Federal Register / Vol. 86, No. 183 / Friday, September 24, 2021 / Rules and Regulations 52973 

(5) Treatment of net operating losses 

incurred in post-2017 taxable years that 

are carried back to pre-2018 taxable 

years—(i) In general. Except as provided 

in paragraph (j)(5)(ii) of this section, a 

net operating loss incurred in a taxable 

year beginning after December 31, 2017 

(a ‘‘post-2017 taxable year’’), which is 

carried back, pursuant to section 172, to 

a taxable year beginning before January 

1, 2018 (a ‘‘pre-2018 carryback year’’), 

will be carried back under the rules of 

§ 1.904(g)–3(b). For purposes of 

applying the rules of § 1.904(g)–3(b), 

income in a pre-2018 separate category 

in the taxable year to which the net 

operating loss is carried back is treated 

as if it included only income that would 

be assigned to the post-2017 general 

category. Therefore, any separate 

limitation loss created by reason of a 

passive category component of a net 

operating loss from a post-2017 taxable 

year that is carried back to offset general 

category income in a pre-2018 carryback 

year will be recaptured in post-2017 

taxable years as general category 

income, and not as a combination of 

general, foreign branch, and section 

951A category income. 

(ii) Foreign source losses in the post2017 separate categories for foreign 

branch category income and section 

951A category income. Net operating 

losses attributable to a foreign source 

loss in the post-2017 separate categories 

for foreign branch category income and 

section 951A category income are 

treated as first offsetting general 

category income in a pre-2018 carryback 

year to the extent available to be offset 

by the net operating loss carryback. If 

the sum of foreign source losses in the 

taxpayer’s separate categories for foreign 

branch category income and section 

951A category income in the year the 

net operating loss is incurred exceeds 

the amount of general category income 

that is available to be offset in the 

carryback year, then the amount of 

foreign source loss in each of the foreign 

branch and section 951A categories that 

is treated as offsetting general category 

income under this paragraph (j)(5)(ii), is 

determined on a proportionate basis. 

General category income in the pre-2018 

carryback year is first offset by foreign 

source loss in the taxpayer’s post-2017 

separate category for general category 

income in the year the net operating loss 

is incurred before any foreign source 

loss in that year in the separate 

categories for foreign branch category 

income and section 951A category 

income is carried back to reduce general 

category income. To the extent a foreign 

source loss in a post-2017 separate 

category for foreign branch category 

income or section 951A category income 

offsets general category income in a pre2018 taxable year under the rules of this 

paragraph (j)(5)(ii), no separate 

limitation loss account is created. 

* * * * * 

(7) Applicability date. Except as 

otherwise provided in this paragraph 

(j)(7), this paragraph (j) applies to 

taxable years ending on or after 

December 31, 2017. Paragraph (j)(5) of 

this section applies to carrybacks of net 

operating losses incurred in taxable 

years beginning on or after January 1, 

2018. 

■ Par. 6. Section 1.951A–3 is amended 

by adding a sentence at the end of 

paragraph (e)(2) to read as follows: 

§ 1.951A–3 Qualified business asset 

investment. 

* * * * * 

(e) * * * 

(2) * * * For purposes of applying 

section 951A(d)(3) and this paragraph 

(e), the technical amendment to section 

168(g) (to provide a recovery period of 

20 years for qualified improvement 

property for purposes of the alternative 

depreciation system) enacted in section 

2307(a) of the Coronavirus Aid, Relief, 

and Economic Security Act, Public Law 

116–136 (2020) is treated as enacted on 

December 22, 2017. 

* * * * * 

Douglas W. O’Donnell, 

Deputy Commissioner for Services and 

Enforcement. 

Approved: September 10, 2021. 

Mark J. Mazur, 

Acting Assistant Secretary of the Treasury 

(Tax Policy). 

[FR Doc. 2021–20615 Filed 9–21–21; 4:15 pm] 

BILLING CODE 4830–01–P 

DEPARTMENT OF LABOR 

Wage and Hour Division 

29 CFR Parts 531, 578, 579 and 580 

RIN 1235–AA21 

Tip Regulations Under the Fair Labor 

Standards Act (FLSA); Partial 

Withdrawal 

AGENCY: Department of Labor, Wage and 

Hour Division. 

ACTION: Final rule. 

SUMMARY: In December 2020, the 

Department promulgated a final rule 

(2020 Tip final rule) to amend its tip 

regulations to address the Consolidated 

Appropriations Act of 2018 (CAA) 

amendments to section 3(m) of the Fair 

Labor Standards Act (FLSA), among 

other things. In this final rule, the 

Department withdraws two portions of 

the 2020 Tip final rule that have not yet 

gone into effect addressing civil money 

penalties (CMPs) and finalizes proposed 

changes to those portions of the 2020 

Tip final rule. The Department also 

modifies regulatory provisions adopted 

by the 2020 Tip final rule addressing 

managers and supervisors. 

DATES: As of November 23, 2021 Wage 

& Hour is withdrawing the revisions to 

§§ 578.3, 578.4, 579.1, 579.2, 580.2, 

580.3, 580.12, and 580.18, published 

December 30, 2020, at 85 FR 86756, 

delayed until April 30, 2021, on 

February 26, 2021, at 86 FR 11632, and 

delayed until December 31, 2021, on 

April 29, 2021 at 86 FR 22597. 

This final rule is effective November 

23, 2021. 

FOR FURTHER INFORMATION CONTACT: 

Amy DeBisschop, Director of the 

Division of Regulations, Legislation, and 

Interpretation, Wage and Hour Division, 

U.S. Department of Labor, Room S– 

3502, 200 Constitution Avenue NW, 

Washington, DC 20210, telephone: (202) 

693–0406 (this is not a toll-free 

number). Copies of this final rule may 

be obtained in alternative formats (Large 

Print, Braille, Audio Tape, or Disc), 

upon request, by calling (202) 693–0675 

(this is not a toll-free number). TTY/ 

TDD callers may dial toll-free (877) 889– 

5627 to obtain information or request 

materials in alternative formats. 

Questions of interpretation or 

enforcement of the agency’s existing 

regulations may be directed to the 

nearest WHD district office. Locate the 

nearest office by calling the WHD’s tollfree help line at (866) 4US–WAGE ((866) 

487–9243) between 8 a.m. and 5 p.m. in 

your local time zone, or log onto WHD’s 

website at https://www.dol.gov//whd/ 

contact/local-offices for a nationwide 

listing of WHD district and area offices. 

SUPPLEMENTARY INFORMATION: 

I. Executive Summary 

Section 3(m) of the FLSA allows an 

employer that satisfies certain 

requirements to count a limited amount 

of the tips received by its ‘‘tipped 

employees’’ as a credit toward the 

employer’s Federal minimum wage 

obligation (known as a ‘‘tip credit’’). See 

29 U.S.C. 203(m)(2)(A). In 2018, 

Congress passed the Consolidated 

Appropriations Act (CAA), Public Law 

115–141, Div. S., Tit. XII, sec. 1201, 132 

Stat. 348, 1148–49 (2018), which 

amended section 3(m). The CAA added 

a new statutory provision at section 

3(m)(2)(B) which expressly prohibits 

employers from keeping employees’ tips 

52974 Federal Register / Vol. 86, No. 183 / Friday, September 24, 2021 / Rules and Regulations 

1The Department also finalizes as proposed the 

revision to § 580.18(b)(3), which corrected a 

technical error. 

2The Department uses the term ‘‘tip pool’’ to 

describe any scenario in which a tip provided by 

a customer is shared, in whole or in part, between 

employees. The Department recognizes, however, 

that in some workplaces or under state laws, the 

term ‘‘tip pooling’’ may refer to a narrower set of 

practices, and that employers and workers may use 

other terms—for example ‘‘tip out,’’ ‘‘tip sharing,’’ 

or ‘‘tip jar’’—to describe certain practices regarding 

transferring tips between employees. See 84 FR 

53961. 

