying for exemption. As 

commenters point out, the statute does 

not include such positions and the 

Department recognizes that there are 

circumstances under which the 

requirements for the exemption would 

not be met. The Department notes that 

current § 779.372(c)(1) is based on its 

reading of 13(b)(10)(A) as limiting the 

exemption to salesmen who sell 

vehicles and partsmen and mechanics 

who service vehicles. The Department 

believes that this interpretation is 

reasonable and disagrees with the 

Fourth Circuit’s conclusion in Walton v. 

Greenbrier Ford, Inc., 370 F.3d 446, 452 

(4th Cir. 2004), that the regulation 

impermissibly narrows the statute. 

Therefore, the Department has 

concluded that current 779.372(c) sets 

forth the appropriate approach to 

determining whether employees in such 

positions are subject to the exemption. 

However, the final rule adopts 

§ 779.372(a)–(b) as proposed. 

B. Tipped Employees 

Section 3(m) of the FLSA defines the 

term ‘‘wage.’’ The FLSA was amended in 

1966 to include hotels and restaurants 

within the scope of its coverage for the 

first time. In order to alleviate these 

industries’ new minimum wage 

obligations, the 1966 amendments also 

provided for the first time, within 

section 3(m)’s definition of a ‘‘wage,’’ 

that an employer could utilize a limited 

amount of its employees’ tips as a credit 

against its minimum wage obligations to 

those employees through a so-called ‘‘tip 

credit.’’ The Department’s current tip 

credit regulations were promulgated in 

1967, one year after the tip credit was 

first introduced, and prior to the 1974 

amendments to the FLSA, which 

amended the tip credit provision in 

section 3(m) by providing that an 

employer could not take a tip credit 

unless: 

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(1) [its] employee has been informed by the 

employer of the provisions of this subsection 

and (2) 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. 

Public Law 93–259, § 13(e), 88 Stat. 55 

(1974). Thus, as amended in 1974, 

section 3(m) required that the employer 

inform its employees about the tip 

credit prior to utilizing it, required that 

a tipped employee retain all of his or 

her tips, and limited employer-imposed, 

mandatory tip pools to employees who 

‘‘customarily and regularly receive tips.’’ 

The section 3(m) requirement that the 

employer ‘‘inform’’ its tipped employees 

of the provisions of section 3(m) prior 

to taking a tip credit has been strictly 

enforced by the Department and by the 

courts. Courts have disallowed the use 

of the tip credit for lack of notice even 

‘‘where the employee has actually 

received and retained base wages and 

tips that together amply satisfy the 

minimum wage requirements,’’ 

remarking that ‘‘[i]f the penalty for 

omitting notice appears harsh, it is also 

true that notice is not difficult for the 

employer to provide.’’ Reich v. Chez 

Robert, Inc., 28 F.3d 401, 404 (3d Cir. 

1994) (citing Martin v. Tango’s 

Restaurant, 969 F.2d 1319, 1323 (1st 

Cir. 1992)). 

Prior to the 1974 amendments, the 

compensation of tipped employees was 

often a matter of agreement. Tipped 

employees could agree, for example, 

that an employer was only obligated to 

pay cash wages when an employee’s 

tips were less than the minimum wage, 

or that the employee’s tips would be 

turned over to the employer, who could 

then use the tips to pay the full 

minimum wage. See Usery v. Emersons 

Ltd., 1976 WL 1668, at *2 (E.D. Va. 

1976), vacated and remanded on other 

grounds sub. nom. Marshall v. Emersons 

Ltd., 593 F.2d 565 (4th Cir. 1979). The 

1974 section 3(m) amendments were 

intended to prohibit such agreements. 

See S. Rep. No. 93–690, at 43 (1974) 

(‘‘The [retention requirement] is added 

to make clear the original Congressional 

intent that an employer could not use 

the tips of a ’tipped employee’ to satisfy 

more than 50 percent of the Act’s 

applicable minimum wage.’’). The 

Department’s current regulations, which 

were in effect prior to the 1974 

amendments and allowed an employer 

to require employees to turn over all 

their tips to the employer, were 

therefore superseded by the statutory 

amendment to the extent that they 

permitted employers to utilize 

employees’ tips to satisfy more than 

50% of their minimum wage obligation. 

Under the 1974 amendments to 

section 3(m), an employer’s ability to 

utilize an employee’s tips is limited to 

taking a credit against the employee’s 

tips as permitted by section 3(m). 

Section 3(m) provides the only method 

by which an employer may use tips 

received by an employee. An employer’s 

only options under section 3(m) are to 

take a credit against the employee’s tips 

up to the statutory differential, or to pay 

the entire minimum wage directly. See 

Wage and Hour Opinion Letter 

WH–536, 1989 WL 610348 (October 26, 

1989) (defining when an employer does 

not claim a tip credit as when the 

employer does not retain any tips and 

pays the employee the minimum wage). 

As amended in 1996, section 3(m) 

provides that the ‘‘wage’’ of a tipped 

employee equals the sum of the cash 

wage paid by the employer, which is 

fixed at a minimum of $2.13 an hour, 

and the amount it claims as a tip credit. 

The maximum permissible tip credit 

under section 3(m) is calculated using 

the current Federal minimum wage. 

Thus, in a situation in which an 

employee earns $10 an hour in tips and 

the employer pays $2.13 an hour in cash 

wages and claims the statutory 

maximum as a tip credit, the employee 

has received only the minimum wage 

because tips in excess of the maximum 

tip credit are not considered ‘‘wages’’ 

under 3(m). Using the current minimum 

wage of $7.25 an hour as an example, 

the maximum permissible tip credit is 

$7.25 minus $2.13, which permits the 

employer to take a tip credit against its 

minimum wage obligation of $5.12 an 

hour, provided it has informed its 

tipped employees of the tip credit 

provision and has permitted the 

employees to retain all of their tips. 

Since the amount of tips the employee 

receives in excess of the allowable tip 

credit are not considered ‘‘wages’’ paid 

by the employer, any deductions by the 

employer from the employee’s tips 

would result in a violation of the 

employer’s minimum wage obligation 

because the employer has only paid the 

employee the minimum wage (cash 

wage of $2.13 plus the tip credit up to 

$7.25). A deduction from the 

employee’s tips would be subtracted 

from the $7.25 minimum wage payment 

and would bring the employee below 

the minimum wage. 

The NPRM proposed to update the 

regulations to incorporate the 1974 

amendments, the legislative history, 

subsequent court decisions, and the 

Department’s interpretations. Proposed 

§§ 531.52, 531.55(a), 531.55(b), and 

531.59 eliminated references to 

employment agreements providing 

either that tips are the property of the 

employer or that employees will turn 

tips over to their employers, and 

clarified that the availability of the tip 

credit provided by section 3(m) requires 

that all tips received must be paid out 

to tipped employees in accordance with 

the 1974 amendments. Section 

531.55(a), which describes compulsory 

service charges, also was updated by 

changing the example of such a charge 

from 10 percent to 15 percent to reflect 

more current customary industry 

practices. 

The 1974 amendments also clarified 

that section 3(m)’s statement that 

employees must retain their tips does 

not preclude the practice of tip pooling 

‘‘among employees who customarily and 

regularly receive tips.’’ 29 U.S.C. 203(m). 

The Department’s regulation on the 

subject provides that ‘‘the amounts 

received and retained by each 

individual [through a tip pooling 

arrangement] as his own are counted as 

his tips for purposes of the Act.’’ 29 CFR 

531.54. 

Wage and Hour has interpreted the tip 

pooling clause more fully in opinion 

letters and in its Field Operations 

Handbook (‘‘FOH’’). The FOH provides, 

for example, that a tip pooling 

arrangement cannot require employees 

to contribute a greater percentage of 

their tips to the tip pool than is 

‘‘customary and reasonable.’’ FOH 

section 30d04(b). The agency expanded 

upon this position, in its opinion letters 

and in litigation, that ‘‘customary and 

reasonable’’ equates to 15 percent of an 

employee’s tips or two percent of daily 

gross sales. See, e.g., Wage and Hour 

Opinion Letter WH–468, 1978 WL 

51429 (Sept. 5, 1978). Several courts 

have rejected the agency’s maximum 

contribution percentages, however, 

‘‘because neither the statute nor the 

regulations mention [the requirement 

stated in the agency interpretation] and 

the opinion letters do not explain the 

statutory source for the limitation that 

they create.’’ Kilgore v. Outback 

Steakhouse of Fla., Inc., 160 F.3d 294, 

302–03 (6th Cir. 1998); see Davis v. B&S, 

Inc., 38 F. Supp. 2d 707, 718 n.16 (N.D. 

Ind. 1998) (citing Dole v. Continental 

Cuisine, Inc., 751 F. Supp. 799, 803 

(E.D. Ark. 1990) (‘‘The Court can find no 

statutory or regulatory authority for the 

Secretary’s opinion [articulated in an 

opinion letter] that contributions in 

excess of 15% of tips or 2% of daily 

gross sales are excessive.’’). In light of 

these court decisions, the NPRM 

proposed to update § 531.54 to clarify 

that section 3(m) of the FLSA does not 

impose a maximum tip pool 

contribution percentage. Moreover, the 

NPRM proposed to state that the 

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employer must inform each employee of 

the required tip pool contribution. 

The 1974 amendments also revised 

another aspect of section 3(m). Prior to 

the 1974 amendments, section 3(m) of 

the FLSA provided that an employee 

could petition the Wage and Hour 

Administrator to review the tip credit 

claimed by an employer. See Public Law 

89–601, 80 Stat. 830 (1966) (‘‘[I]n the 

case of an employee who (either himself 

or acting through his representative) 

shows to the satisfaction of the 

Secretary that the actual amount of tips 

received by him was less than the 

amount determined by the employer as 

the amount by which the wage paid him 

was deemed to be increased * * * the 

amount paid such employee by his 

employer shall be deemed to have been 

increased by such lesser amount.’’). The 

1974 amendments eliminated the 

review clause to clarify that the 

employer, not the employee, bears the 

ultimate burden of proving ‘‘the amount 

of tip credit, if any, [he] is entitled to 

claim.’’ S. Rep. No. 93–690, at 43. Two 

outdated regulatory provisions 

promulgated in 1967, however, still 

purport to permit petitions to the Wage 

and Hour Administrator for tip credit 

review despite the fact that the statute 

no longer provides for this review. See 

29 CFR 531.7, 531.59. 

Consistent with the 1974 

amendments, the NPRM proposed to 

delete § 531.7, which permits employees 

to petition the Wage and Hour 

Administrator for tip credit review. 

References to the Administrator’s 

review in § 531.59 also were deleted, 

and the language was updated to reflect 

the burden on the employer to prove the 

amount of the tip credit to which it is 

entitled. 

Numerous commenters addressed the 

issues relating to tipped employees. 

i. Ownership of Employee Tips 

Commenters representing employees 

expressed concern with several of the 

Department’s proposed revisions. First, 

a variety of commenters stated that they 

were opposed to the Department’s 

reference in § 531.52 to the fact that an 

employer is prohibited from using an 

employee’s tips for any reason other 

than to make up the difference between 

the required cash wage paid and the 

minimum wage where ‘‘an employee is 

being paid wages no more than the 

minimum wage.’’ See, e.g., NELA, AFL– 

CIO, Bruckner Burch PLLC, and NELP. 

These commenters further noted that 

the preamble addresses the converse 

situation where an employer does pay 

more than the minimum wage in cash, 

and the preamble states that such an 

employer ‘‘would be able to make 

deductions so long as they did not 

reduce the direct wage payment below 

the minimum wage.’’ 73 FR 43659 (Jul. 

28, 2008). They objected to these 

statements, based upon the legislative 

history of the tip credit provisions. 

These commenters pointed out that 

section 3(m) first was amended in 1966, 

following a Supreme Court decision that 

concluded that employers could use 

employees’ tips to satisfy the entire 

minimum wage. That amendment 

provided that employers could credit 

tips toward 50 percent of the minimum 

wage. After the Wage and Hour Division 

issued regulations concluding that an 

employer could still require employees 

to turn over all their tips, effectively 

achieving a tip credit equal to 100 

percent of the minimum wage, Congress 

again amended the statute in 1974 to 

provide that all tips received by an 

employee must be retained by the 

employee (except for valid, or bona fide, 

tip pooling). The commenters noted that 

the legislative history clarifies that 

Congress wanted in 1974 ‘‘to make clear 

[its] original * * * intent that an 

employer could not use the tips of a 

‘tipped employee’ to satisfy more than 

50 percent of the Act’s applicable 

minimum wage.’’ S. Rep. No. 93–690, at 

43. Congress also made it clear in 1974 

that ‘‘[a]ll tips received [by tipped 

employees were to] be paid out to 

tipped employees.’’ Id., at 42. The 

commenters cited Wage and Hour 

opinion letters, the FOH and Fact Sheet 

#15 issued thereafter, which concluded 

that the 1974 Amendments clarified 

Congress’ determination that tips are the 

property of the employees who receive 

them, not the employer, and that any 

agreement requiring an employee to 

turn over tips to the employer is, 

therefore, illegal. 

Based upon this history, NELP stated 

that the proposed rule and the preamble 

language provides ‘‘misleading guidance 

on tips’’ and ‘‘threaten[s] to increase 

confusion in this already high-violation 

industry.’’ NELP asserted that it would 

be unlawful for an employer to pay a 

worker a cash wage of $1.00 in excess 

of the full minimum wage and then 

withhold $1.00 per hour of a worker’s 

tips, and that the Department ‘‘lacks the 

authority to create this exception to the 

general rule against tip stealing.’’ NELP 

further concluded that the proposed 

regulations include misleading guidance 

that is ‘‘confusing and encourages abuse 

that would adversely impact both 

tipped workers and their employers.’’ 

Employers would hire workers for a 

wage that appeared to exceed the 

minimum wage, but then would lower 

their pay back to the minimum wage, 

and such action would expose 

‘‘employers to significant liability 

because it is out of step with the many 

state laws prohibiting this action.’’ See 

also North Carolina Justice Center. 

NELA similarly stated that the 

proposed regulations ‘‘create confusion 

with respect to the ownership of tips’’ 

because they suggest that if an employer 

pays a direct (or cash) wage slightly in 

excess of the minimum wage, it can 

‘‘thereby obtain unfettered access to its 

employees’ tips.’’ NELA stated that the 

confusion ‘‘is particularly dangerous 

given that some courts wrongly permit 

employers to pocket the tips of 

employees who are ‘paid’ at least the 

minimum wage.’’ Therefore, NELA 

suggested that the Department should 

clarify that tips are the property of the 

employee who receives them and that 

the tip retention requirement applies 

even if the employer pays a wage in 

excess of the minimum wage. 

The AFL–CIO similarly commented 

that the Department’s regulatory 

‘‘language—whether intended by the 

Department or the result of poor 

drafting—seems to permit employers to 

take the employee’s tips if they are paid 

the minimum wage or greater * * * 

[which] was barred by Congress in 

1974.’’ See also Members of United 

States Congress. The AFL–CIO cited 

numerous opinion letters and court 

decisions for the conclusion that, 

whether or not an employer claims any 

tip credit, the employee must retain all 

tips (asserting the few court decisions 

that hold to the contrary are incorrect). 

Therefore, the AFL–CIO concluded that 

proposed § 531.52 would ‘‘turn the 1974 

amendment on its head’’ by allowing 

employers to require employees to 

surrender their tips when the 

amendment bars such agreements; the 

commenter further stated that the 

proposal conflicts with proposed 

§ 531.59, which states that section 3(m) 

requires employers to permit employees 

to retain all tips received with the 

exception of a valid, or bona fide, tip 

pool. Bruckner Burch commented that 

the final rule could incorporate 

examples from the Department’s 

opinion letters, such as Wage Hour 

Opinion Letter WH–536, 1989 WL 

610348 (Oct. 26 1989) (cited in the 

preamble), explaining when deductions 

may be made from the tips of employees 

who are paid in excess of the minimum 

wage, but that the rule as proposed 

created confusion. 

The Chamber of Commerce stated that 

it supported the elimination of the 

references in current § 531.52 and other 

regulations to agreements between 

employers and employees that would 

make tips the property of the employer 

or require employees to turn over their 

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tips to employers. The commenter 

stated that ‘‘Congress amended the FLSA 

in 1974 to clarify that employers are not 

permitted to retain employee tips. 

References within the current 

regulations to agreements that could 

permit employers to do so were 

misleading and confusing, within the 

context of the congressional 

amendment.’’ 

The Department agrees with the 

analysis in the comments that tips are 

the property of the employee, and that 

Congress deliberately amended the 

FLSA’s tip credit provisions in 1974 to 

clarify that section 3(m) provides the 

only permitted uses of an employee’s 

tips—through a tip credit or a valid tip 

pool among only those employees who 

customarily and regularly receive tips. 

This has been the Department’s 

longstanding position since the 1974 

amendments. The Department has also 

taken the position since the 1974 

amendments that these protections 

against the use of an employee’s tips 

apply irrespective of whether the 

employer has elected the tip credit. 

The legislative history of the Act, as 

well as caselaw and opinion letters 

published shortly after the 1974 

amendments, support the Department’s 

position that section 3(m) provides the 

only permissible uses of an employee’s 

tips regardless of whether a tip credit is 

taken. As noted supra, the tip credit 

provision permitting an employer to use 

an employee’s tips to satisfy 50 percent 

of the employer’s minimum wage 

obligation was originally enacted in 

1966. Public Law 89–601, § 101(a), 80 

Stat. 830 (1966). In 1974, when the Act 

was amended, a Senate Report stated 

that the amendment was intended to 

‘‘requir[e] that all tips received be paid 

out to tipped employees.’’ S. Rep. No. 

96–690, at 42 (1974). The same Report 

further observed that the amendments 

required employees to retain all of their 

tips (except to the extent that they are 

used in a valid tip pool) and clarified 

that an employer could not use its 

employees’ tips to satisfy more than 50 

percent of its minimum wage 

obligations. Id. at 42–43 (quoting 29 

CFR 531.52). In 1977, a Senate Report 

from the Committee on Human 

Resources considering further 

amendments to the FLSA indicated that 

the role of tips in the calculation of an 

employer’s minimum wage obligations 

to its tipped employees had been 

resolved by the 1974 amendments: 

Tips are not wages, and under the 1974 

amendments tips must be retained by the 

employees—which can include employees 

who are in an appropriate tip pool—and 

cannot be paid to the employer or otherwise 

used by the employer to offset his wage 

obligation, except to the extent permitted by 

section 3(m). 

S. Rep. No. 95–440, at 25 (1977). In 

support of this statement, the Report 

cites to two cases, Richard v. Marriott 

Corp., 549 F.2d 303 (4th Cir. 1977), and 

Usery v. Emersons Ltd., 1976 WL 1668 

(E.D. Va. 1976), both of which 

recognized shortly after the 1974 

amendments that while section 3(m) is 

not entirely clear, it had the effect of 

limiting an employer’s use of its 

employees’ tips to the extent provided 

in the statute. In Marriott Corp., the 

Fourth Circuit concluded that tips 

belonged to the tipped employee, and 

that it was ‘‘nonsense’’ to argue after the 

1974 amendments ‘‘that compliance 

with the statute results in one-half 

credit, but that defiance of the statute 

results in 100 percent credit.’’ 549 F.2d 

at 305. In Emersons Ltd., the district 

court stated that ‘‘[w]hile [section 3(m)] 

could have been worded more clearly, it 

is apparent, at least as a result of the 

1974 amendment, that Congress 

intended to give the employer the 

benefits of tips received by the 

employee, but only to a limited extent.’’ 

1976 WL 1668, at *4. 

The Ninth Circuit recently held that 

section 3(m)’s limitations on an 

employer’s use of an employee’s tips 

apply only when the tip credit is taken, 

and that when a tip credit is not taken, 

tips are only the property of the 

employee absent an agreement to the 

contrary. Cumbie v. Woody Woo, Inc. 

d/b/a Vita Cafe ́, 596 F.3d 577 (9th Cir. 

2010); see also Platek v. Duquesne Club, 

961 F. Supp. 835, 839 (W.D. Pa. 1995), 

aff’d without opinion, 107 F.3d 863 (3d 

Cir.) (Table), cert. denied, 522 U.S. 934 

(1997). The Department respectfully 

believes that Woody Woo was 

incorrectly decided. The issue in Woody 

Woo was whether section 3(m)’s 

limitation on mandatory tip pools to 

those employees who ‘‘customarily and 

regularly’’ receive tips applies when an 

employer does not take a tip credit. In 

that case, tipped employees were 

required to turn over the majority of 

their tips to a tip pool that included 

employees, such as cooks and 

dishwashers, who are not ‘‘customarily 

and regularly’’ tipped employees, and 

received a small portion of their tips 

back from the tip pool. The employer 

was precluded from taking a tip credit 

by State law and paid its tipped 

employees the full State minimum 

wage, which exceeded the Federal 

minimum wage. 

The Ninth Circuit started its analysis 

in Woody Woo with a statement from 

the 1942 Supreme Court decision in 

Williams v. Jacksonville Terminal Co., 

315 U.S. 386 (1942), that ‘‘ ’[i]n 

businesses where tipping is customary, 

the tips, in the absence of an explicit 

contrary understanding, belong to the 

recipient. Where, however, such an 

arrangement is made * * *, in the 

absence of statutory interference, no 

reason is perceived for its invalidity.’ ’’ 

Woody Woo, 596 F.3d at 579 (quoting 

Jacksonville Terminal, 315 U.S. at 397) 

(emphasis added by the Ninth Circuit). 

Thus, the Ninth Circuit stated that 

Jacksonville Terminal established a 

‘‘default rule that an arrangement to turn 

over or to redistribute tips is 

presumptively valid,’’ and that the 

question before the court was whether 

the FLSA, as amended, ‘‘imposes any 

’statutory interference’ that would 

invalidate Woo’s tip-pooling 

arrangement.’’ Id. After ‘‘unpacking’’ 

what it characterized to be ‘‘dense 

statutory language’’ in section 3(m), the 

court concluded that it is ‘‘clear’’ that the 

current statutory language disrupts the 

Jacksonville Terminal default rule only 

when a tip credit is taken, because the 

language in the last sentence of section 

3(m), providing that an employer cannot 

take a tip credit unless it has provided 

notice and permits employees to retain 

all of their tips (except for a valid tip 

pool), ‘‘imposes conditions on taking a 

tip credit and does not state 

freestanding requirements pertaining to 

all tipped employees.’’ Id. at 581. The 

Ninth Circuit therefore did not read 

section 3(m) as imposing any limitations 

on the use of an employee’s tips when 

a tip credit is not taken. The court thus 

rejected the Department’s position in its 

amicus curiae brief that Woody Woo 

made improper deductions from the 

cash wage paid when it required its 

employees to contribute their tips to an 

invalid tip pool, and that this improper 

deduction resulted in a minimum wage 

violation because the tipped employees 

did not receive the full minimum wage 

plus all tips received. 

The Department believes the Ninth 

Circuit incorrectly concluded that the 

1974 amendments to the FLSA did not 

alter what it characterized as 

Jacksonville Terminal’s default rule. 

The fact that section 3(m) does not 

expressly address the use of an 

employee’s tips when a tip credit is not 

taken leaves a ‘‘gap’’ in the statutory 

scheme, which the Department has 

reasonably filled through its 

longstanding interpretation of section 

3(m). See Barnhart v. Walton, 535 U.S. 

212, 218 (2002) (‘‘[S]ilence, after all, 

normally creates ambiguity. It does not 

resolve it.’’); see also Senger v. City of 

Aberdeen, SD, 466 F.3d 670, 672 (8th 

Cir. 2006) (recognizing Department’s 

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authority to fill a ‘‘gap’’ in the FLSA’s 

regulatory scheme). The Ninth Circuit’s 

‘‘plain meaning’’ construction is 

unsupportable. Congress would not 

have had to legislatively permit 

employers to use their employees’ tips 

to the extent authorized in section 3(m) 

unless tips were the property of the 

employee in the first instance. In other 

words, if tips were not the property of 

the employee, Congress would not have 

needed to specify that an employer is 

only permitted to use its employees’ tips 

as a partial credit against its minimum 

wage obligations in certain prescribed 

circumstances because an employer 

would have been able to use all of its 

employees’ tips for any reason it saw fit. 

If, as the Ninth Circuit held, the FLSA 

places limitations on an employer’s use 

of its employees’ tips only in the context 

of a tip credit, an employer could 

simply eschew the tip credit and use a 

greater part of its employees’ tips 

toward its minimum wage obligations 

than permitted under section 3(m). This 

would stand the 1974 amendment ‘‘on 

its head’’ and would mean it has 

‘‘accomplished nothing.’’ Emersons Ltd., 

1976 WL 1668, at *4. If an employer 

could avail itself of this loophole, it 

would have no reason to ever elect the 

tip credit because, instead of using only 

a portion of its employees’ tips to fulfill 

its minimum wage obligation, it could 

use all of its employees’ tips to fulfill its 

entire minimum wage obligation to the 

tipped employees or other employees. 

This is essentially what the panel’s 

decision permits, because if there are no 

restrictions on an employer’s use of its 

employees’ tips when it does not utilize 

a tip credit, the employer can institute 

a mandatory tip pool that requires 

employees to contribute all of their tips 

regardless of how much they receive 

back, or mandate that employees turn 

over all of their tips and use those tips 

to pay the minimum wage or for any 

other purpose. 

For example, if an employer is subject 

to the current Federal minimum wage of 

$7.25 an hour and its tipped employees 

receive $10 an hour in tips, an employer 

who uses the maximum tip credit 

against its minimum wage obligation 

has to pay a cash wage of $2.13 and can 

‘‘use’’ $5.12 of an employee’s tips as a 

credit toward the rest of the minimum 

wage payment. The employee thus 

receives $2.13 in cash wages and keeps 

all of her $10 in tips, for a total of 

$12.13. Woody Woo, however, permits 

an employer who eschews the tip credit 

to pay $7.25 to its tipped employees in 

cash wages to satisfy its minimum wage 

obligation and require an employee to 

turn over all $10 of the employee’s tips. 

The employee now receives only $7.25 

an hour, rather than $12.13. And the 

employer, while it pays $7.25, gains 

$10.00 that it can direct for its own 

purposes (in essence realizing a $2.75 

profit from the employee’s tips). Thus, 

under the Ninth Circuit’s ‘‘plain 

language’’ reading of section 3(m), an 

employer that does not utilize a tip 

credit is permitted to use its employee’s 

tips to a greater extent than an employer 

that does utilize such credit. This yields 

an absurd result and makes the 1974 

amendment superfluous. 

As noted supra, the Department stated 

publicly immediately after the 1974 

amendments that its tip credit 

regulations permitting employers to take 

control of employee tips through 

agreements were outdated, and 

indicated that new regulations were 

forthcoming. See Wage and Hour 

Opinion Letter WH–310, 1975 WL 

40934, at *1 (Feb. 18, 1975). The 

Department also explicitly stated that 

the 1974 amendments superseded 

Jacksonville Terminal, explaining that 

‘‘the situation of a tipped employee is far 

different’’ than it was in 1942. Wage and 

Hour Opinion Letter WH–321, 1975 WL 

40945, at *1 (Apr. 30, 1975). As also 

noted supra, a number of commenters 

voiced concern that the proposed 

regulatory text in § 531.52 was 

confusing on this point, and did not 

make the Department’s position clear. In 

order to codify its longstanding 

interpretation of section 3(m) in its 

regulations, and in response to these 

commenters, the Department is 

amending § 531.52 in the final rule to 

make clear that tips are the property of 

the employee, and that section 3(m) sets 

forth the only permitted uses of an 

employee’s tips—either through a tip 

credit or a valid tip pool—whether or 

not the employer has elected the tip 

credit. 

The inclusion of the text in proposed 

§ 531.52 reading ‘‘Where an employee is 

being paid wages no more than the 

minimum wage’’ was intended to 

convey the fact that the Department 

only has authority under the FLSA to 

enforce, inter alia, the minimum wage 

provisions of that Act. See, e.g., 29 

U.S.C. 216, 217. Thus, if an employer 

pays the employee a direct wage in 

excess of the minimum wage—and thus 

did not claim a credit against any 

portion of the employee’s tips and did 

not utilize the employee’s tips in any 

way—the employer would be able to 

make deductions but only from the cash 

wage amount paid directly by the 

employer and only to the extent that the 

deductions did not reduce the 

employer’s direct wage payment to an 

amount below the minimum wage. See 

Wage and Hour Opinion Letter WH– 

536, 1989 WL 610348 (Oct. 26, 1989). In 

such a situation, the deduction would 

be viewed as coming from the 

employer’s direct wage payment that 

exceeds the minimum wage. This is 

consistent with the Department’s 

position regarding impermissible 

deductions in the non-tip context. See 

Wage and Hour Opinion Letter FLSA 

2006–21, 2006 WL 1910966 (June 9, 

2006) (explaining that no FLSA action 

lies against an employer who makes 

impermissible deductions from cash 

wages paid if those wages are in excess 

of the minimum wage and the 

deductions do not reduce the 

employee’s pay below the minimum 

wage). However, the Department agrees 

with the commenters that the payment 

of tipped employees under the FLSA 

and State laws is a very complex issue, 

and that retention of this language from 

the proposed rule could result in 

unintended confusion among the 

regulated community. Consequently, the 

text in proposed § 531.52 is revised to 

delete the introductory phrase in the 

fourth sentence of that section that 

reads: ‘‘Where an employee is being paid 

wages no more than the minimum 

wage,’’ to clarify under the final rule that 

an employer in all cases is prohibited 

from using an employee’s tips for any 

reason other than as a tip credit to make 

up the difference between the required 

cash wage paid and the minimum wage 

or in furtherance of a valid tip pool. 

ii. Required Employer Notice 

Commenters representing employees 

also objected to the Department’s 

proposal in § 531.59(b) and the 

accompanying preamble providing that 

employers only have to ‘‘inform’’ 

employees orally that they will treat tips 

as satisfying part of the employer’s 

minimum wage obligation, but do not 

have to ‘‘explain’’ the tip credit or 

provide anything in writing. For 

example, NELP commented that the 

legislative history ‘‘makes clear that 

informing workers is no mere formality, 

but that the employer must indeed 

explain the tip credit.’’ NELP quoted 

S. Rep. 93–690 at 43 (1974), which 

provides that the employer is 

responsible for informing a tipped 

employee how the wage was calculated 

and that ‘‘the employer must explain the 

tip provision of the Act to the employee 

and that all tips received by such 

employee must be retained by the 

employee.’’ NELP stated that many 

tipped employees are low-wage and 

immigrant employees working in highviolation industries, and they do not 

understand the complicated tip credit 

rules. NELP suggested that requiring 

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employers to provide a clear written 

explanation to employees upon hire 

would help them understand the rules 

and would help employers because it 

‘‘would enable them to protect 

themselves from litigation claiming that 

they failed to provide adequate notice 

and therefore cannot take the tip credit.’’ 

See also North Carolina Justice Center, 

Greater Boston Legal Services (simply 

informing an employee that it will use 

the tip credit would be ‘‘jargon that 

would be meaningless to many workers, 

especially those with limited English 

proficiency or immigrant workers with 

limited experience with wages in this 

country * * * Having the explanation 

in writing, moreover, is especially 

important to those workers who may 

want or need to seek additional 

assistance, outside the workplace, to 

understand the information they are 

being provided.’’); Members of United 

States Congress (the regulation should 

require employers to explain the tip 

credit rules so that employees 

understand ‘‘how their wages are 

calculated, as a matter of fairness and as 

a way of enforcing the law * * * To 

satisfy these goals, the Department 

should require employers to provide 

written notice * * * Written notice will 

also prevent unnecessary litigation, by 

improving employees’ understanding of 

their rights.’’). 

The AFL–CIO submitted similar 

comments and stated that the proposed 

regulation ‘‘fails to satisfy the plain 

language of the statute, which requires 

not just that the employer ‘inform’ the 

employee that it is taking a tip credit, 

but that ‘the employer [inform the 

employee] of the provisions of this 

subsection.’ ’’ NELA also submitted 

similar comments and stated that, given 

the increasing importance of employee 

tips vis-a`-vis the minimum wage, the tip 

credit regulations should ensure the fair 

operation of the tip credit provisions. 

Because the FLSA poster (Publication 

1088) provides only a limited 

description of the tip credit rules and 

recognizes that ‘‘other conditions must 

also be met,’’ several commenters 

suggested that the regulation should set 

forth a sample notice providing the 

required explanation in full. NELA, the 

AFL–CIO, and Bruckner Burch PLLC 

stated that employers must tell 

employees not only that the employer 

will be using the tip credit, but also that 

a minimum wage is required by law, the 

amount of the minimum wage, how the 

tip credit works—that the employer 

must pay $2.13 and the balance of the 

full minimum wage required by the Act 

can come from the tip credit but that the 

employer must make up the difference 

if the employee does not receive 

sufficient tips, that the employee will 

retain all of his or her tips, and the 

formula for any tip pooling 

arrangement. These commenters stated 

that the Department should not rely on 

Kilgore v. Outback Steakhouse of 

Florida, Inc., 160 F.3d 294 (6th Cir. 

1998), the case cited in the preamble to 

the proposed rule, because it was 

wrongly decided on the notice issue in 

that it did not take into account the 

legislative history or the statutory 

language requiring employees to be 

informed of the provisions of section 

3(m). These commenters pointed, 

instead, to other decisions that held 

employers could not utilize the tip 

credit where they had not adequately 

informed employees of the law’s 

requirements. Finally, NELA objected to 

the suggestion that paychecks received 

after the work is performed or prior 

work history can provide the requisite 

notice, because the statute requires an 

employer to provide notice of the tip 

credit provisions prior to taking any tip 

credit. 

Epstein Becker commented that the 

notice provision of section 3(m) does 

not require an employer to 

communicate its intent to use the tip 

credit; rather, it requires an employer to 

communicate the provisions of the 

section. Epstein Becker stated that the 

cases that require an employer to 

communicate its intent to treat tips as 

satisfying part of the minimum wage 

obligation do so without analysis of the 

statutory language and are incorrect. 

Epstein Becker further asserted that the 

information that would be useful to 

employees and required by section 3(m) 

is that the employer must supplement 

an employee’s tips if they are 

insufficient to raise the wage level to the 

minimum wage, that the cash wage 

must be at least $2.13, and all tips 

earned must be retained by the 

employee absent a valid tip pooling 

arrangement (and perhaps information 

regarding the required information as to 

the tip pool, although this is ‘‘difficult 

to reconcile with the statute’s 

language’’). The commenter stated that 

the proposed regulation, requiring 

communication of the employer’s intent 

to use the tip credit, does little to 

advance the purpose of the statute 

because virtually all employees know 

their employer intends to pay them a 

reduced tip wage based on prior work 

in the industry and any 

misunderstanding would be resolved 

with the first paycheck. Finally, Epstein 

Becker stated that the information on 

the FLSA poster (Publication 1088) is 

concise and understandable, and that 

the poster should contain all 

information that employers are required 

to communicate. 

The Chamber of Commerce and Littler 

Mendelson, P.C., agreed with the 

proposal regarding what an employer 

must communicate to employees and 

stated that it can be oral. They stated the 

proposal is a positive step in clarifying 

employer obligations and, thus, it 

should reduce the litigation on this 

issue by clearly articulating the required 

content of the notice. 

Section 3(m)(2) of the Act provides 

that the tip credit provisions ‘‘shall not 

apply with respect to any tipped 

employee unless such employee has 

been informed by the employer of the 

provisions of this subsection, and all 

tips received by such employee have 

been retained by such employee [except 

for] pooling of tips among employees 

who customarily and regularly receive 

tips.’’ 29 U.S.C. 203(m)(2) (emphasis 

added). The ‘‘provisions of this 

subsection’’ include how to determine 

the wage an employer is required to pay 

a tipped employee, which is ‘‘the 

amount paid such employee by the 

employee’s employer’’ (an amount that 

cannot be less than the cash wage 

required to be paid to a tipped employee 

on August 20, 1996, which was $2.13), 

and ‘‘the additional amount on account 

of the tips received by such employee’’ 

(an amount equal to the difference 

between the actual cash wage paid and 

the full minimum wage in effect under 

section 6(a)(1) of the Act). A Senate 

Report accompanying the 1974 

amendments stated that the amendment 

‘‘modifies Section 3(m) of the [FLSA] by 

requiring employer explanation to 

employees of the tip credit provisions, 

and by requiring that all tips received be 

paid out to tipped employees. * * * 

The tip credit provision of S. 2747 is 

designed to insure employer 

responsibility for proper computation of 

the tip allowance and to make clear that 

the employer is responsible for 

informing the tipped employee of how 

such employee’s wage is calculated. 