‘‘for any purposes’’ regardless of 

whether the employer claims a tip 

credit. This includes prohibiting 

‘‘managers or supervisors’’ from keeping 

employees’ tips. The CAA also amended 

section 16(e)(2) of the FLSA to give the 

Department discretion to impose civil 

money penalties (CMPs) of up to $1,100 

when employers unlawfully keep 

employees’ tips. On December 30, 2020, 

the Department issued a final rule (2020 

Tip final rule) that updated the 

Department’s tip regulations to 

implement the CAA amendments. The 

2020 Tip final rule also made other 

changes to the Department’s regulations, 

including revising the definition of 

‘‘willful’’ in the Department’s CMP 

regulations. 

On March 25, 2021, the Department 

published a notice of proposed 

rulemaking (CMP NPRM) in the Federal 

Register, 86 FR 15817, proposing to 

withdraw and repropose two portions of 

the 2020 Tip final rule and seeking 

comment on whether to revise another 

portion of the 2020 Tip final rule. The 

Department proposed to withdraw and 

repropose: (1) The portion of the 2020 

Tip final rule incorporating the CAA’s 

new provisions authorizing the 

assessment of CMPs for violations of 

section 3(m)(2)(B) of the Act; and (2) the 

portion of its CMP regulations 

addressing willful violations. The 

Department subsequently finalized a 

delay of the effective date of these 

portions of the rule until December 31, 

2021 to allow the Department to review 

these and one other portion of the 2020 

Tips final rule. In the CMP NPRM, the 

Department also sought comment on 

whether to revise certain aspects of the 

2020 Tip final rule that apply to 

‘‘managers or supervisors’’ who perform 

tipped work and went into effect on 

April 30, 2021. Section 578.1, as revised 

by the 2020 Tip final rule, at 85 FR 

86756, and the effective date of which 

the Department also delayed, will go 

into effect on December 31, 2021. 

After considering the comments, the 

Department has decided to adopt the 

NPRM’s proposed changes to the 

portion of the 2020 Tip final rule 

incorporating the CAA’s new provisions 

authorizing the assessment of CMPs for 

violations of section 3(m)(2)(B) of the 

Act, and the portion of its CMP 

regulations addressing willful 

violations. The Department has also 

decided to modify portions of the 2020 

Tip final rule addressing managers and 

supervisors who perform tipped work. 

The final rule modifies the CMP 

provisions for violations of 3(m)(2)(B) 

included in the 2020 Tip final rule by 

withdrawing regulatory language in 29 

CFR 578.3, 578.4, 579.1, 580.2, 580.3, 

and 580.12 that limited assessment of 

CMPs for section 3(m)(2)(B) violations 

to only repeated or willful violations.1

This modification upholds the 

Department’s statutorily-granted 

discretion with regard to section 

3(m)(2)(B) CMPs and aligns the 

Department’s regulations with the 

statutory text. At the same time, the 

final rule adopts the same rules, 

procedures, and amount considerations 

for CMPs for violation of 3(m)(2)(B) as 

the Department applies for other FLSA 

CMPs, and therefore preserves 

consistent enforcement procedures that 

are familiar to the Department and the 

public. 

The final rule also modifies the 

amendments made by the 2020 Tip final 

rule to the portion of the Department’s 

CMP regulations at 29 CFR 578.3(c)(2) 

and (3) and 29 CFR 579.2 addressing 

when a violation of section 6 or 7 of the 

FLSA is willful. Specifically, the rule 

modifies these regulations by clarifying 

that multiple circumstances, not just the 

circumstance identified in §§ 578.3(c)(2) 

and (3), can be sufficient to show that 

a violation is willful because it is 

knowing or is done with reckless 

disregard for whether the conduct 

violates the FLSA and by reinserting 

language addressing the meaning of 

reckless disregard. These revisions 

further align the Department’s 

regulations with applicable precedent 

and how the Department litigates 

willfulness and provide improved 

guidance on circumstances where 

employers’ conduct may be willful. 

In addition, the Department has 

decided to modify § 531.54(c)(3) and (d), 

which currently provide that an 

employer may not ‘‘include’’ managers 

and supervisors in tip pools or sharing 

arrangements. The final rule clarifies 

that while managers and supervisors 

may not receive tips from mandatory tip 

pools or tip sharing arrangements, 

managers or supervisors are not 

prohibited from contributing tips to 

eligible employees in mandatory tip 

pools or sharing arrangements. The 

Department is also modifying language 

in § 531.52, as amended by the 2020 Tip 

final rule, which currently explains that 

it is not a violation of section 3(m)(2)(B) 

when a manager or supervisor keeps 

tips that the manager or supervisor 

receives directly from customers based 

on the service that the manager or 

supervisor directly provides. The 

modified language clarifies that a 

manager or supervisor may keep tips 

only when the tip is based on a service 

the manager or supervisor directly and 

‘‘solely’’ provides. Thus, under the 

Department’s tip regulations as revised 

by this final rule, when a manager or 

supervisor directly receives tips for 

services the manager or supervisor 

directly and solely provides, an 

employer may allow the manager or 

supervisor to keep those tips, and may 

also require the manager or supervisor 

to share some portion of the tips with 

other eligible employees. The final 

regulations reflect the reality that some 

managers or supervisors perform work 

for which they receive tips, while 

ensuring that managers and supervisors 

do not keep any portion of other 

employees’ tips in violation of section 

3(m)(2)(B). 

II. Background 

A. Tips and Tip Pooling 

Section 6(a) of the FLSA generally 

requires covered employers to pay 

employees at least the federal minimum 

wage, which is currently $7.25 per hour. 

29 U.S.C. 206(a). Section 3(m)(2)(A) 

allows an employer to satisfy a portion 

of its minimum wage obligation to any 

‘‘tipped employee’’ by taking a partial 

credit toward the minimum wage based 

on tips the employee receives. 29 U.S.C. 

203(m)(2)(A). An employer may take a 

tip credit only if, among other 

requirements, the tipped employee 

retains all the tips he or she receives. Id. 

An employer taking a tip credit is, 

however, allowed to require tipped 

employees to participate in a 

mandatory, ‘‘traditional’’ tip pool 2 in 

which tipped employees share tips with 

other employees who ‘‘customarily and 

regularly receive tips.’’ 29 U.S.C. 

203(m)(2)(A). The employee must retain 

sufficient tips to make up the difference 

between the cash wage paid and the 

minimum wage. Id. 

In 2011, the Department issued 

regulations interpreting what is now 

section 3(m)(2)(A) to prohibit all 

covered employers—regardless of 

whether the employer takes a tip 

credit—from using employees’ tips 

other than as a credit against its 

minimum wage obligation to the 

employee, or in furtherance of valid 

traditional tip pools. See 76 FR 18832, 

29 CFR 531.52 (2011); 29 CFR 531.54 

Federal Register / Vol. 86, No. 183 / Friday, September 24, 2021 / Rules and Regulations 52975 

3 In December 2017, the Department published an 

NPRM proposing to rescind the portions of its 2011 

tip regulations that imposed restrictions on 

employers that do not take a tip credit against their 

minimum wage obligations, in part because of 

litigation involving these regulatory provisions. See 

82 FR 57395. The Department withdrew this NPRM 

in October 2019 after the CAA amendments to the 

FLSA directly impacted the subject of the 

rulemaking. See 84 FR 53960. For a more detailed 

history of this rulemaking, see 86 FR 15817. 

4The Federal Civil Penalties Inflation Adjustment 

Act of 1990 (Pub. L. 101–410), as amended by the 

Debt Collection Improvement Act of 1996 (Pub. L. 

104–134, sec. 31001(s)) and the Federal Civil 

Penalties Inflation Adjustment Act Improvements 

Act of 2015 (Pub. L. 114–74, sec. 701), requires that 

inflationary adjustments be made annually in these 

civil money penalties according to a specified 

formula. 