Thus, the bill specifically requires that 

the employer must explain the 

provision of the Act to the employee 

and that all tips received by such 

employee must be retained by the 

employee.’’ S. Rep. No. 93–690 at 42–43 

(1974) (emphasis added). 

As discussed in the preamble to the 

proposed rule, the courts have disagreed 

over the level of notice required to 

‘‘inform’’ a tipped employee about 

section 3(m). Thus, in Kilgore v. 

Outback Steakhouse of Florida, Inc., 

160 F.3d 294, 298 (6th Cir. 1998), the 

Sixth Circuit held that while an 

employer must ‘‘inform its employees of 

its intent to take a tip credit toward the 

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employer’s minimum wage obligation,’’ 

it was not required to ‘‘explain’’ the tip 

credit. In Martin v. Tango’s Restaurant, 

Inc., on the other hand, the First Circuit 

interpreted section 3(m)’s notice 

provision to require, ‘‘at the very least 

notice to employees of the employer’s 

intention to treat tips as satisfying part 

of the employer’s minimum wage 

obligations,’’ and stated that the 

provision ‘‘could easily be read to 

require more.’’ 969 F.2d 1319, 1322 (1st 

Cir. 1992); see Reich v. Chez Robert, 

Inc., 821 F. Supp. 967, 977 (D. N.J. 1993) 

(an employer does not meet its 

obligation to ‘‘inform’’ under section 

3(m) when it tells its tipped employees 

that they will be paid a specific wage 

but does not explain that that wage is 

below the minimum wage and that it is 

permitted by law based on the 

employees’ tips), rev’d on other 

grounds, 28 F.3d 401 (3d Cir. 1994)). In 

Pellon v. Business Representation Int’l, 

Inc., 528 F. Supp. 2d 1306, 1310–11 

(S.D. Fla. 2007), aff’d, 291 Fed. Appx. 

310 (11th Cir. 2008), the district court 

held that the employer in that case had 

fulfilled its duty to ‘‘inform’’ its tipped 

employees of the provisions of section 

3(m) by posting the FLSA poster and 

verbally notifying the employees that 

they would be paid $2.13 an hour plus 

tips, but noted that ‘‘a prominently 

displayed poster containing all of the 

relevant tip credit information’’ would 

also constitute sufficient notice. In 

Bonham v. Copper Cellar Corp., 476 F. 

Supp. 98 (E.D. Tenn. 1979), on the other 

hand, the court held that vague 

references to the minimum wage and a 

poster that was not prominently 

displayed did not meet the requirement 

to ‘‘inform.’’ 

The Department has concluded that 

notice of the specific provisions of 3(m) 

is required to adequately inform the 

employee of the requirements of the tip 

credit. To the extent that the Sixth 

Circuit and other courts have reached 

different results, the Department notes 

that those courts generally failed to 

consider the important legislative 

developments underlying the FLSA’s tip 

credit provisions and we choose to not 

be guided by those decisions in this 

revision of the regulations. Accordingly, 

based on the express provisions of the 

statute and the supporting legislative 

history, the Department agrees with the 

commenters stating that an employer 

must inform a tipped employee before it 

utilizes the tip credit, of the following: 

(1) The direct cash wage the employer 

is paying a tipped employee, which can 

be more than, but cannot be less than, 

$2.13 per hour; (2) the additional 

amount the employer is using as a credit 

against tips received, which cannot 

exceed the difference between the 

minimum wage specified in section 

6(a)(1) of the FLSA and the actual cash 

wage paid by the employer to the 

employee; (3) that the additional 

amount claimed by the employer on 

account of tips as the tip credit may not 

exceed the value of the tips actually 

received by the employee; (4) that the 

tip credit shall not apply with respect to 

any tipped employee unless the 

employee has been informed of the tip 

credit provisions of section 3(m) of the 

Act; and (5) that all tips received by the 

tipped employee must be retained by 

the employee except for the pooling of 

tips among employees who customarily 

and regularly receive tips. Furthermore, 

the current FLSA recordkeeping 

regulation, at 29 CFR 516.28(a)(3), 

expressly requires that the amount per 

hour that the employer takes as a tip 

credit shall be reported to the employee 

in writing each time it is changed from 

the amount per hour taken in the 

preceding week. 

Upon careful reexamination of the 

terms of the statute, its legislative 

history, and a review of the public 

comments, the Department is revising 

its interpretation from the NPRM of the 

level of explanation that employers 

must provide when informing tipped 

employees about the tip credit pursuant 

to section 3(m). Accordingly, the text of 

the second and third sentences in 

proposed § 531.59(b) are combined and 

revised in the final rule to provide: 

* * * Pursuant to section 3(m), 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) 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 valid 

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. * * * 

Many commenters urged the 

Department to require employers to 

provide written notice to its tipped 

employees that explain section 3(m)’s 

tip credit provision. Although the 

Department is not requiring in this rule 

that the employer ‘‘inform’’ its tipped 

employees of section 3(m)’s 

requirements in writing, employers may 

wish to do so, since a physical 

document would, if the notice is 

adequate, permit employers to 

document that they have met the 

requirements in section 3(m) and the 

Department’s regulations to ‘‘inform’’ 

tipped employees of the tip credit 

provision. Finally, the Final Rule 

changes the word ‘‘bona fide’’ in the last 

sentence in proposed § 531.59(b) to 

‘‘valid’’; although both terms in this 

context refer to a tip pool that includes 

only those employees who customarily 

and regularly receive tips, the term 

‘‘valid’’ is used in those regulations 

pertaining to tips for consistency. 

iii. Tip Pools 

Commenters also addressed issues 

relating to tip pooling. As noted, the 

NPRM proposed to add two new 

sentences to § 531.54 (‘‘Tip pooling’’) to 

explain that the FLSA does not set a 

maximum cap on the percentage of an 

employee’s tips that may be contributed 

to a valid tip pool, but that an employer 

must notify its tipped employees of any 

required tip pool contribution amount. 

73 FR 43667 (Jul. 28, 2008). UNITE 

HERE stated its belief that tip pooling 

must be voluntary, as indicated by 

current § 531.54 stating that an 

employer may redistribute tips to 

employees ‘‘upon some basis to which 

they have mutually agreed among 

themselves,’’ and concluded that an 

employer should not be able to require 

employees to participate in a tip pool 

because the rules the employer created 

might not be fair. It particularly saw a 

mandatory pool as a concern if it 

actually involved mandatory tip 

splitting, because then the employer 

could reduce the tipped employee to the 

minimum wage and use the tips ‘‘to 

augment the cash compensation of other 

employees, thereby allowing the 

employer to reduce its own 

expenditures.’’ It stated that the 

requirement that an employee retain all 

tips ‘‘would be swallowed up by the 

exception’’ in this situation. Therefore, 

UNITE HERE objected to the new 

language in § 531.54 referring to ‘‘any 

required tip pool contribution amount’’ 

and stated that employers should not be 

permitted to require tipping out or tip 

pooling. It also stated that where tip 

pooling is voluntary, there is no need 

for a percentage limitation and the 

common practice is for employees to 

contribute all tips. UNITE HERE further 

commented that, if the Department 

allows mandatory tip pooling, the 

regulations should ensure that the pool 

is valid or ‘‘bona fide’’ such as by 

clarifying that employers may not retain 

any of the tips, tips may only go to 

employees who regularly and 

customarily receive tips (not employees 

such as cooks, dishwashers and 

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janitors), and employers may only take 

credit for the amount each employee 

actually ultimately receives. 

NELP objected to the proposed rule’s 

statement that the FLSA does not 

impose a maximum contribution 

percentage on tip pools, stating that not 

having a cap ‘‘makes it easier for 

employers to skim tips for themselves.’’ 

It suggested that the rule impose a 

‘‘customary and reasonable’’ standard, 

which it concluded may reasonably be 

read into the FLSA. See also North 

Carolina Justice Center and AFL–CIO. 

The Chamber of Commerce and Littler 

Mendelson, P.C. stated that they 

supported the elimination of the cap on 

‘‘the amount employers could require 

tipped employees to ‘tip out’ to other 

tipped employees,’’ noting that the rule 

requires an employer to notify 

employees of the amount they will be 

required to contribute to a tip pool. 

They stated that the tip credit rules 

ensure that employees will retain a 

sufficient proportion of their tips to 

satisfy minimum wage. Accordingly, 

Littler Mendelson, P.C., concluded that 

‘‘no employee will be harmed in any 

way even if a higher percentage of their 

tips are contributed to a tip pool.’’ 

In response to the comments, the 

Department has modified the two 

proposed new sentences at the end of 

§ 531.54 to read: 

* * * Section 3(m) does not impose a 

maximum contribution percentage on valid 

mandatory tip pools, which can only include 

those employees who customarily and 

regularly receive tips. However, an 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. 

Other aspects of tip pooling are 

discussed in the section on ownership 

of tips, supra. 

8. Fair Labor Standards Act 

Amendments of 1977 

On November 1, 1977, Congress 

amended section 3(t) of the FLSA, 29 

U.S.C. 203(t). Public Law 95–151, § 3(a), 

91 Stat. 1245. Section 3(t) of the FLSA 

defines the phrase ‘‘tipped employee.’’ 

Prior to the 1977 amendment, the 

definition encompassed ‘‘any employee 

engaged in an occupation in which he 

customarily and regularly receives more 

than $20 a month in tips.’’ The 1977 

amendment raised the threshold in 

section 3(t) to $30 a month in tips. The 

proposed rule changed the references in 

29 CFR 531.50(b), 531.51, 531.56(a)–(e), 

531.57, and 531.58 from $20 to $30. The 

commenters did not specifically address 

these technical updates to conform to 

the statute. Therefore, the final rule 

adopts the proposed changes to these 

regulations. 

9. Meal Credit Under Section 3(m) 

The NPRM proposed to amend 

§ 531.30 to incorporate the Department’s 

longstanding enforcement position 

regarding the acceptance of meals 

furnished as a credit towards the 

minimum wage. A ‘‘wage’’ paid pursuant 

to section 3(m) of the FLSA may include 

‘‘the reasonable cost * * * to the 

employer of furnishing * * * board, 

lodging, or other facilities * * * 

customarily furnished by such employer 

to his employees.’’ 29 U.S.C. 203(m). 

‘‘Facilities’’ include employer-provided 

meals. See 29 CFR 531.32. The 

Department’s regulation at 29 CFR 

531.30, however, provides that an 

employer’s ability to take credit for a 

facility is limited to those instances 

where an employee’s acceptance was 

‘‘voluntary and uncoerced.’’ In other 

words, an employer could not take a 

wage credit for employees who did not 

choose to accept the meal. 

After a number of courts rejected the 

agency’s position on this point with 

regard to credit for meals, the agency 

adopted an enforcement position 

providing that an employer can take a 

meal credit even if an employee does 

not voluntarily accept the meal. See 

FOH section 30c09(b) (‘‘WH no longer 

enforces the ‘voluntary’ provision with 

respect to meals.’’); see also Davis Bros., 

Inc. v. Donovan, 700 F.2d 1368, 1370 

(11th Cir. 1983); Donovan v. Miller 

Properties, Inc., 711 F.2d 49, 50 (5th Cir. 

1983) (per curiam). 

Thus, under the agency’s current 

enforcement policy articulated in the 

FOH, an employer may require an 

employee to accept a meal provided by 

the employer as a condition of 

employment, and may take credit for no 

more than the actual cost of that meal 

even if the employee’s acceptance is not 

voluntary. The NPRM proposed to 

amend 29 CFR 531.30 to reflect previous 

court decisions and the agency’s current 

enforcement posture on meal credits. 

Several commenters addressed this 

issue. Littler Mendelson, P.C., stated 

that it supported the proposal providing 

that an employee does not have to 

voluntarily accept a meal, stating that 

this was ‘‘not a change in the law’’ 

because it merely incorporates the Wage 

and Hour Division’s current policy and 

court decisions into the regulations. 

Commenters representing employees 

expressed a variety of views. The AFL– 

CIO stated that it opposed the change 

because it will make it easier for 

employers to deduct from workers’ pay, 

‘‘whether or not such meals are 

adequate, and whether or not the 

employer is only deducting the 

reasonable cost of such meals.’’ It also 

stated that it disadvantages employees 

who are unable to eat a meal because of 

dietary or health restrictions. Therefore, 

it concluded that the Department should 

issue guidance on the circumstances 

when an employer can claim a meal 

credit. NELP similarly stated that 

workers should not be required to pay 

for meals that they cannot eat. NELP 

stated that workers sometimes are not 

given an opportunity to eat a mid-shift 

meal, and yet an employer may 

automatically make a deduction for that 

meal. The meal provided may also 

consist of inferior ingredients or other 

dishes that cannot be offered for sale. 

See also North Carolina Justice Center. 

Comments by Members of United States 

Congress also stated that they opposed 

the change because ‘‘employees may not 

even be able to consume employerprovided meals, because of dietary 

restrictions associated with their health, 

religion, personal preference, or the lack 

of time to eat the meals.’’ The SEIU 

recognized that the proposed change to 

reflect the court cases and the FOH 

policy was ‘‘unremarkable’’ and that 

whether an employee accepted a meal 

voluntarily had not been a pressing 

issue for 25 years. The SEIU commented 

that the real issue was employees not 

being given the time to eat the meal for 

which they were charged or given notice 

of how the cost of the meal is 

calculated. Therefore, the SEIU 

suggested that the regulation require 

that employers using a meal credit 

‘‘maintain timekeeping records to 

indicate that the workers subject to the 

meal credit deduction actually had the 

time and opportunity to consume the 

meal’’ and that they must provide 

employees with written notice that the 

meal cost will be deducted and an 

explanation as to how the cost was 

calculated. 

As explained supra, the former 

requirement that employee acceptance 

of a meal must be voluntary was 

rejected in the early 1980s by two courts 

of appeals. Davis Bros. v. Donovan, 700 

F.2d 1368 (11th Cir. 1983); Donovan v. 

Miller Properties, Inc., 711 F.2d 49 (5th 

Cir. 1983) (per curiam). The 

Department’s enforcement position 

adopted after those rulings provided 

that where an employee is required to 

accept a meal as a condition of 

employment, the Department would 

take no enforcement action provided the 

employer takes credit for no more than 

the actual cost incurred. FOH 30c09(b). 

It should be noted that the employer in 

Davis Bros. deducted from employees’ 

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wages no more than the actual or 

reasonable cost of the food provided, 

and allowed exceptions for employees 

who for medical reasons could not eat 

the food offered. There was no 

allegation of minimum wage violations 

based on the amount of the credit 

claimed, but simply that the employee’s 

acceptance was made mandatory and 

not voluntary in contravention of 

§ 531.30. 700 F.2d at 1369–70. The 

Eleventh Circuit failed to discern any 

basis for the Department’s construction 

in section 3(m) of ‘‘customarily 

furnished’’ by the employer to mean 

‘‘voluntarily accepted’’ by the 

employees. Id. at 1370. In the Miller 

Properties case, the Fifth Circuit 

affirmed a lower district court ruling in 

the employer’s favor in a very brief 

decision that did not analyze the 

particular facts but simply stated it was 

affirming based on the reasoning of the 

Eleventh Circuit in Davis Bros. Donovan 

v. Miller Properties, Inc., 711 F.2d at 50. 

The proposed revisions to § 531.30 

did not modify or otherwise excuse 

compliance with other applicable 

requirements that limit an employer’s 

credit for the reasonable or actual costs 

to the employer of furnishing the 

employee with board, lodging, or other 

facilities (if customarily furnished) 

under Section 3(m) of the Act (see 29 

CFR 531.3). Section 3(m) of the Act 

prescribes certain limitations and 

safeguards that control the payment of 

wages in other than cash or its 

equivalent. Special recordkeeping 

requirements must also be met as 

provided in 29 CFR part 516 (see 

§ 516.27), the provisions of which also 

were not modified by the revisions 

proposed in the NPRM. 

After careful consideration of the 

comments, the Department has 

determined that further study is 

warranted to assess the extent to which 

dietary or religious restrictions prevent 

employees from consuming employerprovided meals and whether adequate 

time is allowed for the employee to eat. 

The Department therefore is not 

adopting the proposal, but may provide 

guidance on this issue in the future. 

10. Section 7(o) Compensatory Time Off 

Section 7 of the FLSA requires that a 

covered employee receive compensation 

for hours worked in excess of 40 in a 

workweek at a rate not less than one and 

one-half times the regular rate of pay at 

which the employee is employed. 29 

U.S.C. 207(a). In 1985, subsequent to the 

U.S. Supreme Court’s decision in Garcia 

v. San Antonio Metropolitan Transit 

Authority, 469 U.S. 528 (1985), which 

held that the FLSA may be 

constitutionally applied to State and 

local governments, Congress added 

section 7(o), 29 U.S.C. 207(o), to the 

FLSA to permit public agencies (i.e., 

States, local governments, and interstate 

agencies) to grant employees 

compensatory time off in lieu of cash 

overtime compensation pursuant to an 

agreement with the employees or their 

representatives. The purpose of this 

exception to the Act’s usual requirement 

of cash overtime pay was ‘‘to provide 

flexibility to State and local government 

employers and an element of choice to 

their employees regarding compensation 

for statutory overtime hours.’’ H.R. Rep. 

No. 99–331 (1985). 

Section 7(o) provides a detailed 

scheme for the accrual and use of 

compensatory time off. Subsection 

7(o)(1) authorizes the provision of 

compensatory time off in lieu of 

overtime pay. Subsection 7(o)(2) 

specifies how a public employer creates 

a compensatory time off plan. 

Subsection 7(o)(3) establishes limits for 

the amount of compensatory time off 

that an employee may accrue. Section 

7(o)(4) provides the requirements for 

cashing out compensatory time upon an 

employee’s termination.Section 7(o)(5) 

governs a public employee’s use of 

accrued compensatory leave. That 

section states: 

An employee of a public agency which is 

a State, political subdivision of a State, or an 

interstate governmental agency—(A) who has 

accrued compensatory time off authorized to 

be provided under paragraph (1), and (B) 

who has requested the use of such 

compensatory time, shall be permitted by the 

employee’s employer to use such time within 

a reasonable period after making the request 

if the use of the compensatory time does not 

unduly disrupt the operations of the public 

agency. 