(2011); 29 CFR 531.59 (2011). These 

regulations were consistent with the 

Department’s longstanding position on 

tipped employees, and the Department 

stated that, although the statutory 

language did not expressly address the 

use of an employee’s tips when an 

employer does not take a tip credit and 

pays a direct cash wage equal to or 

greater than the minimum wage, the 

regulations filled a gap in the statutory 

scheme.3 See 76 FR 18841–42. 

On March 23, 2018, Congress enacted 

the CAA, which amended section 3(m) 

of the FLSA to expressly prohibit 

employers from keeping employees’ tips 

‘‘for any purposes,’’ ‘‘regardless of 

whether or not the employer takes a tip 

credit.’’ See Public Law 115–141, Div. 

S., Tit. XII, sec. 1201; 29 U.S.C. 

203(m)(2)(B). Section 3(m)(2)(B) also 

prohibits employers from ‘‘allowing 

managers or supervisors to keep any 

portion of employees’ tips.’’ Id. In 

addition, the CAA suspended the 

portions of the Department’s 2011 

regulations that restricted tip pooling 

when employers do not take a tip credit, 

by providing that those regulations 

‘‘shall have no further force or effect 

until any future action taken by [the 

Department of Labor].’’ See Public Law 

115–141, Div. S, Tit. XII, sec. 1201(c). 

The CAA also amended the penalty 

provisions in section 16 of the FLSA to 

incorporate the new statutory 

prohibition on employers keeping tips. 

Among other things, the CAA amended 

section 16(e)(2) to authorize the 

assessment of a civil money penalty 

(CMP) for violations of section 

3(m)(2)(B): ‘‘Any person who violates 

section 3(m)(2)(B) shall be subject to a 

civil penalty not to exceed $1,100 4 for 

each such violation, as the Secretary 

determines appropriate, in addition to 

being liable to the employee or 

employees affected for all tips 

unlawfully kept, and an additional 

equal amount as liquidated damages[.]’’ 

Shortly after Congress passed the 

CAA, the Department issued a Field 

Assistance Bulletin (FAB) concerning 

the Wage and Hour Division’s (WHD) 

enforcement of the amendments to 

section 3(m). See FAB No. 2018–3 (Apr. 

6, 2018). The Department explained that 

the CAA had effectively suspended the 

regulatory restrictions that prohibited an 

employer that does not take a tip credit 

from requiring tip pooling, and that 

‘‘given these developments, employers 

who pay the full FLSA minimum wage 

are no longer prohibited from allowing 

employees who are not customarily and 

regularly tipped—such as cooks and 

dishwashers—to participate in tip 

pools.’’ Id. As a result, the Department 

explained, such employers may 

implement mandatory, ‘‘nontraditional’’ 

tip pools in which employees who do 

not customarily and regularly receive 

tips, such as cooks and dishwashers, 

may participate. The FAB also 

explained that the amendments prohibit 

employers, including managers or 

supervisors, from keeping tips received 

by their employees, regardless of 

whether the employer takes a tip credit 

under 29 U.S.C. 203(m). In addition, the 

FAB provided that, as ‘‘an enforcement 

policy, WHD will use the duties test at 

29 CFR 541.100(a)(2)–(4) to determine 

whether an employee is a manager or 

supervisor,’’ and thus cannot ‘‘keep’’ 

another employee’s tips under section 

3(m)(2)(B). Id. Finally, the FAB stated 

that the Department will follow its 

‘‘normal procedures’’ for FLSA CMPs 

when enforcing the new tips CMP, and 

will assess tips CMPs only when it 

determines that a violation of section 

3(m)(2)(B) is repeated or willful. Id. 

B. ‘‘Willful’’ Requirement for CMPs for 

FLSA Minimum Wage and Overtime 

Violations 

Section 16(e)(2) of the FLSA provides 

for the assessment of CMPs for 

violations of the minimum wage 

(section 6), overtime pay (section 7), 

and, with the enactment of the CAA, tip 

provisions (section 3(m)(2)(B)) of the 

FLSA. Section 16(e)(2) authorizes the 

Department to assess CMPs for 

minimum wage and overtime pay 

violations only when the violations are 

‘‘repeated[ ] or willful[ ].’’ See 29 U.S.C. 

216(e)(2). The Department’s regulations 

at 29 CFR 578.3(c) and 579.2 address 

what violations are willful under the 

Act. These regulations are intended to 

implement the Supreme Court’s 

decision in McLaughlin v. Richland 

Shoe Co., 486 U.S. 128, 133 (1988), that 

a willful violation occurs when the 

employer knew or showed reckless 

disregard for whether its conduct was 

prohibited by the FLSA. For many 

years, these regulations identified two 

specific circumstances in which a 

violation ‘‘shall be deemed’’ willful. 29 

CFR 578.3(c)(2) and (3), 579.2. 

Specifically, the Department’s 

regulations at sections 578.3(c)(2) and 

579.2 provided that ‘‘an employer’s 

conduct shall be deemed knowing,’’ 

among other situations, if the employer 

received prior advice from WHD that its 

conduct was unlawful. Additionally, 

sections 578.3(c)(3) and 579.2 stated 

that ‘‘an employer’s conduct shall be 

deemed to be in reckless disregard of 

the requirements of the Act,’’ among 

other situations, if the employer failed 

to inquire further into the lawfulness of 

its conduct when it should have. The 

Department’s regulations further 

provided that WHD shall take into 

account ‘‘[a]ll of the facts and 

circumstances surrounding the 

violation’’ when determining whether a 

violation is willful. 29 CFR 578.3(c)(1), 

579.2. 

In Baystate Alt. Staffing, Inc. v. 

Herman, 163 F.3d 668, 680–81 (1st Cir. 

1998), the U.S. Court of Appeals for the 

First Circuit identified an ‘‘incongruity’’ 

between the regulatory provisions 

deeming two specific circumstances to 

be willful, and ‘‘the Richland Shoe 

standard on which the regulation is 

based’’ which takes into account all of 

the facts and circumstances. The court 

urged the Department ‘‘to reconsider’’ 

§ 578.3(c)(2) and (3) ‘‘to ensure that they 

comport with’’ Richland Shoe. Id. at 681 

n.16. In 2016, the U.S. Court of Appeals 

for the D.C. Circuit also addressed these 

regulations and noted that the 

Department had not altered them 

despite being urged to do so by the court 

in Baystate. See Rhea Lana, Inc. v. Dep’t 

of Labor, 824 F.3d 1023, 1030–31 (D.C. 

Cir. 2016). 

C. 2020 Tip Final Rule 

On October 8, 2019, the Department 

issued an NPRM proposing to revise the 

Department’s tip regulations to 

incorporate the CAA amendments, 

among other things. See 84 FR 53956. 

Because the Department was revising its 

CMP regulations to incorporate the new 

CMP provision for section 3(m)(2)(B) 

violations, the Department also 

proposed to address the ‘‘willful’’ 

provisions of the Department’s existing 

FLSA CMP regulations in light of the 

decisions of the courts of appeals in 

Baystate and Rhea Lana. See id. at 

53964. The Department published the 

Tip final rule on December 30, 2020. 

See 85 FR 86756. The 2020 Tip final 

rule was initially scheduled to go into 

effect on March 1, 2021; however, the 

Department delayed the 2020 Tip final 

rule’s effective date to April 30, 2021, in 

order to give the Department additional 

time to consider issues of law, policy, 

52976 Federal Register / Vol. 86, No. 183 / Friday, September 24, 2021 / Rules and Regulations 

5The third portion of the 2020 Tip final rule, 

delayed until December 31, 2021, addresses when 

an employee is performing both tipped and nontipped work (dual jobs) under the FLSA. The 

Department has issued a separate notice of 

proposed rulemaking on this issue. See 86 FR 

32818. 