29 U.S.C. 207(o)(5)(A), (B). 

In 1987, after notice and comment, 

the Department issued final regulations 

implementing section 7(o) (29 CFR 

553.20–.28). Section 553.25 of the 

regulations implements section 7(o)(5)’s 

requirements regarding the use of 

compensatory time off. Section 

553.25(c) provides: 

(1) Whether a request to use compensatory 

time has been granted within a ‘‘reasonable 

period’’ will be determined by considering 

the customary work practices within the 

agency based on the facts and circumstances 

in each case. Such practices include, but are 

not limited to (a) the normal schedule of 

work, (b) anticipated peak workloads based 

on past experience, (c) emergency 

requirements for staff and services, and (d) 

the availability of qualified substitute staff. 

(2) The use of compensatory time in lieu 

of cash payment for overtime must be 

pursuant to some form of agreement or 

understanding between the employers and 

the employee (or the representative of the 

employee) reached prior to the performance 

of the work. (See § 553.23). To the extent that 

the []conditions under which an employee 

can take compensatory time off are contained 

in an agreement or understanding as defined 

in § 553.23, the terms of such agreement or 

understanding will govern the meaning of 

‘‘reasonable period’’. 

Section 553.25(d) states: 

When an employer receives a request for 

compensatory time off, it shall be honored 

unless to do so would be ‘‘unduly disruptive’’ 

to the agency’s operations. Mere 

inconvenience to the employer is an 

insufficient basis for denial of a request for 

compensatory time off. (See H. Rep. 99–331, 

p. 23.) For an agency to turn down a request 

from an employee for compensatory time off 

requires that it should reasonably and in 

good faith anticipate that it would impose an 

unreasonable burden on the agency’s ability 

to provide services of acceptable quality and 

quantity for the public during the time 

requested without the use of the employee’s 

services. 

The Department has consistently 

interpreted its regulations as requiring 

that an employee’s request for 

compensatory time on a specific date 

must be granted unless doing so would 

unduly disrupt the agency’s operations. 

Wage and Hour Opinion Letter 1994 WL 

1004861 (Aug. 19, 1994); DeBraska v. 

City of Milwaukee, 131 F. Supp. 2d 

1032, 1034–35 (E.D. Wis. 2000) 

(deferring to the Department’s 

interpretation of its regulations as 

requiring that the specific compensatory 

time requested must be granted absent 

undue disruption). As discussed in the 

NPRM, however, the Ninth Circuit in 

Mortensen v. County of Sacramento, 368 

F.3d 1082 (9th Cir. 2004), and the Fifth 

Circuit in Houston Police Officers Union 

v. City of Houston, 330 F.3d 298 (5th 

Cir.), cert. denied, 540 U.S. 879 (2003), 

both declined to defer to the 

Department’s regulations because they 

found the plain language of section 

7(o)(5)(B) to require only that an 

employee be allowed to use 

compensatory time within a ‘‘reasonable 

period’’ of the date requested for such 

leave unless doing so would ‘‘unduly 

disrupt’’ the agency. Cf., Aiken v. City of 

Memphis, 190 F.3d 753 (6th Cir. 1999), 

cert. denied, 528 U.S. 1157 (2000) 

(finding no FLSA violation where the 

city and the plaintiffs-police officers 

had agreed that ‘‘the reasonable period 

for requesting the use of banked 

compensatory time begins thirty days 

prior to the date in question and ends 

when the number of officers requesting 

the use of compensatory time on the 

given date would bring the precinct’s 

staffing levels to the minimum level 

necessary for efficient operation’’). 

Based on these appellate decisions, 

the NPRM proposed to revise section 

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553.25(c) to add a sentence that states 

that section 7(o)(5)(B) does not require 

a public agency to allow the use of 

compensatory time on the day 

specifically requested, but only requires 

that the agency permit the use of the 

time within a reasonable period after the 

employee makes the request unless the 

use would unduly disrupt the agency’s 

operations. Additionally, the phrase 

‘‘within a reasonable period after the 

request’’ was added to the final sentence 

of proposed § 553.25(d) and the phrase 

‘‘during the time requested’’ was 

replaced with ‘‘during the time off’’ to 

clarify the employer’s obligation. 

Many commenters addressed the 

compensatory time off issue. NPELRA 

stated that it ‘‘wholeheartedly supports 

the proposed regulatory change.’’ It 

commented that its member agencies 

have been so concerned about litigation 

regarding this issue that they have 

eliminated all FLSA compensatory time 

off, but that the proposed rules will 

ensure consistency throughout the 

country, thereby ‘‘reducing any 

incentives for public employers to 

eliminate FLSA compensatory time off, 

which benefits both employers and 

employees.’’ NPELRA suggested that the 

Department revise § 553.25(d) to ‘‘state 

that the term ‘unduly disrupt’ may be 

defined in the collective bargaining 

process in the same manner as the term 

‘reasonable period’ may be defined,’’ 

stating that this would allow the parties 

to address circumstances unique to their 

particular organization and would result 

in less litigation. Finally, NPELRA 

commented that having to pay an 

employee overtime to fill in for an 

employee who is off creates an undue 

disruption and defeats the purpose of 

compensatory time off, as the Mortensen 

court found. Therefore, it suggested that 

the regulations specify that this is a 

factor an employer can consider in 

deciding whether to grant time off. 

The IPMA–HR, IMLA, and NLC also 

commended the Department for the 

proposed change, stating that it would 

be ‘‘of great assistance to localities that 

must have adequate staff in order to 

provide services to citizens.’’ They also 

urged the Department to provide that 

employers are not required to grant 

compensatory time off if it would mean 

that the employer would incur overtime 

expenses. Littler Mendelson, P.C., and 

SHRM also stated that they supported 

the proposed change, which 

appropriately conformed the regulation 

to the cited appellate court decisions. 

Commenters representing employees 

strongly opposed the proposal. See 

American Federation of State, County 

and Municipal Employees (AFSCME), 

American Federation of Government 

Employees (AFGE), International Union 

of Police Associations (I.U.P.A.), 

International Association of Fire 

Fighters, and AFL–CIO. AFSCME urged 

the Department to withdraw the 

proposal, stating that allowing an 

employer to deny an employee’s 

requested day off without demonstrating 

that it creates an undue hardship would 

‘‘make a drastic change to the scope of 

the statute.’’ AFSCME stated that there 

is no uniformity in the courts mandating 

the change, stating that a number of 

district court decisions have upheld the 

Department’s current regulation. 

AFSCME also asserted that the Supreme 

Court’s decision in Christensen v. Harris 

County, 529 U.S. 576, 583–85 (2000), 

provides additional support for the 

conclusion that an employer cannot 

deny the specific date requested for 

reasons other than those set forth in 

section 7(o)(5), because the Court stated 

that the section ‘‘imposes a restriction 

upon an employer’s efforts to prohibit 

the use of compensatory time when 

employees request to do so.’’ Therefore, 

AFSCME concluded ‘‘that, at best, there 

are conflicting interpretations of the 

language of the statute and the 

implementing regulation.’’ Id. Because 

employees request specific dates for 

‘‘milestones such as children’s 

birthdays, family and friends’ weddings, 

funerals, scheduled vacations and other 

date specific activities,’’ it would harm 

employees to allow employers to deny 

the date requested absent undue 

disruption. Thus, absent consistent 

court interpretations, it stated it would 

be unwise public policy to change the 

regulation. See also AFGE (the current 

regulations ‘‘strike the proper balance 

between the public sector employer’s 

interest in assuring that its mission is 

carried out and the employee’s interest 

in being able to use compensatory time 

in a meaningful manner’’); I.U.P.A. (the 

current rule appropriately balances 

agencies’ needs and the interests of 

employees, while the proposal ‘‘would 

upset that balance, placing all of the 

burden on the employees, and allowing 

the employer to reap all the benefits’’); 

and James D. Sewell (‘‘When an officer 

or fireman needs to be off for a 

particular date, they need to be off that 

day, not a day the employer decides for 

them.’’). 

The AFL–CIO made similar 

comments, stating that section 7(o)(5) is 

ambiguous and is best read as requiring 

an employer to act on an employee’s 

request within a reasonable period after 

the request is made and to approve the 

specific day requested absent undue 

disruption. It noted that the Department 

had agreed with this interpretation in 

the current regulation, an amicus brief 

and an opinion letter, and it disputed 

that there was unanimity even among 

the appellate courts compelling a 

change. It cited the decision in Beck v. 

City of Cleveland, 390 F.3d 912 (6th Cir. 

2004), which it stated found ‘‘Aiken to 

have been effectively overruled by the 

Supreme Court’s decision in 

Christensen,’’ and it emphasized that 

neither the Fifth Circuit (in City of 

Houston) nor the Ninth Circuit (in 

Mortensen) considered the Supreme 

Court’s decision in reaching their 

conclusions. The AFL–CIO emphasized 

that the current regulation is consistent 

with the legislative history, citing 

Senate Report 99–159, which stated that 

when an employer receives a comp time 

request, ‘‘that request should be honored 

unless to do so would be unduly 

disruptive.’’ It argued that the proposal 

‘‘would render meaningless the ‘unduly 

disrupt’ language’’ because it would 

likely never come into play if an 

employer can simply substitute a date 

that it wants for the date the employee 

requested. 

The I.U.P.A. also referred to the 

legislative history (House Report 99–331 

(1985)), which states that compensatory 

time off ‘‘was intended to give ‘freedom 

and flexibility’ to public employees and 

‘additional options’ to employers.’’ The 

union therefore stated that the 

‘‘reasonable period’’ is better read as 

referring to the time between the date 

the employees submit their requests and 

the dates requested for time off, so that 

‘‘requests cannot provide such short 

notice that the employer would be 

scrambling to find a replacement.’’ The 

I.U.P.A. commented that the rationale 

the Department offered for the change— 

that the courts uniformly interpreted the 

statutory language as unambiguous— 

does not hold up because several 

district courts have held that the statute 

is ambiguous and agreed with the 

Department’s current regulation. It 

stated that if the Department’s rationale 

is correct, then the regulations are 

unnecessary; it is only if the 

Department’s rationale is incorrect, and 

a court agrees that the statute is 

ambiguous, that the regulations will 

have an impact because the court will 

defer to the regulations for assistance in 

interpreting the statute. Therefore, the 

I.U.P.A. stated that the proposal would 

place ‘‘responsibility squarely on the 

shoulders of the Department’’ because a 

court that found the statute ambiguous 

would defer to the regulation in denying 

police officers their chosen days off. Id. 

Comments by Members of United 

States Congress also opposed the 

Department’s proposal, stating that it 

‘‘will undermine the ability of nearly 20 

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million public employees to use their 

accrued compensatory time off.’’ They 

stated that the current rule is correct 

and consistent with the legislative 

history, and that the proposal upsets the 

careful balance that Congress struck. 

They also noted that only three of 13 

courts of appeals have addressed this 

issue, and ‘‘just two of them have 

expressed disapproval of the 

Department’s longstanding view.’’ 

Moreover, they noted that a number of 

district courts have upheld the current 

rule so the ‘‘issue is unsettled in the 

federal courts.’’ 

The IAFF stated that the ‘‘proposal is 

nonsensical in that it essentially 

eviscerates the purposes for which 

comp time usage is requested.’’ The 

IAFF noted that under the proposed rule 

an employer would have authority to 

deny a comp time request for no reason 

whatsoever, so long as some alternative 

date within a reasonable period were 

offered. It also stated that, in many fire 

departments, employees request time off 

weeks or months in advance, which aids 

departments in maintaining adequate 

staffing by allowing them time to fill 

vacancies. However, the IAFF stated 

that the proposal leads to an illogical 

conclusion, because the more lead time 

an employee provides, the less likely it 

is that the employee will receive 

statutory protection of the right to use 

the requested time off. The IAFF 

concluded that, as the Department 

acknowledged in the NPRM, some fire 

fighters will simply not accept 

compensatory time in lieu of cash if the 

proposal is adopted. ‘‘Such an outcome 

would depart from the plain 

Congressional intent in enacting this 

statutory provision. It also would likely 

impose a substantial financial burden 

on local government departments that 

rely on compensatory time, rather than 

cash overtime * * *’’ 

Since the publication of the NPRM, 

another appellate court has addressed 

the issue of whether an employee’s 

specific request to use compensatory 

time must be granted unless it unduly 

disrupts the agency’s operation. In 

Heitmann v. City of Chicago, 560 F.3d 

642 (7th Cir. 2009), the plaintiffs-police 

officers argued that the need to consider 

whether a request for leave created an 

‘‘undue disruption’’ presupposed a 

particular time for the leave and that 

employees were therefore entitled to 

leave on the date and time of their 

choosing unless it would result in an 

undue disruption to the city. For its 

part, the city argued that it was required 

only to offer leave within a ‘‘reasonable 

time’’ of the employee’s request for 

leave. The court noted that the city’s 

position was supported by Houston and 

Mortensen, while the plaintiffs’ view 

was supported by Beck v. Cleveland, 

390 F.3d 912 (6th Cir. 2004), and section 

553.25 of the Department’s regulations. 

The court rejected the Fifth and Ninth 

Circuit’s plain language reading of 

7(o)(5), stating that section 7(o)(5) ‘‘is 

anything but clear.’’ 

Words such as ‘‘reasonable’’ and ‘‘undue’’ 

are open-ended. They need elaboration, and 

the relation between these requirements 

needs explication. Here the agency has added 

vital details and its work prevails * * * 

unless it represents an implausible 

resolution. 

560 F.3d at 646. The court found that 

the Department’s interpretation of the 

requirements of section (7)(o)(5) in its 

regulations, which ‘‘makes 

compensatory leave more attractive to 

workers and hence a more adequate 

substitute for money,’’ was reasonable 

and entitled to deference. Id. The court 

found that section 553.25(d) requires the 

employer to grant leave on the date and 

time requested unless doing so would 

create an undue disruption (in which 

case the employer would be able to 

defer the requested leave for a 

reasonable time). Id. at 647. 

The Seventh Circuit’s Heitmann 

decision, which finds support in the 

Sixth Circuit’s decision in Beck, 

indicates that the appellate courts are 

not as uniform in their reading of 

section 7(o)(5) as the Department 

understood them to be at the time of the 

NPRM. The Department now views the 

courts of appeals as being split on the 

proper interpretation of 7(o)(5), with the 

Sixth and Seventh Circuits requiring 

agencies to grant the specific leave 

requested absent undue disruption, and 

the Fifth and Ninth Circuits requiring 

agencies to grant leave within a 

reasonable time of the leave requested 

unless doing so would create an undue 

disruption. The Department believes 

that the better reading of section 7(o)(5) 

is that it requires employers to grant 

compensatory time on the specific date 

requested unless doing so would unduly 

disrupt the agency. The statutory 

reading set forth in Houston and 

Mortensen, which requires that the 

employer grant compensatory time 

within a reasonable period of the date 

requested, essentially nullifies the 

‘‘unduly disrupt’’ provision of 7(o)(5). 

See Beck v. City of Cleveland, 390 F.3d 

912, 925 (6th Cir. 2005) (‘‘to grant the 

City the unlimited discretion to deny 

compensatory leave requests relieves 

the city of establishing the undue 

disruption requirement imposed by 

Congress’’); DeBraska v. City of 

Milwaukee, 131 F. Supp. 2d 1032, 1037 

(E.D. Wis. 2000). Accordingly, in light of 

the recent appellate decision, and in 

consideration of the extensive 

comments received on this section, the 

Department has decided not to finalize 

the proposed revision to section 

553.25(c) and (d) and to leave the 

current regulation unchanged consistent 

with its longstanding position that 

employees are entitled to use 

compensatory time on the date 

requested absent undue disruption to 

the agency. In response to comments 

concerning whether the payment of 

overtime is a consideration in 

determining whether the use of 

compensatory time off is unduly 

disruptive, the Department does not 

believe that any regulatory change is 

warranted. The Department maintains 

its longstanding position that the fact 

that overtime may be required of one 

employee to permit another employee to 

use compensatory time off is not a 

sufficient reason for the employer to 

claim that the compensatory time off 

request is unduly disruptive. See Wage 

and Hour Opinion Letter 1994 WL 

1004861 (Aug. 19, 1994); 52 FR 2012, 

2017 (Jan. 16, 1987) (‘‘The Department 

recognizes that situations may arise in 

which overtime may be required of one 

employee to permit another employee to 

use compensatory time off. However, 

such a situation, in and of itself, would 

not be sufficient for an employer to 

claim that it is unduly disruptive.’’). 

11. Fluctuating Workweek Method of 

Computing Overtime Under 29 CFR 

778.114 

The NPRM proposed to modify the 

Department’s regulation at 29 CFR 

778.114 addressing the fluctuating 

workweek method of computing 

overtime compensation for salaried 

nonexempt employees to permit the 

payment of non-overtime bonuses and 

incentives without invalidating the 

guaranteed salary criterion required for 

the half-time overtime pay computation. 

The current regulation provides that an 

employer may use the fluctuating 

workweek method for computing halftime overtime compensation if an 

employee works fluctuating hours from 

week to week and receives, pursuant to 

an understanding with the employer, a 

fixed salary as straight-time 

compensation ‘‘(apart from overtime 

premiums)’’ for whatever hours the 

employee is called upon to work in a 

workweek, whether few or many. In 

such cases, an employer satisfies the 

overtime pay requirement of section 7(a) 

of the FLSA if it compensates the 

employee, in addition to the salary 

amount, at least one-half of the regular 

rate of pay for the hours worked in 

excess of 40 hours in each workweek. 

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Because the employee’s hours of work 

fluctuate from week to week, the regular 

rate must be determined separately each 

week based on the number of hours 

actually worked each week. 

Paying employees bonus or premium 

payments for certain activities such as 

working undesirable hours is a common 

and beneficial practice for employees. 

The NPRM proposed that bona fide 

bonus or premium payments would not 

invalidate the fluctuating workweek 

method of compensation, but that such 

payments (as well as ‘‘overtime 

premiums’’) must be included in the 

calculation of the regular rate unless 

they are excluded by FLSA sections 

7(e)(1)-(8). The proposal also added an 

example to § 778.114(b) to illustrate 

these principles where an employer 

pays an employee a nightshift 

differential in addition to a fixed salary. 

The Department’s view, at that time, 

was that the proposed modification 

clarified the rule and was consistent 

with the Supreme Court’s decision in 

Overnight Transportation Co. v. Missel, 

316 U.S. 572 (1942), on which the 

existing regulation is patterned. See 73 

FR 43662 (Jul. 28, 2008). The 

Department’s proposed modification 

was intended to allow employers to pay 

additional bona fide premium 

payments. 

The NPRM also proposed to increase 

the numerical values in the examples of 

overtime computations in § 778.114(b) 

so the rates of pay would be no less than 

the current minimum wage. Frank Dean 

commented that the term 

‘‘approximately’’ in two places carried 

over from the current regulatory 

language is potentially misleading and 

confusing and should be eliminated to 

make it clear that the calculation of 

statutorily mandated overtime is 

exacting. Mr. Dean recommended 

changing one of the weekly hour totals 

from 44 to 37.5 so that there would be 

an exact regular rate calculation in each 

instance, thereby eliminating the need 

to use ‘‘approximately.’’ We agree with 

this analysis and have incorporated his 

suggested revision into the final rule. 

Wage and Hour Consulting Services 

commented that the statement limiting 

the weekly hours worked in the 

example to ‘‘never in excess of 50 hours 

in a workweek’’ in proposed 

§ 778.114(b)(1) was confusing and 

redundant and should be deleted as 

unnecessary because it is clearly 

explained elsewhere in the section that 

the wage rate of an employee paid under 

the fluctuating workweek method 

cannot fall below the minimum wage. 

This phrase was carried over from the 

current regulation and we believe that it 

does not cause confusion and is needed 

to establish in the example the concept 

that the employee’s regular rate will not 

fall below the minimum wage. We have, 

therefore, retained the concept but have 

made minor wording changes to clarify 

the example. 

Beyond these two minor editorial 

comments, the comments were sharply 

divided on the substance of the 

proposed revisions to the fluctuating 

workweek provisions. In general, 

commenters representing employers 

favored the revisions while commenters 

representing employees strongly 

opposed the revisions. 

SHRM noted that it is common 

practice to pay a nonexempt salaried 

employee a bonus or premium as an 

incentive for various reasons, such as 

working less desirable hours. SHRM 

commented that other payment 

methods, such as hourly, piece rates, 

day rates, and job rates, contemplate 

that an employee may receive a bonus 

or other premium payments in addition 

to normal pay and asserted that it was 

logical and consistent to permit such 

payments under the fluctuating 

workweek method of compensation. 

The Chamber of Commerce also 

favored the revisions but sought further 

clarifications as to when and how 

bonuses should be included in regular 

rate calculations, particularly when 

bonuses (1) cover more than one 

workweek, (2) are not paid in the same 

workweek when the work was 

performed to which the bonus applies, 

and (3) are not allocable among 

workweeks in proportion to the amount 

of bonus actually earned each week. 

Littler Mendelson, P.C., also supported 

the proposed revisions, but suggested 

further revisions to add cross-references 

to other sections in part 778 regarding 

how to include bonuses in the regular 

rate to clarify that all the rules regarding 

bonuses for nonexempt employees 

apply equally whether the nonexempt 

employee is paid by the hour, on a 

salary basis or under the fluctuating 

workweek method. Because we believe 

the principles for including bonuses in 

the regular rate discussed in other 

sections of the regulations are clear, we 

do not find that further clarifications or 

additional cross-references are 

necessary in this section. 

Fisher & Phillips LLP noted that 

part 778 is an interpretative rule and 

similarly noted that § 778.114 ‘‘is simply 

one in a series of examples of how the 

regular-rate principles of Section 

778.109 apply in different situations.’’ 

The commenter recommended revisions 

to clarify that the half time overtime 

calculation in section 778.114 applies 

regardless of whether the employee’s 

hours fluctuate. The Department 

disagrees with this comment and notes 

that the application of section 778.114 

is properly limited to situations where 

the employee’s hours fluctuate. See 

Flood v. New Hanover County, 125 F.3d 

249, 253 (4th Cir. 1997); FOH section 

32b04b. 

Comments expressing strong 

opposition to the proposed revisions 

were mostly based on two primary 

criticisms. First, that receipt of premium 

and bonus payments is inconsistent 

with payment of a fixed salary. See 

NELP, SEIU, NELA, AFL–CIO, Members 

of United States Congress, and North 

Carolina Justice Center. Second, that the 

proposed revisions will encourage 

employers to schedule additional 

overtime for employees paid under the 

fluctuating workweek method or 

otherwise disadvantage workers by 

expanding its use to a larger portion of 

the workforce. See NELP, North 

Carolina Justice Center, NELA, AFL– 

CIO, and Members of United States 

Congress. A number of these comments 

opposing the revisions questioned the 

Department’s authority for making the 

revisions and asserted they would 

administratively overturn uniform, wellsettled case law without justification 

and urged the Department to withdraw 

them. Commenters stating that premium 

and bonus payments are inconsistent 

with the concept of a fixed salary 

generally asserted that the proposed 

revisions are inconsistent with the 

Supreme Court’s decision in Missell, in 

which the Court approved the use of the 

fluctuating workweek method requiring 

payment of only the additional half-time 

premium for hours worked over 40 per 

week for an employee paid a fixed 

weekly wage who worked weekly hours 

that fluctuated. Based on the Court’s 

ruling and the language of current 

§ 778.114(a), which provides that ‘‘[a]n 

employee employed on a salary basis 

may have hours of work which fluctuate 

from week to week and the salary may 

be paid him pursuant to an 

understanding with his employer that 

he will receive such fixed amount as 

straight time pay for whatever hours he 

is called upon to work in a workweek, 

whether few or many,’’ these 

commenters asserted that employees 

paid under the fluctuating workweek 

method must receive fixed weekly pay 

that does not vary. The proposal departs 

from this fundamental concept, the 

commenters asserted. These 

commenters also took issue with the 

statement in the NPRM that the current 

regulation has presented challenges in 

the courts, asserting that courts applying 

the fluctuating workweek method of 

payment have uniformly concluded that 

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paying additional ‘‘non-overtime’’ 

premiums violates section 779.114. See 

NELA (citing O’Brien v. Town of 

Agawam, 350 F.3d 279 (1st Cir. 2003); 

Dooley v. Liberty Mutual Ins. Co., 369 F. 

Supp. 2d 81 (D. Mass. 2005); Ayers v. 

SGS Control Services, Inc., 2007 WL 

646326 (S.D.N.Y. 2007)), SEIU, AFL– 

CIO, NELP, Members of United States 

Congress, and North Carolina Justice 

Center. 

Several commenters also noted that 

the proposal would permit employers to 

reduce employees’ fixed weekly salaries 

and shift the bulk of the employees’ 

wages to bonus and premium pay. See 

NELP, NELA, SEIU, and North Carolina 

Justice Center. These commenters 

argued that this would harm employees 

because it would lead to significant 

variations in weekly wages based on the 

hours worked. They stated that such 

variations in pay are inconsistent with 

the purpose of the fluctuating 

workweek. They further objected to the 

proposal because it would expand the 

use of the fluctuating workweek method 

to industries in which bonus and 

premium payments are common. See 

NELA, Members of United States 

Congress, SEIU, and North Carolina 

Justice Center. Comments submitted by 

Members of the United States Congress 

urged that instead of modifying this 

section to expand its use, the 

Department should consider narrowing 

the scope of the section to prevent 

employers from abusing this method to 

lower workers’ pay. 

The Department has carefully 

considered all of the comments 

submitted on this section. While the 

Department continues to believe that the 

payment of bonus and premium 

payments can be beneficial for 

employees in many other contexts, we 

have concluded that unless such 

payments are overtime premiums, they 

are incompatible with the fluctuating 

workweek method of computing 

overtime under section 778.114. As 

several commenters noted, the proposed 

regulation could have had the 

unintended effect of permitting 

employers to pay a greatly reduced fixed 

salary and shift a large portion of 

employees’ compensation into bonus 

and premium payments, potentially 

resulting in wide disparities in 

employees’ weekly pay depending on 

the particular hours worked. It is just 

this type of wide disparity in weekly 

pay that the fluctuating workweek 

method was intended to avoid by 

requiring the payment of a fixed amount 

as straight time pay for all hours in the 

workweek, whether few or many. The 

basis for allowing the half-time overtime 

premium computation under the 

fluctuating workweek method is the 

mutual understanding between the 

employer and the employee regarding 

payment of a fixed amount as straight 

time pay for whatever hours are worked 

each workweek, regardless of their 

number. While the example provided in 

the NPRM of nightshift premiums 

resulted in a relatively modest change in 

the employee’s straight time pay, the 

Department now believes that the 

proposed regulation would have been 

inconsistent with the requirement of a 

fixed salary payment set forth by the 

Supreme Court in Overnight Motor 

Transport v. Missel. Moreover, on closer 

examination, the Department is 

persuaded that the courts have not been 

unduly challenged in applying the 

current regulation to additional bonus 

and premium payments. See O’Brien v. 

Town of Agawam, 350 F.3d 279 (1st Cir. 

2003); Adeva v. Intertek USA, 2010 WL 

97991 (D.N.J. 2010); Dooley v. Liberty 

Mutual Ins. Co., 369 F. Supp. 2d 81 (D. 

Mass. 2005); Ayers v. SGS Control 

Services, Inc., 2007 WL 646326 

(S.D.N.Y. 2007). 

Finally, while the proper use of the 

fluctuating workweek method of pay 

results in an employee being paid time 

and one-half of the employee’s regular 

rate for overtime hours, the Department 

is cognizant that this method of pay 

results in a regular rate that diminishes 

as the workweek increases, which may 

create an incentive to require employees 

to work long hours. The Department 

does not believe that it would be 

appropriate to expand the use of this 

method of computing overtime pay 

beyond the scope of the current 

regulation. Accordingly, the final rule 

has been modified from the proposal to 

restore the current rule requiring 

payment of the fixed salary amount as 

the straight time pay for whatever hours 

are worked in the workweek, that a clear 

mutual understanding of the parties 

must exist that the fixed salary is 

compensation (apart from overtime 

premiums) for the hours worked each 

workweek whatever their number, that 

the fixed salary amount must be 

sufficient to provide compensation at a 

rate not less than the minimum wage, 

and that the employee must receive 

extra compensation in addition to the 

fixed salary for all overtime hours 

worked at a rate not less than one-half 

the regular rate of pay. Editorial 

revisions have been included in the text 

of the final rule to delete gender-specific 

references and to update the 

computation examples to provide wage 

rates above the minimum wage and the 

exact calculation of the regular rate. The 

proposed examples in the NPRM at 

§ 778.114(b)(2) suggesting methods for 

making supplemental nightshift 

premium payments as part of the 

fluctuating workweek methodology for 

computing half-time overtime pay have 

been deleted from the final rule. 

Other Revisions 

The current recordkeeping regulations 

on tipped employees at 29 CFR 516.28 

include an outdated parenthetical 

reference that suggests a limit ‘‘(not in 

excess of 40 percent of the applicable 

statutory minimum wage)’’ as the 

maximum amount of tip credit an 

employer may claim under the 

FLSA. 29 CFR 516.28(a)(3). This 

outdated reference reflected the former 

provisions of section 3(m) of the FLSA 

as amended by the 1977 FLSA 

Amendments, which has since been 

overtaken by subsequent statutory 

amendments passed in 1989 and 1996. 

See Public Law 95–151, § 3(b)(2), 91 

Stat. 1249 (Nov. 1, 1977); Public Law 

101–157, § 5, 103 Stat. 941 (Nov. 17, 

1989); Public Law 104–188, § 2105(b), 

110 Stat. 1929 (Aug. 20, 1996). The 

Department inadvertently overlooked 

updating this reference in part 516 

when updating the other tip credit 

references in the NPRM. Because the 

regulatory reference has been 

superseded by subsequent statutory 

enactments, the Department is updating 

this section of the recordkeeping 

regulation in this final rule to conform 

it to current law and, because of the 

technical nature of the change, is doing 

so without prior notice and opportunity 

for public comment. The Department 

hereby finds, pursuant to the 

Administrative Procedure Act, that prior 

notice and opportunity for public 

comment on this ministerial change that 

is required by statutory amendment are 

impracticable, unnecessary, or contrary 

to the public interest. See 5 U.S.C. 

553(b)(3)(B). 

The current interpretative regulation 

on ‘‘Hours Worked,’’ at 29 CFR 785.7 

(‘‘Judicial construction’’), cites 

incorrectly to a holding of the U.S. 

Supreme Court in Tennessee Coal, Iron 

& Railroad Co. v. Muscoda Local 

No. 123, 321 U.S. 590, 598 (1944). The 

typographical error in the phrase 

‘‘primarily for the benefit of the 

employer of his business’’ is corrected 

by replacing the incorrect ‘‘of’’ with 

‘‘and.’’ Because this change is required 

to conform the text to the cited holding, 

the Department is making this 

correction without prior notice and 

opportunity for public comment. The 

Department hereby finds, pursuant to 

the Administrative Procedure Act, that 

prior notice and opportunity for public 

comment on this ministerial change are 

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impracticable, unnecessary, or contrary 

to the public interest. See 5 U.S.C. 

553(b)(3)(B). 

IV. Paperwork Reduction Act 

This rule does not impose new 

information collection requirements for 

purposes of the Paperwork Reduction 

Act of 1995, 44 U.S.C. 3501 et seq. 

V. Executive Orders 12866 and 13563; 

Small Business Regulatory Enforcement 

Fairness Act; Regulatory Flexibility 

This final rule is not economically 

significant within the meaning of 

Executive Order 12866, or a ‘‘major rule’’ 

under the Unfunded Mandates Reform 

Act or Section 801 of the Small Business 

Regulatory Enforcement Fairness Act. 

As discussed previously in this 

preamble, over the years, Congress has 

amended the FLSA to refine or to add 

to exemptions and to clarify the 

minimum wage and overtime pay 

requirements. However, in many cases, 

the Department of Labor did not update 

the FLSA regulations to reflect these 

statutory changes. The Department 

believes that the existing outdated 

regulatory provisions may cause 

confusion within the regulated 

community resulting in inadvertent 

violations and the costs of corrective 

compliance measures to remedy them. 

The Department has determined that 

the final rule changes will not result in 

any additional compliance costs for 

regulated entities because the current 

compliance obligations derive from 

current law and not the outdated 

regulatory provisions that have been 

superseded years ago. 

The Department is aware that this 

interpretation appears to be inconsistent 

with OMB Circular A–4’s guidance on 

the use of analysis baselines, which 

states: ‘‘In some cases, substantial 

portions of a rule may simply restate 

statutory requirements that would be 

self-implementing, even in the absence 

of the regulatory action. In these cases, 

you should use a pre-statute baseline’’ to 

conduct the regulatory impact analysis. 

However, as the discussion below 

indicates, the Department believes the 

use of a pre-statute baseline would be 

extremely difficult for statutes enacted a 

decade or more in the past. 

Fundamental changes in the economy 

and labor market (e.g., the introduction 

of technology, changes in the size and 

composition of the labor force, changes 

in the economy that impact the demand 

for labor, etc.) would make it difficult, 

if not impossible, to separate those 

changes from changes that resulted from 

enactment of the statute. 

Moreover, the Department believes 

the economic impacts due to the 

statutory changes to the FLSA are 

typically greatest in the short run and 

diminish over time. This is due to labor 

markets determining the most efficient 

way to adjust to the new requirements, 

and because the Department believes 

many of the changes mandated by 

various revisions to the FLSA are 

reflective of the natural evolution of the 

labor market and would have become 

more common even in the absence of 

regulatory changes. For example, as 

nominal wages rise overtime, the 

marginal impact of a fixed minimum 

wage provision decreases, since it is less 

binding on the market. Therefore, the 

impacts resulting from the promulgation 

of the final regulations are not likely to 

be measurable. In fact, the Department 

anticipates that this final rule will 

simply enhance the Department’s 

enforcement of, and the public’s 

understanding of, compliance 

obligations under the FLSA by replacing 

outdated regulations with updated 

provisions that reflect current law. 

1996 and 2007 Amendments to the 

FLSA Minimum Wage 

The current FLSA regulations 

reference the minimum wage in several 

places, some referring to the 1981 

minimum wage of $3.35 and others 

referring to the 1991 minimum wage of 

$4.25. To eliminate the current 

inconsistencies between the FLSA 

regulations and the statute, the 

Department revised the regulations to 

refer to the statutory minimum wage 

provision rather than a specific 

minimum wage. Since the final 

regulations do not include any reference 

to a specific minimum wage, the 

Department believes they do not impose 

the burden of increasing the minimum 

wage from the levels specified in the 

current regulations. That burden was 

imposed by the statutory changes and is 

not derived from the FLSA regulations. 

Thus, the Department concludes that 

the only incremental effect of this final 

rule on the public from these changes is 

possibly clearing up some confusion. 

This differentiates the minimum wage 

provisions from many other 

rulemakings in which the Department is 

given little statutory discretion, but 

nonetheless is still required to update 

the CFR. 

Small Business Job Protection Act of 

1996 

Sections 2101 through 2103 of Title II 

of SBJPA, entitled the ‘‘Employee 

Commuting Flexibility Act of 1996,’’ 

amended section 4(a) of the Portal Act, 

29 U.S.C. 254(a), to state that for travel 

time involving the employee’s use of 

employer-provided vehicles for 

commuting at the beginning and end of 

the workday to be considered 

noncompensable, the use of the vehicle 

must be ‘‘conducted under an agreement 

between the employer and the employee 

or the employee’s representative.’’ The 

Department believes that since 1996 the 

labor market has adjusted to this 

statutory change and that it would be 

very difficult, if not impossible, to 

estimate the impact of this amendment. 

It is likely that as part of their overall 

compensation package, some employers 

and their employees have agreed to 

make the travel time compensable while 

others have agreed to make it 

noncompensable. In addition, since this 

provision simply clarifies that 

compensability should be subject to an 

agreement, but does not otherwise 

restrict the type of agreement employers 

and employees may reach, the 

Department believes this provision by 

its nature does not impose a significant 

burden on the public. Therefore, the 

Department concludes that the final rule 

will have no measurable effect on the 

public except to possibly clear up some 

confusion. 