6See Compl., Commonwealth of Pennsylvania et 

al. v. Scalia et al., No. 2:21–cv–00258 (E.D. Pa.). 

and fact that warranted additional 

review. See 86 FR 11632. The 

Department subsequently further 

delayed the effective date, until 

December 31, 2021, of three portions of 

the 2020 Tip final rule, including the 

two portions addressing CMPs. See 86 

FR 22597.5

Most of the provisions of the 2020 Tip 

final rule went into effect on April 30, 

2021. The 2020 Tip final rule amended 

the Department’s tip pooling regulations 

at 29 CFR 531.52, 531.54, and 531.59 to 

implement newly added section 

3(m)(2)(B), which prohibits employers— 

regardless of whether they take a tip 

credit—from keeping employees’ tips 

for any purposes, and prohibits 

managers and supervisors from keeping 

employees’ tips. The 2020 Tip final rule 

explained that section 3(m)(2)(B) 

proscribes all manner of keeping tips, 

and is so broad as to prohibit an 

employer from exerting control over 

employees’ tips other than to (1) 

distribute tips to the employee who 

received them, (2) require employees to 

share tips with other eligible employees, 

or, (3) where the employer facilitates tip 

pooling by collecting and redistributing 

employees’ tips, to distribute tips to 

employees in a tip pool. The 2020 Tip 

final rule further provided that any 

employer that collects tips to facilitate 

a mandatory tip pool must fully 

redistribute the tips, no less often than 

when it pays wages, to avoid 

‘‘keep[ing]’’ the tips in violation of 

section 3(m)(2)(B). 

The 2020 Tip final rule also addressed 

who is a manager or supervisor, and 

therefore may not keep employees’ tips 

under section 3(m)(2)(B). The rule 

defined a ‘‘manager or supervisor,’’ as 

an individual who meets the duties test 

at § 541.100(a)(2)–(4) or § 541.101. As a 

result, a manager or supervisor for 

purposes of section 3(m)(2)(B) is any 

employee (1) whose primary duty is 

managing the enterprise or a 

customarily recognized department or 

subdivision of the enterprise; (2) who 

customarily and regularly directs the 

work of at least two or more other fulltime employees or their equivalent; and 

(3) who has the authority to hire or fire 

other employees, or whose suggestions 

and recommendations as to the hiring or 

firing are given particular weight. The 

definition also includes as managers or 

supervisors any individuals who own at 

least a bona fide 20 percent equity 

interest in the enterprise in which they 

are employed and who are actively 

engaged in its management. 

The final rule revised § 531.54 to state 

that FLSA section 3(m)(2)(B) ‘‘prohibits 

employers from requiring employees to 

share tips with managers and 

supervisors,’’ and to state that 

employers ‘‘may not include supervisors 

and managers’’ in a tip pool. The rule 

at § 531.52(b) specified, however, that 

such a manager or supervisor may keep 

tips that he or she receives directly from 

customers based on the service that he 

or she directly provides. 

Consistent with the CAA 

amendments, the 2020 Tip final rule 

also removed the provisions of the 

Department’s 2011 regulations that 

imposed restrictions on employers that 

do not take a tip credit. In addition, the 

2020 Tip final rule amended § 531.54 to 

explicitly state that an employer that 

pays tipped employees the full 

minimum wage and does not take a tip 

credit may require tipped employees to 

share tips with dishwashers, cooks, or 

other employees who are not employed 

in an occupation in which employees 

customarily and regularly receive tips, 

as long as that arrangement does not 

include any employer, supervisor, or 

manager. The 2020 Tip final rule also 

incorporated a new recordkeeping 

requirement for employers that 

administer such ‘‘nontraditional’’ tip 

pools. 

These portions of the 2020 Tip final 

rule—addressing the CAA’s changes to 

tips and tip pooling in section 3(m) and 

related recordkeeping requirements, 

including the provisions on managers 

and supervisors—went into effect on 

April 30, 2021. 86 FR 22597. 

The 2020 Tip final rule also made 

changes to the Department’s CMP 

regulations at 29 CFR parts 578, 579, 

and 580. The Department delayed the 

effective date of these changes, and the 

revised provisions have not gone into 

effect. See 86 FR 22597. The 2020 Tip 

final rule updated the Department’s 

FLSA CMP regulations to add references 

to the new CMP for violations of 

3(m)(2)(B). The 2020 Tip final rule also 

specified that the Department may 

assess CMPs only for ‘‘repeated or 

willful’’ violations of section 3(m)(2)(B), 

although the statute does not include 

this limitation. The 2020 Tip final rule 

also amended the Department’s CMP 

regulations at §§ 578.3(c)(2) and 579.2 

regarding when a violation is knowing, 

and thus willful, to address the 

appellate court decisions that have, for 

example, ‘‘urge[d]’’ the Department to 

reconsider those regulations to ensure 

their consistency with the Supreme 

Court’s interpretation of the meaning of 

‘‘willful’’ in the FLSA. See 85 FR 86757. 

In addition, the 2020 Tip final rule 

deleted § 578.3(c)(3) and the 

corresponding language in § 579.2 

regarding when a violation is in reckless 

disregard of the FLSA. See id. at 86774. 

D. Legal Challenge to the 2020 Tip Final 

Rule 

On January 19, 2021, before the 2020 

Tip final rule went into effect, Attorneys 

General from eight states and the 

District of Columbia (‘‘AG Coalition’’) 

filed a complaint in the United States 

District Court for the Eastern District of 

Pennsylvania, in which they argued that 

the Department violated the 

Administrative Procedure Act in 

promulgating the 2020 Tip final rule.6

The complaint argues that the 2020 Tip 

final rule made several changes to the 

Department’s regulations that are 

contrary to the FLSA and the CAA, 

including the 2020 Tip final rule’s 

imposition of a willfulness requirement 

for CMPs for section 3(m)(2)(B) 

violations, and the rule’s revisions to its 

CMP regulations on willful violations. It 

further argues that the 2020 Tip final 

rule’s revisions to the Department’s 

CMP regulations on willful violations 

contradict the longstanding Supreme 

Court precedent on willfulness. The 

complaint also asserts that the 2020 Tip 

final rule’s provisions on managers and 

supervisors improperly prevent certain 

lower-paid managers and supervisors 

from receiving tips. 

E. The Department’s Proposal 

On March 25, 2021, the Department 

issued an NPRM proposing to withdraw 

and repropose the two portions of the 

2020 Tip final rule addressing CMPs 

and seeking comment on whether to 

revise another portion of the 2020 Tip 

final rule. See 86 FR 15817. Because of 

its concerns that the 2020 Tip final rule 

inappropriately circumscribed the 

Department’s discretion to assess CMPs 

for violations of 3(m)(2)(B), the 

Department proposed to withdraw that 

portion of the rule and adopt regulatory 

language so that the Department is not 

limited in its assessment of CMPs to 

only repeated and willful violations of 

section 3(m)(2)(B). At the same time, the 

Department reproposed language that 

would, similar to the language in the 

2020 Tip final rule, adopt the same 

rules, procedures, and amount 

considerations for CMPs for violation of 

3(m)(2)(B), as the Department applies 

for other FLSA CMPs. The Department 

also proposed to withdraw the portion 

of its CMP regulations addressing 

Federal Register / Vol. 86, No. 183 / Friday, September 24, 2021 / Rules and Regulations 52977 

7The Department also asked questions about how 

it might improve the recordkeeping requirements in 

the 2020 Tip final rule in a future rulemaking. 

8The CMP amount in the 2020 Tip final rule was 

adjusted to $1,162 for inflation, as required by the 

Federal Civil Penalties Inflation Adjustment Act of 

1990 (Pub. L. 101–410), as amended by the Debt 

Collection Improvement Act of 1996 (Pub. L. 104– 

134, sec. 31001(s)) and the Federal Civil Penalties 

Inflation Adjustment Act Improvements Act of 2015 

(Pub. L. 114–74, sec. 701). 