In addition, section 2105 of the SBJPA 

amended the FLSA effective August 20, 

1996, by adding section 6(g), 29 U.S.C. 

206(g), which provides that ‘‘[a]ny 

employer may pay any employee 

[who has not attained the age of 20] of 

such employer, during the first 90 

consecutive calendar days after such 

employee is initially employed by such 

employer, a wage which is not less than 

$4.25 an hour.’’ The Department 

believes that the labor market has also 

adjusted to this change during the 

period since the enactment of the 

SBJPA. Although youths would 

obviously want to receive the normal 

minimum wage rather than the youth 

wage, some youths will decide to accept 

the lower youth wage in order to gain 

experience in the labor market. 

Similarly, although some employers 

may want to pay the lower youth wage, 

some may find compliance with the 

added requirements associated with the 

youth wage not to be worth the savings 

in wages. Thus, the Department 

concludes that the final rule will have 

no measurable effect on the public 

except to possibly clear up some 

confusion. 

Agricultural Workers on Water Storage/ 

Irrigation Projects 

Public Law 105–78, 111 Stat. 1467 

(Nov. 13, 1997), amended section 

13(b)(12) of the FLSA, 29 U.S.C. 

213(b)(12), by extending the exemption 

from overtime pay requirements 

applicable to workers on water storage 

and irrigation projects where at least 90 

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percent of the water is used for 

agricultural purposes, rather than where 

the water is used exclusively for 

agricultural purposes. The Department 

believes that the labor market has also 

adjusted to this change during the 

period since the enactment of the 

amendment. Although agricultural 

workers and workers employed on 

water storage/irrigation projects listed in 

the exemption are not required to be 

paid time and one-half for the hours 

worked in excess of 40 in a work week, 

their overall compensation will be 

determined by market forces. In some 

cases, employers and their employees 

will choose some form of premium 

overtime pay (even though it is not 

mandated by the FLSA) while others 

may choose a higher salary with no 

additional compensation for the hours 

worked in excess of 40 in a week. In 

addition, this provision applies to a 

relatively small part of the overall U.S. 

labor force; thus, the Department 

believes any possible impacts due to 

this exemption would likely not be 

substantial. Therefore, the Department 

concludes that the final rule will have 

no measurable effect on the public 

except to possibly clear up some 

confusion. 

Certain Volunteers at Private Non-Profit 

Food Banks 

Section 1 of the Amy Somers 

Volunteers at Food Banks Act, Public 

Law 105–221, 112 Stat. 1248 (Aug. 7, 

1998), amended section 3(e) of the 

FLSA, 29 U.S.C. 203(e), by adding 

section (5) to provide that the term 

‘‘employee’’ does not include 

individuals volunteering solely for 

humanitarian purposes at private nonprofit food banks and who receive 

groceries from those food banks. 

29 U.S.C. 203(e)(5). The Department 

believes that the labor market has also 

adjusted to this change during the 

period since the enactment of the 

amendment. The Department also 

believes this regulatory change is not 

likely to cause an impact we would 

consider significant, since its 

application is limited and it simply 

clarifies that certain individuals may be 

considered volunteers. 

Employees Engaged in Fire Protection 

Activities 

In 1999, Congress amended section 3 

of the FLSA, 29 U.S.C. 203, by adding 

section (y) to define ‘‘an employee in fire 

protection activities.’’ This change in 

definition impacts fire protection 

employees who may be covered by the 

partial overtime exemption allowed by 

§ 7(k) (29 U.S.C. 207(k)) or the overtime 

exemption for public agencies with 

fewer than five employees in fire 

protection activities pursuant to 

§ 13(b)(20) (29 U.S.C. 213(b)(20)). The 

Department believes that these 

provisions apply to a relatively small 

proportion of the labor market, and that 

the market has adjusted to this change 

during the period since the enactment of 

the amendment. Thus, the Department 

concludes that the final regulatory 

changes will have no measurable effect 

on the public except to possibly clear up 

some confusion by replacing outdated 

regulations with updated provisions to 

reflect current law. 

Stock Options Excluded From the 

Computation of the Regular Rate 

The Worker Economic Opportunity 

Act enacted by Congress on May 18, 

2000, amended §§ 7(e) and 7(h) of the 

FLSA. 29 U.S.C. 207(e), (h). In § 7(e), a 

new subsection (8) adds ‘‘[a]ny value or 

income derived from employerprovided grants or rights provided 

pursuant to a stock option, stock 

appreciation right, or bona fide 

employee stock purchase program’’ 

meeting particular criteria to the types 

of remuneration that are excluded from 

the computation of the regular rate. In 

§ 7(h), the amendment clarifies that the 

amounts excluded under § 7(e) may not 

be counted toward the employer’s 

minimum wage requirement under 

section 6, and that extra compensation 

excluded pursuant to the new 

subsection (8) may not be counted 

toward overtime pay under § 7. The 

Department believes that the labor 

markets have adjusted to this statute, 

which provides additional alternatives 

for employee compensation, but does 

not otherwise limit or mandate the 

overall levels of compensation owed to 

any category of worker. The final 

regulatory changes merely help to 

correct any confusion in this area. 

Fair Labor Standards Act Amendments 

of 1974 and 1977 

On April 7, 1974, Congress enacted an 

amendment to section 13(b)(10) of the 

FLSA, 29 U.S.C. 213(b)(10). Public Law 

93–259, 88 Stat. 55 (1974). This 

amendment added an overtime 

exemption for salespersons primarily 

engaged in selling boats (in addition to 

the pre-existing exemption for sellers of 

trailers or aircraft). This amendment 

also eliminated the overtime exemption 

for partsmen and mechanics servicing 

trailers or aircraft. The Department 

believes that these provisions apply to 

a relatively small proportion of the labor 

market, and that the labor market has 

also adjusted to this change during the 

long period since the enactment of the 

amendment. Although salespersons 

primarily engaged in selling boats are 

not required to be paid time and onehalf for the hours worked in excess of 

40 in a work week, their overall 

compensation will be determined by 

market forces. In some cases, employers 

and their employees may choose some 

form of premium overtime pay (even 

though it is not mandated by the FLSA) 

while others may choose a higher salary 

and commissions with no additional 

compensation for the hours worked in 

excess of 40 in a week. 

Similarly, the Department believes 

that the market has adjusted to no 

exemptions for partsmen and mechanics 

servicing trailers or aircraft. Although 

there may have been some short run 

effects related to the statutory change, in 

the years since enactment of the statute, 

employers and their employees have 

adjusted to the overtime requirement. 

Thus, the Department concludes that 

the final regulatory changes will have 

no measurable effect on the public 

except to possibly clear up some 

confusion. 

On November 1, 1977, Congress 

amended section 3(t) of the FLSA, 29 

U.S.C. 203(t). Public Law 95–151, § 3(a), 

91 Stat. 1245. Section 3(t) of the FLSA 

defines the phrase ‘‘tipped employee.’’ 

The amendment changed the conditions 

for taking the tip credit when making 

wage payments to qualifying tipped 

employees under the FLSA. Prior to the 

1977 amendment, the definition 

encompassed ‘‘any employee engaged in 

an occupation in which he customarily 

and regularly receives more than $20 a 

month in tips.’’ The 1977 amendment 

raised the threshold in section 3(t) to 

$30 a month in tips. Although the 

mandatory paid wage ($2.13) for tipped 

employees is below the full minimum 

wage, these workers must still receive 

hourly compensation (cash wages plus 

tips) at least equal to the minimum 

wage. Moreover, regardless of the 

minimum wage, if the hourly 

compensation is too low employers will 

have trouble finding a sufficient number 

of workers. The Department believes 

that the labor market has also adjusted 

to this change during the period since 

the enactment of the amendment and 

that the regulatory changes will have no 

measurable economic effect on the 

public except to possibly clear up some 

confusion. 

Meal Credit Under Section 3(m) 

The Department proposed to amend 

§ 531.30 to reflect that, with the 

exception of meals, the employee’s 

acceptance of a facility for which the 

employer seeks to take a 3(m) credit 

must be voluntary and uncoerced. The 

Department determined that the 

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proposed change would have no 

measurable economic impact. After 

consideration of the comments received, 

the Department has determined that 

further study of this issue is warranted, 

and therefore is not adopting the 

proposal. Because the Department is not 

implementing this proposal, there is no 

change to the status quo. As a result, the 

Department does not believe that there 

will be any measurable economic 

impact on the public. 

Section 7(o) Compensatory Time Off 

In 1987, the Department issued final 

regulations implementing a detailed 

scheme for the accrual and use of 

compensatory time off under Section 

7(o). 29 U.S.C. 207(o). Section 7(o)(5) 

governs a public employee’s use of 

accrued compensatory leave. That 

section states: 

An employee of a public agency which is 

a State, political subdivision of a State, or an 

interstate governmental agency—(A) who has 

accrued compensatory time off authorized to 

be provided under paragraph (1), and (B) 

who has requested the use of such 

compensatory time, shall be permitted by the 

employee’s employer to use such time within 

a reasonable period after making the request 

if the use of the compensatory time does not 

unduly disrupt the operations of the public 

agency. 

29 U.S.C. 207(o)(5). As discussed supra, 

the Department proposed to amend 

§ 553.25(c) to comport with appellate 

court decisions reading the statutory 

language to state that once an employee 

requests compensatory time off, the 

employer has a reasonable period of 

time to allow the employee to use the 

time unless doing so would be unduly 

disruptive. Additionally, the 

Department proposed to clarify the 

employer’s obligation when denying an 

employee’s request for the use of 

compensatory time off in § 553.25(d). 

In the NPRM, the Department stated 

its belief that the proposed changes 

would eliminate some of the confusion 

over the use of compensatory time off. 

The Department stated that it did not 

believe the proposed changes altered the 

nature of compensatory time off rights 

and responsibilities, but recognized that 

because of uncertainty as to their ability 

to use compensatory time when 

requested, some employees might 

choose not to accrue compensatory time 

off, thus resulting in some slight 

economic impacts. 

As already discussed in this 

preamble, since the publication of the 

NPRM, another appellate court has 

addressed this issue and concluded that 

the statutory language is unclear and the 

Department’s regulations requiring an 

employer to grant the specific time 

requested unless it would unduly 

disrupt the agency’s operations is 

reasonable. The Department has 

therefore reexamined its proposal based 

on all the appellate decisions and the 

public comments and has decided not to 

finalize the proposed revision to section 

553.25(c) and (d) and to leave the 

current regulation unchanged consistent 

with its longstanding position that 

employees are entitled to use 

compensatory time on the date 

requested absent undue disruption to 

the agency. Because the proposed 

changes will not be implemented, the 

Department does not believe that there 

will be any measurable economic 

impact on the public. 

Fluctuating Workweek Method of 

Computing Overtime Under 29 CFR 

778.114 

The Department proposed to modify 

the regulation at 29 CFR 778.114 

addressing the fluctuating workweek 

method of computing overtime 

compensation for salaried nonexempt 

employees. The proposed regulation 

provided that bona fide bonus or 

premium payments would not 

invalidate the fluctuating workweek 

method of compensation, but that such 

payments (as well as ‘‘overtime 

premiums’’) must be included in the 

calculation of the regular rate unless 

they are excluded by FLSA sections 

7(e)(1)–(8). Paying employees bonus or 

premium payments for certain activities 

such as working undesirable hours is a 

common and beneficial practice for both 

employers and their employees. 

For the reasons discussed earlier in 

this preamble, while the Department 

continues to believe that the payment of 

bonus and premium payments can be 

beneficial for employees in many other 

contexts, we have concluded that unless 

such payments are overtime premiums, 

they are incompatible with the 

fluctuating workweek method of 

computing overtime under section 

778.114. Therefore the final rule does 

not implement this proposed provision. 

Because the proposed changes will not 

be implemented, the Department does 

not believe that there will be any 

measurable economic impact on the 

public. 

1. Executive Orders 12866 and 13563 

(Regulatory Review) 

The Department does not believe that 

incorporating these statutory 

amendments into the FLSA and Portal 

Act regulations will impose measurable 

costs on private or public sector entities. 

The final rule changes should not result 

in additional compliance costs for 

regulated entities because employers 

have been obligated to comply with the 

underlying statutory provisions for 

many years. With this action, DOL is 

merely bringing up-to-date regulatory 

provisions that were superseded years 

ago. 

2. Regulatory Flexibility Act 

Furthermore, because the final rule 

will not impose any measurable costs on 

employers, both large and small entities, 

the Department has determined that it 

would not have a significant economic 

impact on a substantial number of small 

entities within the meaning of the 

Regulatory Flexibility Act (5 U.S.C. 601 

et seq.). The Department certified to the 

Chief Counsel for Advocacy to this 

effect at the time the NPRM was 

published. The Department received no 

contrary comments that questioned the 

Department’s analysis or conclusions in 

this regard. Consequently, the 

Department certifies once again 

pursuant to 5 U.S.C. 604 that the 

revisions being implemented in 

connection with promulgating this final 

rule will not have a significant 

economic impact on a substantial 

number of small entities. Accordingly, 

the Department need not prepare a 

regulatory flexibility analysis. 

VI. Unfunded Mandates Reform Act 

This final rule has been reviewed in 

accordance with the Unfunded 

Mandates Reform Act of 1995 (UMRA). 

2 U.S.C. 1501 et seq. For the purposes 

of the UMRA, this rule does not impose 

any Federal mandate that may result in 

increased expenditures by State, local, 

or Tribal governments, or increased 

expenditures by the private sector, of 

more than $100 million in any year. 

VII. Executive Order 13132 

(Federalism) 

The Department has reviewed this 

rule in accordance with the Executive 

Order on Federalism (Executive Order 

13132, 64 FR 43255, Aug. 10, 1999). 

This rule does not have federalism 

implications as outlined in E.O. 13132. 

The rule does 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. 

VIII. Executive Order 13175, Indian 

Tribal Governments 

The Department has reviewed this 

rule under the terms of Executive Order 

13175 and determined it did not have 

‘‘tribal implications.’’ The rule does not 

have ‘‘substantial direct effects on one or 

more Indian tribes, on the relationship 

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between the Federal government and 

Indian tribes, or on the distribution of 

power and responsibilities between the 

Federal government and Indian tribes.’’ 

As a result, no Tribal summary impact 

statement has been prepared. 

IX. Effects on Families 

The Department certifies that this rule 

will not adversely affect the well-being 

of families, as discussed under section 

654 of the Treasury and General 

Government Appropriations Act, 1999. 

X. Executive Order 13045, Protection of 

Children 

The Department has reviewed this 

rule under the terms of Executive Order 

13045 and determined this action is not 

subject to E.O. 13045 because it is not 

economically significant as defined in 

E.O. 12866 and it does not impact the 

environmental health or safety risks of 

children. 

XI. Environmental Impact Assessment 

The Department has reviewed this 

rule in accordance with the 

requirements of the National 

Environmental Policy Act of 1969 

(NEPA), 42 U.S.C. 4321 et seq., the 

regulations of the Council of 

Environmental Quality, 40 CFR 1500 et 

seq., and the Departmental NEPA 

procedures, 29 CFR part 11, and 

determined that this rule will not have 

a significant impact on the quality of the 

human environment. There is, thus, no 

corresponding environmental 

assessment or an environmental impact 

statement. 

XII. Executive Order 13211, Energy 

Supply 

The Department has determined that 

this rule is not subject to Executive 

Order 13211. It will not have a 

significant adverse effect on the supply, 

distribution or use of energy. 

XIII. Executive Order 12630, 

Constitutionally Protected Property 

Rights 

The Department has determined that 

this rule is not subject to Executive 

Order 12630 because it does not involve 

implementation of a policy ‘‘that has 

taking implications’’ or that could 

impose limitations on private property 

use. 

XIV. Executive Order 12988, Civil 

Justice Reform Analysis 

The Department drafted and reviewed 

this final rule in accordance with 

Executive Order 12988 and determined 

that the rule will not unduly burden the 

Federal court system. The rule was: 

(1) Reviewed to eliminate drafting errors 

and ambiguities; (2) written to minimize 

litigation; and (3) written to provide a 

clear legal standard for affected conduct 

and to promote burden reduction. 

List of Subjects 

29 CFR Part 4 

Administrative practice and 

procedures, Employee benefit plans, 

Government contracts, Labor, Law 

enforcement, Minimum wages, 

Penalties, Wages. 

29 CFR Part 516 

Employment, Recordkeeping, Law 

enforcement, Labor. 

29 CFR Part 531 

Employment, Labor, Minimum wages, 

Wages. 

29 CFR Part 553 

Firefighters, Labor, Law enforcement 

officers, Overtime pay, Wages. 

29 CFR Part 778 

Employment, Overtime pay, Wages. 

29 CFR Part 779 

Compensation, Overtime pay. 

29 CFR Part 780 

Agriculture, Irrigation, Overtime pay. 

29 CFR Part 785 

Compensation, Hours of work. 

29 CFR Part 786 

Compensation, Minimum wages, 

Overtime pay. 

29 CFR Part 790 

Compensation, Hours of work. 

Signed at Washington, DC, this 16th day of 

March 2011. 

Nancy J. Leppink, 

Acting Administrator, Wage and Hour 

Division. 

For the reasons set forth above, the 

Department amends Title 29, Parts 4, 

516, 531, 553, 778, 779, 780, 785, 786, 

and 790 of the Code of Federal 

Regulations as follows: 

PART 4—LABOR STANDARDS FOR 

FEDERAL SERVICE CONTRACTS 

■ 1. The authority citation for part 4 is 

revised to read as follows: 

Authority: 41 U.S.C. 351 et seq.; 41 U.S.C. 

38 and 39; 5 U.S.C. 301; Pub. L. 104–188, 

§ 2105(b); Pub. L. 110–28, 121 Stat. 112; 

Secretary’s Order 9–2009, 74 FR 58836 (Nov. 

13, 2009). 

§ 4.159 General minimum wage. 

[Amended] 

■ 2. Amend § 4.159 by removing the last 

sentence. 

■ 3. Amend § 4.167 by revising the 

twelfth sentence to the end, to read as 

follows: 

§ 4.167 Wage payments—medium of 

payment. 

* * * The general rule under that Act 

provides, when determining the wage 

an employer is required to pay a tipped 

employee, the maximum allowable 

hourly tip credit is limited to the 

difference between $2.13 and the 

applicable minimum wage specified in 

section 6(a)(1) of that Act. (See 

§ 4.163(k) for exceptions in section 4(c) 

situations.) In no event shall the sum 

credited as tips exceed the value of tips 

actually received by the employee. The 

tip credit is not available to an employer 

unless the employer has informed the 

employee of the tip credit provisions 

and all tips received by the employee 

have been retained by the employee 

(other than as part of a valid tip pooling 

arrangement among employees who 

customarily and regularly receive tips; 

see section 3(m) of the Fair Labor 

Standards Act). 

PART 516—RECORDS TO BE KEPT BY 

EMPLOYERS 

■ 4. The authority citation for part 516 

is revised to read as follows: 

Authority: Sec. 11, 52 Stat. 1066, as 

amended, 29 U.S.C. 211. Section 516.28 also 

issued under Pub. L. 104–188, § 2105(b); Pub. 

L. 110–28, 121 Stat. 112. 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). 

■ 5. Amend § 516.28 by revising the first 

sentence of paragraph (a)(3) to read as 

follows: 

§ 516.28 Tipped employees. 

(a) * * * 

(3) Amount by which the wages of 

each tipped employee have been 

deemed to be increased by tips as 

determined by the employer (not in 

excess of the difference between $2.13 

and the applicable minimum wage 

specified in section 6(a)(1) of the Act). 

* * * 

* * * * * 

PART 531—WAGE PAYMENTS UNDER 

THE FAIR LABOR STANDARDS ACT 

OF 1938 

■ 6. The authority citation for part 531 

is revised to read as follows: 

Authority: Sec. 3(m), 52 Stat. 1060; sec. 2, 

75 Stat. 65; sec. 101, 80 Stat. 830; sec. 29(B), 

88 Stat. 55, Pub. L. 93–259; Pub. L. 95–151, 

29 U.S.C. 203(m) and (t); Pub. L. 104–188, 

§ 2105(b); Pub. L. 110–28, 121 Stat. 112. 

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§ 531.7 [Removed and Reserved] 

■ 7. Remove and reserve § 531.7. 

■ 8. Amend § 531.36 by revising 

paragraph (a) to read as follows: 

§ 531.36 Nonovertime workweeks. 

(a) When no overtime is worked by 

the employees, section 3(m) and this 

part apply only to the applicable 

minimum wage for all hours worked. To 

illustrate, where an employee works 40 

hours a week at a cash wage rate of at 

least the applicable minimum wage and 

is paid that amount free and clear at the 

end of the workweek, and in addition is 

furnished facilities, no consideration 

need be given to the question of whether 

such facilities meet the requirements of 

section 3(m) and this part, since the 

employee has received in cash the 

applicable minimum wage for all hours 

worked. Similarly, where an employee 

is employed at a rate in excess of the 

applicable minimum wage and during a 

particular workweek works 40 hours for 

which the employee receives at least the 

minimum wage free and clear, the 

employer having deducted from wages 

for facilities furnished, whether such 

deduction meets the requirement of 

section 3(m) and subpart B of this part 

need not be considered, since the 

employee is still receiving, after the 

deduction has been made, a cash wage 

of at least the minimum wage for each 

hour worked. Deductions for board, 

lodging, or other facilities may be made 

in nonovertime workweeks even if they 

reduce the cash wage below the 

minimum wage, provided the prices 

charged do not exceed the ‘‘reasonable 

cost’’ of such facilities. When such items 

are furnished the employee at a profit, 

the deductions from wages in weeks in 

which no overtime is worked are 

considered to be illegal only to the 

extent that the profit reduces the wage 

(which includes the ‘‘reasonable cost’’ of 

the facilities) below the required 

minimum wage. Facilities must be 

measured by the requirements of section 

3(m) and this part to determine if the 

employee has received the applicable 

minimum wage in cash or in facilities 

which may be legitimately included in 

‘‘wages’’ payable under the Act. 

* * * * * 

■ 9. Revise § 531.37 to read as follows: 

§ 531.37 Overtime workweeks. 

(a) Section 7 requires that the 

employee receive compensation for 

overtime hours at ‘‘a rate of not less than 

one and one-half times the regular rate 

at which he is employed.’’ When 

overtime is worked by an employee who 

receives the whole or part of his or her 

wage in facilities and it becomes 

necessary to determine the portion of 

wages represented by facilities, all such 

facilities must be measured by the 

requirements of section 3(m) and 

subpart B of this part. It is the 

Administrator’s opinion that deductions 

may be made, however, on the same 

basis in an overtime workweek as in 

nonovertime workweeks (see § 531.36), 

if their purpose and effect are not to 

evade the overtime requirements of the 

Act or other law, providing the amount 

deducted does not exceed the amount 

which could be deducted if the 

employee had only worked the 

maximum number of straight-time hours 

during the workweek. Deductions in 

excess of this amount for such articles 

as tools or other articles which are not 

‘‘facilities’’ within the meaning of the 

Act are illegal in overtime workweeks as 

well as in nonovertime workweeks. 

There is no limit on the amount which 

may be deducted for ‘‘board, lodging, or 

other facilities’’ in overtime workweeks 

(as in workweeks when no overtime is 

worked), provided that these deductions 

are made only for the ‘‘reasonable cost’’ 

of the items furnished. These principles 

assume a situation where bona fide 

deductions are made for particular items 

in accordance with the agreement or 

understanding of the parties. If the 

situation is solely one of refusal or 

failure to pay the full amount of wages 

required by section 7, these principles 

have no application. Deductions made 

only in overtime workweeks, or 

increases in the prices charged for 

articles or services during overtime 

workweeks will be scrutinized to 

determine whether they are 

manipulations to evade the overtime 

requirements of the Act. 

(b) Where deductions are made from 

the stipulated wage of an employee, the 

regular rate of pay is arrived at on the 

basis of the stipulated wage before any 

deductions have been made. Where 

board, lodging, or other facilities are 

customarily furnished as additions to a 

cash wage, the reasonable cost of the 

facilities to the employer must be 

considered as part of the employee’s 

regular rate of pay. See Walling v. 

Alaska Pacific Consolidated Mining Co., 

152 F.2d 812 (9th Cir. 1945), cert. 

denied, 327 U.S. 803. 

■ 10. Remove the undesignated center 

heading above § 531.50. 

■ 11. Designate §§ 531.50 through 

531.60 as subpart D, and add a heading 

for subpart D to read as follows: 

Subpart D—Tipped Employees 

■ 12. Revise § 531.50 to read as follows: 

§ 531.50 Statutory provisions with respect 

to tipped employees. 

(a) With respect to tipped employees, 

section 3(m) 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— 

(1) the cash wage paid such employee 

which for purposes of such 

determination shall be not less than the 

cash wage required to be paid such an 

employee on August 20, 1996 [i.e., 

$2.13]; and 

(2) an additional amount on account 

of the tips received by such employee 

which amount is equal to the difference 

between the wage specified in 

paragraph (1) and the wage in effect 

under section 206(a)(1) of this title. 

(b) ‘‘Tipped employee’’ is defined in 

section 3(t) of the Act as follows: Tipped 

employee means any employee engaged 

in an occupation in which he 

customarily and regularly receives more 

than $30 a month in tips. 

§§ 531.51, 531.56, 531.57, 531.58 

[Amended] 

■ 13. In addition to the amendments set 

forth above, in 29 CFR part 531, remove 

the words ‘‘$20’’ and add, in their place, 

the words ‘‘$30’’ wherever they appear 

in the following places: 

■ a. Section 531.51; 

■ b. Section 531.56, the section heading 

and paragraphs (a) through (e); 

■ c. Section 531.57; and 

■ d. Section 531.58. 

■ 14. Amend § 531.52 by revising the 

second sentence to the end of the 

paragraph to read as follows: 

§ 531.52 General characteristics of ‘‘tips.’’ 

* * * Whether a tip is to be given, 

and its amount, are matters determined 

solely by the customer, who has the 

right to determine who shall be the 

recipient of the gratuity. Tips are the 

property of the employee whether or not 

the employer has taken a tip credit 

under section 3(m) of the FLSA. 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. 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) which govern 

wage credits for tips. 

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■ 15. Amend § 531.54 by adding two 

sentences to the end of the paragraph to 

read as follows: 

§ 531.54 Tip pooling. 

* * * Section 3(m) does not impose 

a maximum contribution percentage on 

valid mandatory tip pools, which can 

only include those employees who 

customarily and regularly receive tips. 

However, an 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. 

■ 16. Revise § 531.55 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 section 3(m) 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. 

(b) As stated above, service charges 

and other similar sums which become 

part of the employer’s gross receipts are 

not tips for the purposes of the Act. 

Where such sums are distributed by the 

employer to its employees, however, 

they may be used in their entirety to 

satisfy the monetary requirements of the 

Act. 

■ 17. Amend § 531.56 by revising the 

last sentence in paragraph (d) to read as 

follows: 

§ 531.56 ‘‘More than $30 per month in tips.’’ 

* * * * * 

(d) * * * It does not govern or limit 

the determination of the appropriate 

amount of wage credit under section 

3(m) 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 $2.13 per 

hour). 

* * * * * 

■ 18. Revise § 531.59 to read as follows: 

§ 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) 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 $2.13), 

provided that the employer satisfies all 

the requirements of section 3(m). 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 

occupation in which the employee 

qualifies as a ‘‘tipped employee.’’ 

Pursuant to section 3(m), 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) 

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 valid 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 $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 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. 

■ 19. Amend § 531.60(a) by removing 

the paragraph designation ‘‘(a)’’ and 

revising the first and third sentences 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. * * * In accordance with 

section 3(m), 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 

$2.13), the reasonable cost or 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. * * * 

* * * * * 

PART 553—APPLICATION OF THE 

FAIR LABOR STANDARDS ACT TO 

EMPLOYEES OF STATE AND LOCAL 

GOVERNMENTS 

■ 20. The authority citation for part 553 

is revised to read as follows: 

Authority: Secs. 1–19, 52 Stat. 1060, as 

amended (29 U.S.C. 201–219); Pub. L. 99– 

150, 99 Stat. 787 (29 U.S.C. 203, 207, 211). 

Pub. L. 106–151, 113 Stat. 1731 (29 U.S.C. 

203(y)). 

■ 21. Amend § 553.210 by revising 

paragraph (a), removing paragraph (b), 

and redesignating paragraph (c) as (b) to 

read as follows: 

§ 553.210 Fire Protection Activities. 

(a) As used in sections 7(k) and 

13(b)(20) of the Act, the term ‘‘any 

employee * * * in fire protection 

activities’’ refers to ‘‘an employee, 

including a firefighter, paramedic, 

emergency medical technician, rescue 

worker, ambulance personnel, or 

hazardous materials worker, who—(1) is 

trained in fire suppression, has the legal 

authority and responsibility to engage in 

fire suppression, and is employed by a 

fire department of a municipality, 

county, fire district, or State; and (2) is 

engaged in the prevention, control, and 

extinguishment of fires or response to 

emergency situations where life, 

property, or the environment is at risk.’’ 

■ 22. In § 553.212, revise paragraph (a) 

and the last sentence of paragraph (b) to 

read as follows: 

§ 553.212 Twenty percent limitation on 

nonexempt work. 

(a) Employees engaged in law 

enforcement activities as described in 

§ 553.211 may also engage in some 

nonexempt work which is not 

performed as an incident to or in 

conjunction with their law enforcement 

activities. The performance of such 

nonexempt work will not defeat either 

the section 13(b)(20) or 7(k) exemptions 

unless it exceeds 20 percent of the total 

hours worked by that employee during 

the workweek or applicable work 

period. A person who spends more than 

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20 percent of his/her working time in 

nonexempt activities is not considered 

to be an employee engaged in law 

enforcement activities for purposes of 

this part. 

(b) * * * In addition, the hours of 

work in the different capacity need not 

be counted as hours worked for 

overtime purposes on the regular job, 

nor are such hours counted in 

determining the 20 percent tolerance for 

nonexempt work for law enforcement 

personnel discussed in paragraph (a) of 

this section. 

§ 553.215 [Removed and Reserved] 

■ 23. Remove and reserve § 553.215. 

§§ 553.221, 553.222, 553.223, 553.226, and 

553.231 [Amended] 

■ 24. Amend §§ 553.221, 553.222, 

553.223, 553.226 and 553.231 to remove 

and add terms as follows. Remove the 

words ‘‘firefighter’’ or ‘‘firefighters’’ and 

add, in their place, the words ‘‘employee 

in fire protection activities’’ or 

‘‘employees in fire protection activities,’’ 

respectively, wherever they appear in 

the following places: 

■ a. Section 553.221(a), (d), and (g); 

■ b. Section 553.222(a) and (c); 

■ c. Section 553.223(a), (c), and (d); 

■ d. Section 553.226(c); and 

■ e. Section 553.231(b). 

PART 778—OVERTIME 

COMPENSATION 

■ 25. The authority citation for part 778 

is revised to read as follows: 

Authority: 52 Stat. 1060, as amended; 29 

U.S.C. 201 et seq. Section 778.200 also issued 

under Pub. L. 106–202, 114 Stat. 308 (29 

U.S.C. 207(e) and (h)). 

■ 26. Revise § 778.110 to read as 

follows: 

§ 778.110 Hourly rate employee. 

(a) Earnings at hourly rate exclusively. 

If the employee is employed solely on 

the basis of a single hourly rate, the 

hourly rate is the ‘‘regular rate.’’ For 

overtime hours of work the employee 

must be paid, in addition to the straight 

time hourly earnings, a sum determined 

by multiplying one-half the hourly rate 

by the number of hours worked in 

excess of 40 in the week. Thus a $12 

hourly rate will bring, for an employee 

who works 46 hours, a total weekly 

wage of $588 (46 hours at $12 plus 6 at 

$6). In other words, the employee is 

entitled to be paid an amount equal to 

$12 an hour for 40 hours and $18 an 

hour for the 6 hours of overtime, or a 

total of $588. 

(b) Hourly rate and bonus. If the 

employee receives, in addition to the 

earnings computed at the $12 hourly 

rate, a production bonus of $46 for the 

week, the regular hourly rate of pay is 

$13 an hour (46 hours at $12 yields 

$552; the addition of the $46 bonus 

makes a total of $598; this total divided 

by 46 hours yields a regular rate of $13). 

The employee is then entitled to be paid 

a total wage of $637 for 46 hours (46 

hours at $13 plus 6 hours at $6.50, or 

40 hours at $13 plus 6 hours at $19.50). 

■ 27. Revise § 778.111 to read as 

follows: 

§ 778.111 Pieceworker. 

(a) Piece rates and supplements 

generally. When an employee is 

employed on a piece-rate basis, the 

regular hourly rate of pay is computed 

by adding together total earnings for the 

workweek from piece rates and all other 

sources (such as production bonuses) 

and any sums paid for waiting time or 

other hours worked (except statutory 

exclusions). This sum is then divided by 

the number of hours worked in the week 

for which such compensation was paid, 

to yield the pieceworker’s ‘‘regular rate’’ 

for that week. For overtime work the 

pieceworker is entitled to be paid, in 

addition to the total weekly earnings at 

this regular rate for all hours worked, a 

sum equivalent to one-half this regular 

rate of pay multiplied by the number of 

hours worked in excess of 40 in the 

week. (For an alternative method of 

complying with the overtime 

requirements of the Act as far as 

pieceworkers are concerned, see 

§ 778.418.) Only additional half-time 

pay is required in such cases where the 

employee has already received straighttime compensation at piece rates or by 

supplementary payments for all hours 

worked. Thus, for example, if the 

employee has worked 50 hours and has 

earned $491 at piece rates for 46 hours 

of productive work and in addition has 

been compensated at $8.00 an hour for 

4 hours of waiting time, the total 

compensation, $523.00, must be divided 

by the total hours of work, 50, to arrive 

at the regular hourly rate of pay— 

$10.46. For the 10 hours of overtime the 

employee is entitled to additional 

compensation of $52.30 (10 hours at 

$5.23). For the week’s work the 

employee is thus entitled to a total of 

$575.30 (which is equivalent to 40 

hours at $10.46 plus 10 overtime hours 

at $15.69). 

(b) Piece rates with minimum hourly 

guarantee. In some cases an employee is 

hired on a piece-rate basis coupled with 

a minimum hourly guaranty. Where the 

total piece-rate earnings for the 

workweek fall short of the amount that 

would be earned for the total hours of 

work at the guaranteed rate, the 

employee is paid the difference. In such 

weeks the employee is in fact paid at an 

hourly rate and the minimum hourly 

guaranty is the regular rate in that week. 

In the example just given, if the 

employee was guaranteed $11 an hour 

for productive working time, the 

employee would be paid $506 (46 hours 

at $11) for the 46 hours of productive 

work (instead of the $491 earned at 

piece rates). In a week in which no 

waiting time was involved, the 

employee would be owed an additional 

$5.50 (half time) for each of the 6 

overtime hours worked, to bring the 

total compensation up to $539 (46 hours 

at $11 plus 6 hours at $5.50 or 40 hours 

at $11 plus 6 hours at $16.50). If the 

employee is paid at a different rate for 

waiting time, the regular rate is the 

weighted average of the 2 hourly rates, 

as discussed in § 778.115. 

■ 28. Amend § 778.113 by revising 

paragraph (a) and the fifth sentence of 

paragraph (b) to read as follows: 

§ 778.113 Salaried employees—general. 

(a) Weekly salary. If the employee is 

employed solely on a weekly salary 

basis, the regular hourly rate of pay, on 

which time and a half must be paid, is 

computed by dividing the salary by the 

number of hours which the salary is 

intended to compensate. If an employee 

is hired at a salary of $350 and if it is 

understood that this salary is 

compensation for a regular workweek of 

35 hours, the employee’s regular rate of 

pay is $350 divided by 35 hours, or $10 

an hour, and when the employee works 

overtime the employee is entitled to 

receive $10 for each of the first 40 hours 

and $15 (one and one-half times $10) for 

each hour thereafter. If an employee is 

hired at a salary of $375 for a 40-hour 

week the regular rate is $9.38 an hour. 