9 In the 2020 Tip final rule, the Department 

similarly adopted the same rules, procedures, and 

considerations applicable to CMP assessments for 

violations of section 3(m)(2)(B) as the Department 

applies to other FLSA CMP assessments. As 

explained above, the Department proposed to 

withdraw those provisions, which have not gone 

into effect. 

willful violations, and reproposed those 

portions with modifications to further 

align the regulations with Supreme 

Court and appellate court decisions and 

provide improved guidance on 

circumstances where employers’ 

conduct may be willful. Finally, the 

Department requested comment on 

whether to revise the 2020 Tip final 

rule’s language regarding managers or 

supervisors, which went into effect on 

April 30, 2021, to better address the fact 

that some managers and supervisors 

perform tipped work.7

The 60-day comment period for the 

NPRM ended on May 24, 2021. The 

Department received 33 unique 

comments from various constituencies 

including small business owners, 

worker advocacy groups, employer and 

industry associations, non-profit 

organizations, law firms, attorneys 

general, and other interested members 

of the public. All timely received 

comments may be viewed on the 

regulations.gov website, docket ID 

WHD–2019–0004. The Department has 

considered the timely submitted 

comments addressing the proposed 

changes and discusses significant 

comments below. 

The Department also received a small 

number of comments on issues that are 

beyond the scope of this rulemaking. 

These include, for example, comments 

suggesting that the amount of the federal 

minimum wage should be increased, 

and comments requesting that the 

Department revise the regulatory 

definition of ‘‘managers or supervisors’’ 

that cannot keep employees’ tips to 

include a salary component. The 

Department does not address those 

issues in this final rule. 

III. Final Regulatory Revisions 

A. Civil Money Penalties for Violations 

of Section 3(m)(2)(B) 

The CAA amended FLSA section 

16(e), which establishes CMPs for 

certain violations of the Act, to add new 

penalty language for employers who 

violate section 3(m)(2)(B) by ‘‘keep[ing]’’ 

employees’ tips. 29 U.S.C. 216(e)(2). 

This provision states that: ‘‘Any person 

who violates section 3(m)(2)(B) shall be 

subject to a civil penalty not to exceed 

$1,100 8 for each such violation, as the 

Secretary determines appropriate, in 

addition to being liable to the employee 

or employees affected for all tips 

unlawfully kept . . . .’’ Unlike the 

statutory provisions in section 16(e)(2) 

setting forth CMPs for minimum wage 

and overtime violations, the statute does 

not limit the assessment of CMPs to 

repeated or willful violations of section 

3(m)(2)(B). Instead, the penalty language 

subjects persons who violate 3(m)(2)(B) 

to civil penalties ‘‘as the Secretary 

determines appropriate.’’ 

Although the 2020 Tip final rule 

acknowledged the Department’s 

discretion to assess CMPs for any 

violation of section 3(m)(2)(B), the 2020 

Tip final rule limited this discretion by 

restricting CMPs to only repeated or 

willful violations of section 3(m)(2)(B). 

In the CMP NPRM, the Department 

proposed to withdraw the 2020 Tip final 

rule CMP provisions for violations of 

3(m)(2)(B) and adopt regulatory 

language in 29 CFR 578.3, 578.4, 579.1, 

580.2, 580.3, and 580.12 that retains the 

full discretion granted to the Secretary 

to assess CMPs for any violation of 

section 3(m)(2)(B). The Department also 

proposed to adopt the same rules, 

procedures, and amount considerations 

for CMP assessments applicable to 

violation of section 3(m)(2)(B) as the 

Department applies to other FLSA CMP 

assessments.9 These procedures are 

found in §§ 578.3, 578.4, 579.1, 580.2, 

580.3, and 580.12. 

Many commenters, such as the 

National Partnership for Women & 

Families and the Employee Rights 

Center, supported the proposal, stating 

that it ‘‘aligns with the plain language 

of the FLSA and Congress’s legislative 

intent.’’ Several commenters that 

supported the proposal noted that it 

preserved the full discretion the statute 

grants to the Department to assess CMPs 

for violations of section 3(m)(2)(B). The 

AG Coalition noted that by including 

regulatory language in the proposal that 

differentiates between violations of 

section 3(m)(2)(B) and repeated or 

willful minimum wage and overtime 

violations, the ‘‘Department retains its 

discretion to levy CMPs against 

employers that violate the FLSA, as 

intended by Congress and limited only 

by the statute.’’ Texas RioGrande Legal 

Aid stated that the discretion permitted 

by the proposal would mean that ‘‘DOL 

investigators will have more tools at 

their disposal to help workers’’ and 

argued that the Department should not 

‘‘hamper its own investigations’’ by 

restricting such discretion. 

Other commenters opposed the 

proposal. The National Restaurant 

Association (NRA) stated that the 

Department should instead retain the 

2020 Tip final rule requirement that the 

Department would only assess CMPs for 

repeated and willful violations of 

section 3(m)(2)(B), noting that the 

Department had previously explained 

that this limitation was ‘‘consistent with 

how the Department enforces other 

FLSA wage violations.’’ The NRA also 

argued that making such a 

differentiation between violations of 

sections 6 and 7 and violations of 

section 3(m)(2)(B) will ‘‘destroy the 

public trust.’’ The Department disagrees. 

The statute itself distinguishes between 

violations of sections 6 and 7 and 

violations of section 3(m)(2)(B) with 

regard to the assessment of CMPs. Thus, 

removing the 2020 Tip final rule’s 

repeated or willful requirement for 

section 3(m)(2)(B) CMPs is consistent 

with the FLSA itself. Moreover, the 

Department’s enforcement of different 

sections of the FLSA currently varies 

depending on whether the statutory text 

limits CMPs to repeated or willful 

violations or not. The child labor 

provisions of the FLSA—like the 

statutory text for violations of section 

3(m)(2)(B)—do not limit CMPs to 

repeated or willful violations. Compare 

29 U.S.C. 216(e)(1)(A)(i) (‘‘Any person 

who violates the provisions of sections 

212 or 213(c) of this title, relating to 

child labor . . . shall be subject to a 

civil penalty . . . for each employee 

who was the subject of such a 

violation’’) with 29 U.S.C. 

216(e)(1)(A)(ii) (CMPs for violations that 

caused the death or serious injury of a 

child employee ‘‘may be doubled where 

the violation is a repeated or willful 

violation’’). The Department’s final rule 

will bring the assessment of section 

3(m)(2)(B) CMPs into harmony with the 

statutory text, as is currently the case 

with the child labor CMP provisions. 

Furthermore, this final rule adopts the 

same rules, procedures, and amount 

considerations for determining section 

3(m)(2)(B) CMPs that the Department 

uses to determine CMPs for other FLSA 

wage violations. Therefore, the final rule 

will preserve consistent enforcement 

procedures familiar to the Department 

and the public. 

The National Federation of 

Independent Businesses (NFIB) also 

opposed the proposal. Recognizing that 

the statute ‘‘vests wide discretion in the 

Secretary of Labor,’’ NFIB asked the 

Department to keep the ‘‘repeated or 

52978 Federal Register / Vol. 86, No. 183 / Friday, September 24, 2021 / Rules and Regulations 

10See supra Section II.B. 

willful’’ requirement from the 2020 Tip 

final rule for small businesses that 

violate section 3(m)(2)(B). The 

Department declines to adopt this 

recommendation, because it would not 

be consistent with its enforcement in 

other areas to impose the requirement 

that CMPs be assessed against small 

businesses only when the violations 

committed are repeated and willful. 

However, NFIB also requested that the 

Department preserve the requirement 

that it consider the seriousness of the 

violation and the size of the employer’s 

business when assessing CMPs for 

section 3(m)(2)(B). The Department’s 

final rule does preserve that 

requirement, because, as explained 

above, it adopts the same longstanding 

rules and procedures that the 

Department applies for other FLSA 

CMPs for the assessment of section 

3(m)(2)(B) CMPs. This includes the 

obligation, required by 29 U.S.C. 

216(e)(3), to consider the size of the 

employer’s business when determining 

the amount of any civil money penalty. 

After review of the comments, the 

Department agrees that it was 

inappropriate to limit the statutorilygranted discretion by regulation and 

that instead the regulations should 

reflect the statutory text. Therefore, the 

Department finalizes the revisions to 29 

CFR 578.3, 578.4, 579.1, 580.2, 580.3, 

and 580.12 that eliminate the references 

limiting CMP assessments for violations 

of section 3(m)(2)(B) to repeated and 

willful violations as proposed. The 

Department also finalizes as proposed 

the other revisions to §§ 578.3, 578.4, 

579.1, 580.2, 580.3, and 580.12 which 

amend those provisions to adopt the 

same rules, procedures, and amount 

considerations for tip CMP assessments 

as the Department applies for other 

FLSA CMP assessments, which will 

promote the goals of consistency and 

familiarity that the Department 

emphasized in the 2020 Tip final rule. 

The Department also finalizes as 

proposed the revision to § 580.18(b)(3), 

which eliminates the reference in that 

regulation to willful violations of 

section 3(m)(2)(B), which was a 

technical error in the 2020 Tip final 

rule, since the CAA Amendments did 

not provide for criminal penalties for 

violations of section 3(m)(2)(B). 

B. Civil Money Penalties for Willful 

Violations of the Fair Labor Standards 

Act 

1. Summary of Proposed Changes to 

Portions of CMP Regulations Addressing 

When a Violation of Section 6 or 

Section 7 of the FLSA Is Willful 

In addition to revising its regulations 

to preserve the Department’s full 

discretion to assess CMPs for violations 

of section 3(m)(2)(B), the Department 

proposed to further modify §§ 578.3(c) 

and 579.2 of its CMP regulations, which 

address when a violation of the FLSA is 

‘‘willful,’’ and thus subject to a CMP 

under section 16(e). 86 FR 15822. 

Specifically, the Department proposed 

to withdraw and repropose with a 

modification the language at 

§§ 578.3(c)(2) and 579.2 addressing 

when an employer’s violation is 

knowing, and further proposed to 

reinsert language at §§ 578.3(c)(3) and 

579.2 to provide guidance regarding the 

meaning of reckless disregard. 

As previously explained,10 the 

Department’s definition of a ‘‘willful’’ 

violation in §§ 578.3(c) and 579.2 is 

based on McLaughlin v. Richland Shoe 

Co., 486 U.S. 128, 133 (1988), which 

held that a violation is willful if the 

employer ‘‘knew or showed reckless 

disregard’’ for whether its conduct was 

prohibited by the FLSA. The 

Department incorporated this holding 

into § 578.3(c)(1) of its CMP regulations 

when they were first promulgated in 

1992, and § 578.3(c)(1) further states 

that ‘‘[a]ll of the facts and circumstances 

surrounding the violation shall be taken 

into account in determining whether a 

violation was willful.’’ 29 CFR 

578.3(c)(1); 57 FR 49130 (1992). The 

2020 Tip final rule made no changes to 

this language in § 578.3(c)(1), and the 

Department did not propose any in the 

CMP NPRM. See 86 FR 15822. 

The Department’s 1992 CMP 

regulations identified two specific 

circumstances in which a violation 

‘‘shall be deemed’’ knowing and in 

reckless disregard, respectively, and 

thus willful: Prior advice from WHD to 

the employer that its conduct was 

unlawful, and the employer’s failure to 

adequately inquire further into the 

lawfulness of its conduct when it 

should have. 57 FR 49130; 29 CFR 

578.3(c)(2)–(3). As the Department 

noted in the NPRM for the 2020 Tip 

final rule, two appellate courts 

identified an inconsistency between the 

1992 regulations’ language, on the one 

hand, that conduct ‘‘shall be deemed 

knowing’’ if the employer was 

previously advised by WHD that the 

conduct was unlawful, and its language, 

on the other hand, derived from 

Richland Shoe, that WHD shall take into 

account ‘‘[a]ll of the facts and 

circumstances surrounding the 

violation’’ when determining 

willfulness. See 84 FR 53964–65 

(discussing Rhea Lana, Inc. v. Dep’t of 

Labor, 824 F.3d 1023, 1030–32 (D.C. Cir. 

2016), and Baystate Alt. Staffing, Inc. v. 

Herman, 163 F.3d 668, 680–81 (1st Cir. 

1998)). The Department also explained 

in the NPRM for the 2020 Tip final rule 

that it does evaluate all of the facts and 

circumstances surrounding a violation 

when litigating willfulness, 

notwithstanding the regulatory language 

that appeared to be to the contrary. See 

84 FR 53965. Accordingly, the NPRM 

for the 2020 Tip final rule proposed to 

revise §§ 578.3(c)(2)–(3) and 579.2 to 

state that an employer’s receipt of 

advice from WHD that its conduct is 

unlawful and its failure to inquire 

further regarding the legality of its 

conduct are each ‘‘a relevant fact and 

circumstance’’ in determining 

willfulness. See 84 FR 53978. 

After considering comments received, 

the 2020 Tip final rule revised 

§ 578.3(c)(2) and the corresponding 

language in § 579.2 to state that, in 

considering all of the facts and 

circumstances, an employer’s receipt of 

advice from WHD that its conduct was 

unlawful ‘‘can be sufficient’’ to show 

that the violation is knowing but is ‘‘not 

automatically dispositive.’’ See 85 FR 

86774. In addition, the 2020 Tip final 

rule deleted § 578.3(c)(3) and the 

corresponding language in § 579.2 

addressing the meaning of reckless 

disregard. The 2020 Tip final rule 

explained that, unlike § 578.3(c)(2), 

§ 578.3(c)(3) does not just identify a fact 

and address how that fact impacts a 

willfulness finding; instead, it addresses 

a scenario—in which an employer 

should have inquired further into the 

lawfulness of its conduct but did not do 

so adequately—that is ‘‘tantamount to 

reckless disregard.’’ See 85 FR 86774 

(citing Davila v. Menendez, 717 F.3d 

1179, 1185 (11th Cir. 2013)). According 

to the 2020 Tip final rule, revising 

§ 578.3(c)(3) in the same manner as 

§ 578.3(c)(2) thus ‘‘did not seem 

helpful.’’ Id. 

In the CMP NPRM, the Department 

stated that it believed a modification to 

§ 578.3(c)(2) and the corresponding 

language in section § 579.2 regarding 

knowing violations was necessary to 

clarify that other circumstances, not just 

the circumstance identified in these 

regulations, can be sufficient to show 

that a violation is knowing. 

Accordingly, the Department proposed 

to withdraw and repropose § 578.3(c)(2) 

Federal Register / Vol. 86, No. 183 / Friday, September 24, 2021 / Rules and Regulations 52979 

11The AG Coalition also stated that ‘‘section 

578.3(c)(2) could be strengthened by re-inserting the 

‘shall be deemed’ language while maintaining 

consistency with Richland Shoe, though the 

proposed revision is much improved from the 2020 

Tip Rule.’’ 

12 In contrast, NELP stated that ‘‘the longstanding 

regulatory language’’ in §§ 578.3(c)(2) and (3) and 

579.2 stating that violations ‘‘shall be deemed’’ 

willful in certain scenarios is ‘‘not in tension with 

language elsewhere in FLSA regulations and in 

precedent requiring that ‘all of the facts and 

circumstances’ be considered in determining 

whether a violation was willful.’’ 

and the corresponding language in 

§ 579.2 to state that ‘‘the employer’s 

receipt of advice from a responsible 

[WHD] official . . . to the effect that the 

conduct in question is not lawful, 

among other situations, can be sufficient 

to show that the employer’s conduct is 

knowing, but is not automatically 

dispositive.’’ 86 FR 15823. The 

Department also explained in the CMP 

NPRM that, although the preamble to 

the 2020 Tip final rule stated that an 

employer’s failure to make adequate 

further inquiry into the lawfulness of its 

conduct when it should have done so is 

‘‘tantamount to reckless disregard,’’ the 

rule’s deletion of § 578.3(c)(3) and the 

corresponding language in § 579.2 could 

be read as suggesting the opposite. See 

id. Accordingly, the Department 

proposed to reinsert language in 

§§ 578.3(c)(3) and 579.2 addressing 

reckless disregard—specifically, that 

‘‘reckless disregard of the requirements 

of the Act means, among other 

situations, that the employer should 

have inquired further into whether its 

conduct was in compliance with the Act 

and failed to make adequate further 

inquiry.’’ 86 FR 15823. 