(b) * * * The regular rate of an 

employee who is paid a regular monthly 

salary of $1,560, or a regular 

semimonthly salary of $780 for 40 hours 

a week, is thus found to be $9 per hour. 

* * * 

* * * * * 

■ 29. Amend § 778.114 by revising 

paragraph (b) to read as follows: 

§ 778.114 Fixed salary for fluctuating 

hours. 

* * * * * 

(b) The application of the principles 

above stated may be illustrated by the 

case of an employee whose hours of 

work do not customarily follow a 

regular schedule but vary from week to 

week, whose total weekly hours of work 

never exceed 50 hours in a workweek, 

and whose salary of $600 a week is paid 

with the understanding that it 

constitutes the employee’s 

compensation, except for overtime 

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premiums, for whatever hours are 

worked in the workweek. If during the 

course of 4 weeks this employee works 

40, 37.5, 50, and 48 hours, the regular 

hourly rate of pay in each of these 

weeks is $15.00, $16.00, $12.00, and 

$12.50, respectively. Since the 

employee has already received straighttime compensation on a salary basis for 

all hours worked, only additional halftime pay is due. For the first week the 

employee is entitled to be paid $600; for 

the second week $600.00; for the third 

week $660 ($600 plus 10 hours at $6.00 

or 40 hours at $12.00 plus 10 hours at 

$18.00); for the fourth week $650 ($600 

plus 8 hours at $6.25, or 40 hours at 

$12.50 plus 8 hours at $18.75). 

* * * * * 

■ 30. Amend § 778.200 by adding 

paragraph (a) (8) and revising paragraph 

(b) to read as follows: 

§ 778.200 Provisions governing inclusion, 

exclusion, and crediting of particular 

payments. 

(a) * * * 

(8) Any value or income derived from 

employer-provided grants or rights 

provided pursuant to a stock option, 

stock appreciation right, or bona fide 

employee stock purchase program 

which is not otherwise excludable 

under any of paragraphs (a)(1) through 

(a)(7) of this section if— 

(i) Grants are made pursuant to a 

program, the terms and conditions of 

which are communicated to 

participating employees either at the 

beginning of the employee’s 

participation in the program or at the 

time of the grant; 

(ii) In the case of stock options and 

stock appreciation rights, the grant or 

right cannot be exercisable for a period 

of at least 6 months after the time of 

grant (except that grants or rights may 

become exercisable because of an 

employee’s death, disability, retirement, 

or a change in corporate ownership, or 

other circumstances permitted by 

regulation), and the exercise price is at 

least 85 percent of the fair market value 

of the stock at the time of grant; 

(iii) Exercise of any grant or right is 

voluntary; and 

(iv) Any determinations regarding the 

award of, and the amount of, employerprovided grants or rights that are based 

on performance are— 

(A) Made based upon meeting 

previously established performance 

criteria (which may include hours of 

work, efficiency, or productivity) of any 

business unit consisting of at least 10 

employees or of a facility, except that, 

any determinations may be based on 

length of service or minimum schedule 

of hours or days of work; or 

(B) Made based upon the past 

performance (which may include any 

criteria) of one or more employees in a 

given period so long as the 

determination is in the sole discretion of 

the employer and not pursuant to any 

prior contract. 

(b) Section 7(h). This subsection of the 

Act provides as follows: 

(1) Except as provided in paragraph 

(2), sums excluded from the regular rate 

pursuant to subsection (e) shall not be 

creditable toward wages required under 

section 6 or overtime compensation 

required under this section. 

(2) Extra compensation paid as 

described in paragraphs (5), (6), and (7) 

of subsection (e) of this section shall be 

creditable toward overtime 

compensation payable pursuant to this 

section. 

* * * * * 

■ 31. Amend § 778.208 by revising the 

first sentence to read as follows: 

§ 778.208 Inclusion and exclusion of 

bonuses in computing the ‘‘regular rate.’’ 

Section 7(e) of the Act requires the 

inclusion in the regular rate of all 

remuneration for employment except 

eight specified types of payments. * * * 

PART 779—THE FAIR LABOR 

STANDARDS ACT AS APPLIED TO 

RETAILERS OF GOODS OR SERVICES 

■ 32. The authority citation for part 779 

is revised to read as follows: 

Authority: Secs. 1–19, 52 Stat. 1060, as 

amended; 75 Stat. 65; Sec. 29(B), Pub. L. 

93–259, 88 Stat. 55; 29 U.S.C. 201–219. 

■ 33. Revise the undesignated center 

heading for §§ 779.371 and 779.372 to 

read as follows: 

Automobile, Truck and Farm Implement 

Sales and Services, and Trailer, Boat 

and Aircraft Sales 

■ 34. Amend § 779.371 by revising the 

fifth sentence of paragraph (a) to read as 

follows: 

§ 779.371 Some automobile, truck, and 

farm implement establishments may qualify 

for exemption under section 13(a)(2). 

(a) * * * Section 13(b)(10) is 

applicable not only to automobile, 

truck, and farm implement dealers but 

also to dealers in trailers, boats, and 

aircraft. * * * 

* * * * * 

■ 35. Amend § 779.372 by revising 

paragraphs (a), (b)(1)(ii), (b)(2), and (c) 

to read as follows: 

§ 779.372 Nonmanufacturing 

establishments with certain exempt 

employees under section 13(b)(10). 

(a) General. A specific exemption 

from only the overtime pay provisions 

of section 7 of the Act is provided in 

section 13(b)(10) for certain employees 

of nonmanufacturing establishments 

engaged in the business of selling 

automobiles, trucks, farm implements, 

trailers, boats, or aircraft. Section 

13(b)(10)(A) states that the provisions of 

section 7 shall not apply with respect to 

‘‘any salesman, partsman, or mechanic 

primarily engaged in selling or servicing 

automobiles, trucks, or farm 

implements, if he is employed by a 

nonmanufacturing establishment 

primarily engaged in the business of 

selling such vehicles or implements to 

ultimate purchasers.’’ Section 

13(b)(10)(B) states that the provisions of 

section 7 shall not apply with respect to 

‘‘any salesman primarily engaged in 

selling trailers, boats, or aircraft, if he is 

employed by a nonmanufacturing 

establishment primarily engaged in the 

business of selling trailers, boats, or 

aircraft to ultimate purchasers.’’ This 

exemption will apply irrespective of the 

annual dollar volume of sales of the 

establishment or of the enterprise of 

which it is a part. 

(b) * * * 

(1) * * * 

(ii) The establishment must be 

primarily engaged in the business of 

selling automobiles, trucks, or farm 

implements to the ultimate purchaser 

for section 13(b)(10)(A) to apply. If these 

tests are met by an establishment the 

exemption will be available for 

salesmen, partsmen and mechanics, 

employed by the establishment, who are 

primarily engaged during the work week 

in the selling or servicing of the named 

items. Likewise, the establishment must 

be primarily engaged in the business of 

selling trailers, boats, or aircraft to the 

ultimate purchaser for the section 

13(b)(10)(B) exemption to be available 

for salesmen employed by the 

establishment who are primarily 

engaged during the work week in selling 

these named items. An explanation of 

the term ‘‘employed by’’ is contained in 

§§ 779.307 through 779.311. The 

exemption is intended to apply to 

employment by such an establishment 

of the specified categories of employees 

even if they work in physically separate 

buildings or areas, or even if, though 

working in the principal building of the 

dealership, their work relates to the 

work of physically separate buildings or 

areas, so long as they are employed in 

a department which is functionally 

operated as part of the dealership. 

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(2) This exemption, unlike the former 

exemption in section 13(a)(19) of the 

Act prior to the 1966 amendments, is 

not limited to dealerships that qualify as 

retail or service establishments nor is it 

limited to establishments selling 

automobiles, trucks, and farm 

implements, but also includes dealers in 

trailers, boats, and aircraft. 

(c) Salesman, partsman, or mechanic. 

(1) As used in section 13(b)(10)(A), a 

salesman is an employee who is 

employed for the purpose of and is 

primarily engaged in making sales or 

obtaining orders or contracts for sale of 

the automobiles, trucks, or farm 

implements that the establishment is 

primarily engaged in selling. As used in 

section 13(b)(10)(B), a salesman is an 

employee who is employed for the 

purpose of and is primarily engaged in 

making sales or obtaining orders or 

contracts for sale of trailers, boats, or 

aircraft that the establishment is 

primarily engaged in selling. Work 

performed incidental to and in 

conjunction with the employee’s own 

sales or solicitations, including 

incidental deliveries and collections, is 

regarded as within the exemption. 

(2) As used in section 13(b)(10)(A), a 

partsman is any employee employed for 

the purpose of and primarily engaged in 

requisitioning, stocking, and dispensing 

parts. 

(3) As used in section 13(b)(10)(A), a 

mechanic is any employee primarily 

engaged in doing mechanical work 

(such as get ready mechanics, 

automotive, truck, or farm implement 

mechanics, used car reconditioning 

mechanics, and wrecker mechanics) in 

the servicing of an automobile, truck or 

farm implement for its use and 

operation as such. This includes 

mechanical work required for safe 

operation, as an automobile, truck, or 

farm implement. The term does not 

include employees primarily performing 

such nonmechanical work as washing, 

cleaning, painting, polishing, tire 

changing, installing seat covers, 

dispatching, lubricating, or other 

nonmechanical work. Wrecker 

mechanic means a service department 

mechanic who goes out on a tow or 

wrecking truck to perform mechanical 

servicing or repairing of a customer’s 

vehicle away from the shop, or to bring 

the vehicle back to the shop for repair 

service. A tow or wrecker truck driver 

or helper who primarily performs 

nonmechanical repair work is not 

exempt. 

* * * * * 

PART 780—EXEMPTIONS 

APPLICABLE TO AGRICULTURE, 

PROCESSING OF AGRICULTURAL 

COMMODITIES, AND RELATED 

SUBJECTS UNDER THE FAIR LABOR 

STANDARDS ACT 

■ 36. The authority citation for part 780 

is revised to read as follows: 

Authority: Secs. 1–19, 52 Stat. 1060, as 

amended; 75 Stat. 65; 29 U.S.C. 201–219. 

Pub. L. 105–78, 111 Stat. 1467. 

■ 37. Revise § 780.400 to read as 

follows: 

§ 780.400 Statutory provisions. 

Section 13(b)(12) of the Fair Labor 

Standards Act exempts from the 

overtime provisions of section 7 any 

employee employed in agriculture or in 

connection with the operation or 

maintenance of ditches, canals, 

reservoirs, or waterways, not owned or 

operated for profit, or operated on a 

sharecrop basis, and which are used 

exclusively for supply and storing of 

water, at least 90 percent of which was 

ultimately delivered for agricultural 

purposes during the preceding calendar 

year. 

■ 38. Amend § 780.401 by revising the 

first sentence of paragraph (a) and 

paragraph (b) to read as follows: 

§ 780.401 General explanatory statement. 

(a) Section 13(b)(12) of the Act 

contains the same wording exempting 

any employee employed in agriculture 

as did section 13(a)(6) prior to the 1966 

amendments. * * * 

(b) In addition to exempting 

employees engaged in agriculture, 

section 13(b)(12) also exempts from the 

overtime provisions of the Act 

employees employed in specified 

irrigation activities. The effect of the 

1997 amendment to section 13(b)(12) is 

to expand the overtime exemption for 

any employee employed in specified 

irrigation activities used for supply and 

storing of water for agricultural 

purposes by substituting ‘‘water, at least 

90 percent of which was ultimately 

delivered for agricultural purposes 

during the preceding calendar year’’ for 

the prior requirement that all the water 

be used for agricultural purposes. Prior 

to the 1966 amendments employees 

employed in specified irrigation 

activities were exempt from the 

minimum wage and overtime pay 

requirements of the Act. 

* * * * * 

■ 39. Revise § 780.406 to read as 

follows: 

§ 780.406 Exemption is from overtime 

only. 

This exemption applies only to the 

overtime provisions of the Act and does 

not affect the minimum wage, child 

labor, recordkeeping, and other 

requirements of the Act. 

■ 40. Revise § 780.408 to read as 

follows: 

§ 780.408 Facilities of system at least 90 

percent of which was used for agricultural 

purposes. 

Section 13(b)(12) requires for 

exemption of irrigation work that the 

ditches, canals, reservoirs, or waterways 

in connection with which the 

employee’s work is done be ‘‘used 

exclusively for supply and storing of 

water at least 90 percent of which was 

ultimately delivered for agricultural 

purposes during the preceding calendar 

year.’’ If a water supplier supplies water 

of which more than 10 percent is used 

for purposes other than ‘‘agricultural 

purposes’’ during the preceding calendar 

year, the exemption would not apply. 

For example, the exemption would not 

apply where more than 10 percent of the 

water supplier’s water is delivered to a 

municipality to be used for general, 

domestic, and commercial purposes. 

Water used for watering livestock raised 

by a farmer is ‘‘for agricultural 

purposes.’’ 

PART 785—HOURS WORKED 

■ 41. The authority citation for part 785 

is revised to read as follows: 

Authority: 52 Stat. 1060; 29 U.S.C. 201– 

219; 29 U.S.C. 254. Pub. L. 104–188, 100 Stat. 

1755. 

■ 42. Amend § 785.7 by revising the first 

sentence to read as follows: 

§ 785.7 Judicial construction. 

The United States Supreme Court 

originally stated that employees subject 

to the act must be paid for all time spent 

in ‘‘physical or mental exertion (whether 

burdensome or not) controlled or 

required by the employer and pursued 

necessarily and primarily for the benefit 

of the employer and his business.’’ 

* * * 

■ 43. Amend § 785.9 by adding a 

sentence after the third sentence in 

paragraph (a) to read as follows: 

§ 785.9 Statutory exemptions. 

(a) * * * The use of an employer’s 

vehicle for travel by an employee and 

activities that are incidental to the use 

of such vehicle for commuting are not 

considered ‘‘principal’’ activities when 

meeting the following conditions: The 

use of the employer’s vehicle for travel 

is within the normal commuting area for 

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18860 Federal Register / Vol. 76, No. 65 / Tuesday, April 5, 2011 / Rules and Regulations 

the employer’s business or 

establishment and the use of the 

employer’s vehicle is subject to an 

agreement on the part of the employer 

and the employee or the representative 

of such employee. * * * 

■ 44. Amend § 785.34 by adding a 

sentence after the first sentence to read 

as follows: 

§ 785.34 Effect of section 4 of the Portalto-Portal Act. 

* * * Section 4(a) further provides 

that the use of an employer’s vehicle for 

travel by an employee and activities that 

are incidental to the use of such vehicle 

for commuting are not considered 

principal activities when the use of such 

vehicle is within the normal commuting 

area for the employer’s business or 

establishment and is subject to an 

agreement on the part of the employer 

and the employee or the representative 

of such employee. * * * 

■ 45. Amend § 785.50 by adding a 

sentence at the end of paragraph (a)(2) 

to read as follows: 

§ 785.50 Section 4 of the Portal-to-Portal 

Act. 

* * * * * 

(a) * * * 

(2) * * * For purposes of this 

subsection, the use of an employer’s 

vehicle for travel by an employee and 

activities performed by an employee 

which are incidental to the use of such 

vehicle for commuting shall not be 

considered part of the employee’s 

principal activities if the use of such 

vehicle for travel is within the normal 

commuting area for the employer’s 

business or establishment and the use of 

the employer’s vehicle is subject to an 

agreement on the part of the employer 

and the employee or representative of 

such employee. 

* * * * * 

PART 786—MISCELLANEOUS 

EXEMPTIONS AND EXCLUSIONS 

FROM COVERAGE 

■ 46. The authority citation for part 786 

is revised to read as follows: 

Authority: 52 Stat. 1060, as amended; 29 

U.S.C. 201–219. Pub. L. 104–188, 100 Stat. 

1755. Pub. L. 105–221, 112 Stat. 1248, 29 

U.S.C. 203(e). 

■ 47. Revise the heading to part 786 to 

read as set forth above. 

■ 48. Add subpart G consisting of 

§ 786.300 to read as follows: 

Subpart G—Youth Opportunity Wage 

§ 786.300 Application of the youth 

opportunity wage. 

Section 6(g) of the Fair Labor 

Standards Act allows any employer to 

pay any employee who has not attained 

the age of 20 years a wage of not less 

than $4.25 an hour during the first 90 

consecutive calendar days after such 

employee is initially employed by such 

employer. For the purposes of hiring 

workers at this wage, no employer may 

take any action to displace employees, 

including partial displacements such as 

reducing hours, wages, or employment 

benefits. Any employer that violates 

these provisions is considered to have 

violated section 15(a)(3) of the Act. 

■ 49. Add subpart H consisting of 

§ 786.350 to read as follows: 

Subpart H—Volunteers at Private NonProfit Food Banks 

§ 786.350 Exclusion from definition of 

‘‘employee’’ of volunteers at private nonprofit food banks. 

Section 3(e)(5) of the Fair Labor 

Standards Act excludes from the 

definition of the term ‘‘employee’’ 

individuals who volunteer their services 

solely for humanitarian purposes at 

private non-profit food banks and who 

receive groceries from the food banks. 

PART 790—GENERAL STATEMENT AS 

TO THE EFFECT OF THE PORTAL-TOPORTAL ACT OF 1947 ON THE FAIR 

LABOR STANDARDS ACT OF 1938 

■ 50. The authority citation for part 790 

is revised to read as follows: 

Authority: 52 Stat. 1060, as amended; 110 

Stat. 1755; 29 U.S.C. 201–219; 29 U.S.C. 254. 

■ 51. Amend § 790.3 by adding a 

sentence at the end of paragraph (a)(2) 

to read as follows: 

§ 790.3 Provisions of the statute. 

* * * * * 

(a) * * * 

(2) * * * For purposes of this 

subsection, the use of an employer’s 

vehicle for travel by an employee and 

activities performed by an employee 

which are incidental to the use of such 

vehicle for commuting shall not be 

considered part of the employee’s 

principal activities if the use of such 

vehicle for travel is within the normal 

commuting area for the employer’s 

business or establishment and the use of 

the employer’s vehicle is subject to an 

agreement on the part of the employer 

and the employee or representative of 

such employee. 

* * * * * 

[FR Doc. 2011–6749 Filed 4–4–11; 8:45 am] 

BILLING CODE 4510–27–P 

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