2. Comments Regarding Proposed 

Willfulness Changes 

Multiple commenters supported the 

willfulness changes proposed in the 

CMP NPRM. The AG Coalition stated 

that the proposed revisions to 

§§ 578.3(c)(2) and (3) and 579.2 would 

address their concerns with the 2020 

Tip final rule’s amendments to these 

provisions, which ‘‘[left] the regulated 

community without guidance in 

determining when reckless conduct is 

willful’’ (among other concerns). The 

AG Coalition supported the 

Department’s proposal to ‘‘clarif[y] that 

there may be other situations’’ where a 

violation can be found knowing, in 

addition to when an employer has 

received advice from WHD that its 

conduct is unlawful. The AG Coalition 

also supported the Department’s 

proposal to reinstate regulatory text 

regarding the meaning of reckless 

disregard in §§ 578.3(c)(3) and 579.2, 

including the Department’s proposal 

that reckless disregard may be 

established in situations other than 

where ‘‘the employer should have 

inquired further but did not do so 

adequately.’’ 11 The Center for 

Workplace Compliance (CWC) stated 

that it was ‘‘pleased to support’’ the 

Department’s proposal to retain 

language in §§ 578.3(c)(2) and 579.2 

stating that an employer’s receipt of 

advice from WHD that its conduct was 

unlawful is ‘‘not automatically 

dispositive’’ of willfulness. According to 

CWC, this language ‘‘recognizes that 

employers should not be automatically 

subject to [CMPs] where legitimate 

questions exist concerning . . . 

coverage.’’ 

Commenters representing employees 

generally supported the proposed 

willfulness changes in part. 

Commenters such as Restaurant 

Opportunities Centers United (ROC 

United), the North Carolina Justice 

Center (NCJC), and the National 

Employment Lawyers Association 

(NELA) supported the Department’s 

affirmation in the CMP NPRM that the 

two scenarios identified in its 

regulations—an employer’s receipt of 

advice from WHD that its conduct was 

unlawful and an employer’s failure to 

adequately inquire into the lawfulness 

of its conduct when it should have done 

so—‘‘can be sufficient’’ to establish 

willfulness. See also Texas RioGrande 

Legal Aid (TRLA) (‘‘TRLA appreciate[s] 

the DOL’s improvement between the 

prior notice of proposed rulemaking and 

this reproposal.’’). These commenters 

noted that they understood the 

Department’s concern that the 1992 

versions of §§ 578.3(c)(2) and (3) and 

579.2 ‘‘may be in tension’’ with 

Richland Shoe and with § 578.3(c)(1)’s 

requirement that all facts and 

circumstances be considered.12

However, to give the scenarios 

identified in the regulations ‘‘the proper 

weight,’’ commenters representing 

employees recommended that the 

Department ‘‘establish a rebuttable 

presumption that a violation is knowing 

when an employer received notice from 

WHD that its conduct was unlawful, 

and that a violation is in reckless 

disregard of the law if the employer 

failed to make adequate inquiry into 

whether its conduct was compliant.’’ 

See, e.g., ROC United; NCJC; NELA; 

NELP; TRLA. 

The NRA and NFIB urged the 

Department to retain the 2020 Tip final 

rule’s revisions to §§ 578.3(c)(2) and (3) 

and 579.2. The NRA stated that it 

supported the 2020 Tip final rule’s 

willfulness changes ‘‘for the reasons that 

the Department already outlined’’ in the 

2020 Tip final rule before the 

Department’s ‘‘sudden’’ change of 

opinion in the CMP NPRM. The NFIB 

supported the 2020 Tip final rule’s 

willfulness changes over those proposed 

in the CMP NPRM as well, 

characterizing the 2020 revisions as 

‘‘reasonable and practical.’’ In the 

alternative, NFIB requested that the 

Department retain the 2020 Tip final 

rule’s willfulness changes for ‘‘small 

and independent businesses.’’ 

3. Discussion of Comments and 

Rationale for Finalizing Proposed 

Changes to Portions of CMP Regulations 

Addressing When a Violation Is Willful 

After considering all the comments, 

the Department is finalizing the 

revisions to §§ 578.3(c)(2) and (c)(3) and 

579.2 as proposed. 

The Department continues to believe 

that revisions to its 1992 regulations 

regarding when a violation of the FLSA 

is willful are necessary for the reasons 

identified in the 2020 Tip final rule: To 

resolve the tensions identified by 

appellate courts within § 578.3(c) and 

between § 578.3(c) and Richland Shoe 

and to align these provisions more 

closely with how the Department 

actually litigates. Accordingly, as 

proposed in the CMP NPRM, the 

Department is retaining the language in 

§ 578.3(c)(2) and the corresponding 

language in § 579.2 that an employer’s 

receipt of advice from WHD that its 

conduct is unlawful is ‘‘not 

automatically dispositive’’ of a knowing 

violation. By clarifying that an 

employer’s receipt of advice from WHD 

that its conduct is unlawful is not 

automatically dispositive, the 

Department also addresses the concern 

raised by CWC that such evidence 

should not ‘‘automatically subject’’ an 

employer to CMPs where the employer 

has a legitimate disagreement with 

WHD concerning the FLSA’s coverage. 

At the same time, this rule’s revisions 

to §§ 578.3(c)(2) and 579.2 affirm that an 

employer’s receipt of advice from WHD 

that its conduct is unlawful ‘‘can be 

sufficient’’ to show that a violation is 

knowing and thus willful. In accordance 

with § 578.3(c)(1), all facts and 

circumstances surrounding the violation 

must be taken into account when 

determining willfulness. However, an 

employer’s receipt of advice from WHD 

that its conduct is unlawful is a 

significant, and may be a determining, 

factor regarding that employer’s 

willfulness. 

By finalizing the proposed changes to 

§ 578.2(c)(2) and the corresponding 

language in § 579.2, this rule also makes 

explicit, consistent with considering all 

of the facts and circumstances, that 

52980 Federal Register / Vol. 86, No. 183 / Friday, September 24, 2021 / Rules and Regulations 

13Additionally, courts have made clear that the 

burden of proving that an employer acted willfully 

ultimately falls in the employee. See, e.g., Davila, 

717 F.3d at 1184–85. 

14The Department notes that it disagrees with the 

NRA’s assertion that the proposed willfulness 

changes represent a ‘‘sudden’’ change in position 

from the 2020 Tip final rule. Although the proposed 

revisions make important and needed modifications 

to §§ 578.3(c)(2) and (3) and 579.2, these revisions 

clearly build upon rather than depart from the 

fundamental reasoning behind and objectives of the 

2020 Tip final rule’s willfulness revisions: To better 

align the Department’s CMP regulations with 

appellate court precedent and with how the 

Department actually litigates willfulness. 

evidence other than an employer’s 

receipt of advice from WHD that its 

conduct was unlawful can be sufficient 

to show that a violation was knowing. 

As noted above, the AG Coalition urged 

the Department to finalize this proposed 

change. This rule thus makes clear that 

other circumstances, not just the 

circumstance identified in § 578.3(c)(2), 

can be sufficient to show that a violation 

is knowing. 

This rule also restores regulatory text 

regarding the meaning of willfulness by 

reinserting language regarding reckless 

disregard in §§ 578.3(c)(3) and 579.2. 

The Department agrees with the AG 

Coalition and advocacy groups 

representing employees who argued that 

simply deleting § 578.3(c)(3) and the 

corresponding language in § 579.2 may 

have led to confusion and uncertainty. 

The revised language in §§ 578.3(c)(3) 

and 579.2 regarding reckless disregard 

aligns the Department’s regulations with 

appellate court precedent, pursuant to 

which an employer’s failure to 

adequately inquire into whether it 

violated the FLSA when it should have 

done so is considered tantamount to 

reckless disregard. See Davila v. 

Menendez, 717 F.3d 1179, 1184 (11th 

Cir. 2013). The revisions to § 578.3(c)(3) 

and the corresponding language in 

§ 579.2 also make clear that reckless 

disregard can be proven by evidence 

other than that the employer should 

have inquired further but did not do so 

adequately. When determining reckless 

disregard, the Department must still 

consider all of the relevant facts and 

circumstances. See § 578.3(c)(1). 

Accordingly, under revised 

§§ 578.3(c)(3) and 579.2, an employer is 

in reckless disregard of the FLSA when, 

among other situations, the Department 

determines based on all of the facts and 

circumstances that the employer should 

have inquired into whether its conduct 

was lawful but failed to do so 

adequately. 

The Department appreciates the 

concern of commenters representing 

employees that the circumstances 

identified in §§ 578.3(c)(2) and (3) be 

accorded appropriate weight in the 

willfulness analysis. However, the 

Department declines to incorporate into 

its regulations a rebuttable presumption 

that a violation of the FLSA is willful in 

these scenarios. Any rebuttable 

presumption would need to be carefully 

calibrated to ensure that it is consistent 

with § 578.3(c)(1)’s requirement, derived 

from Richland Shoe, that all facts and 

circumstances be considered in 

determining willfulness.13 Incorporating 

a rebuttable presumption into these 

provisions would also create 

administrative difficulties, as it would 

require a change in how WHD assesses 

CMPs and how the Department litigates 

CMP proceedings. 

Moreover, the Department does not 

agree that incorporating a rebuttable 

presumption of willfulness into its CMP 

regulations would accord greater weight 

to the scenarios identified in 

§§ 578.3(c)(2) and (3) than is accorded 

by its revisions to these provisions. As 

discussed above, under the proposed 

revisions—which this rule finalizes—an 

employer’s receipt of advice from WHD 

that its conduct was unlawful ‘‘can be 

sufficient’’ to establish a knowing 

violation; thus, the revisions accord 

significant, and possibly determinative, 

weight to this fact in the willfulness 

analysis. Additionally, as noted above, 

an employer is in reckless disregard of 

the FLSA when, based on all of the facts 

and circumstances, it should have 

inquired into the lawfulness of its 

conduct but failed to do so adequately. 

Since any rebuttable presumption 

would need to be carefully calibrated to 

avoid conflicting with the requirement 

that all facts and circumstances be 

considered and would necessitate a 

change in how the Department 

administers CMPs and litigates 

willfulness, and given that 

incorporating a rebuttable presumption 

into the regulations would not 

necessarily accord greater weight to the 

scenarios in §§ 578.3(c)(2) and (3) and 

579.2, the Department declines to 

incorporate a rebuttable presumption of 

willfulness into its CMP regulations. 

Finally, the Department declines to 

retain the 2020 Tip final rule’s 

willfulness revisions, as urged by the 

NRA and NFIB. Upon review of the 

comments and for the reasons discussed 

above, the Department believes that the 

proposed revisions to §§ 578.3(c)(2) and 

(3) and 579.2 make needed 

modifications to its CMP regulations.14

The Department also declines NFIB’s 

suggestion to preserve the 2020 Tip final 

rule’s willfulness revisions for smaller 

employers. Consistent with the text of 

section 16(e)(2) of the FLSA, which 

provides that ‘‘any person who 

repeatedly or willfully violates’’ section 

6 or 7 of the FLSA ‘‘shall be subject to 

a civil penalty,’’ 29 U.S.C. 216(e)(2), the 

Department has always maintained a 

uniform standard of willfulness 

applicable to all persons who violate the 

FLSA. See 57 FR 49128. Adopting 

different standards of willfulness for 

different sizes of employers would 

present administrative difficulties for 

WHD. 

Accordingly, the final rule adopts the 

revisions to §§ 578.3(c)(2) and (c)(3) and 

579.2 as proposed. 

C. Managers and Supervisors Under 

3(m)(2)(B) 

Section 3(m)(2)(B) prohibits 

employers, regardless of whether they 

take a tip credit, from keeping tips 

received by employees, ‘‘including 

allowing managers or supervisors to 

keep any portion of employees’ tips.’’ 29 

U.S.C. 203(m)(2)(B). Section 

531.52(b)(2), as amended by the 2020 

Tip final rule, reiterates the prohibition 

in section 3(m)(2)(B) that ‘‘[a]n 

employer may not allow managers and 

supervisors to keep any portion of an 

employee’s tips, regardless of whether 

the employer takes a tip credit.’’ 29 CFR 

531.52(b)(2). However, § 531.52(b)(2) 

clarifies that an employer does not 

violate 3(m)(2)(B) when a manager or 

supervisor keeps tips that ‘‘he or she 

receives directly from customers based 

on the service that he or she directly 

provides.’’ The Department explained in 

the 2020 Tip final rule that section 

3(m)(2)(B) does not bar managers and 

supervisors from keeping their own tips 

but only prohibits managers and 

supervisors from keeping ‘‘tips received 

by employees other than themselves.’’ 

See 85 FR 86764. Thus, for example, a 

salon manager may ‘‘keep tips left by 

customers whose hair she personally 

styles,’’ without violating the statute. Id. 

In the CMP NPRM, the Department 

observed that some managers and 

supervisors may directly engage in a 

significant amount of tipped work for 

which they earn tips, and requested 

comments on whether it could make 

additional adjustments to the 

regulations to better address these 

employees without running afoul of 

section 3(m)(2)(B)’s prohibition of these 

individuals ‘‘keeping’’ other employees’ 

tips. The Department asked whether 

language in the current regulation is 

sufficient to allow managers and 

supervisors to retain the tips they earn 

from customer service work. The 

Department also requested comment on 

whether it should modify the regulation 

to clarify that managers and supervisors 

can contribute tips to mandatory tip 

Federal Register / Vol. 86, No. 183 / Friday, September 24, 2021 / Rules and Regulations 52981 

pools. In addition, the Department 

asked general questions about managers 

and supervisors and tipped work, 

including: (1) How commonly managers 

and supervisors perform tipped work; 

(2) whether, prior to the CAA, managers 

and supervisors who perform tipped 

work typically participated in tip pools 

or tip sharing arrangements; and (3) 

whether it is common for tips provided 

for work performed by a manager or 

supervisor to be commingled with other 

employees’ tips. 

1. Managers and Supervisors May Keep 

Tips They Directly Receive for Service 

They Directly and Solely Provide 

Commenters—representing both 

employers and employees—generally 

noted that it is not unusual for managers 

and supervisors in service industries to 

perform tipped work. See Werman 

Salas; NRA. NRA stated that, in the 

restaurant industry, managers and 

supervisors ‘‘take orders,’’ and ‘‘serve 

food . . . on [a] daily basis throughout 

the country.’’ NRA also explained that, 

in ‘‘some circumstances,’’ a ‘‘manager 

might be the only individual serving 

tables because it is a slow day or 

because it is an event outside the 

restaurant location and only supervisors 

are managing it.’’ One brewery employer 

noted that its bar manager has three jobs 

codes—manager, bartender, and 

brewery assistant—and that ‘‘there are 

many times’’ when the manager ‘‘must 

change roles and work under a 

bartender job code for 4 hours of a 6 

hour shift.’’ The commenter further 

noted that even in large restaurants, ‘‘[i]f 

a bartender doesn’t show up for work,’’ 

the manager may be ‘‘forced to stop 

managing and become the bartender for 

a night.’’ Commenters also indicated 

that managers and supervisors are 

performing more tipped work as a result 

of the COVID–19 pandemic. The 

Employment Rights Center commented 

that, as a result of the pandemic, a 

manager might, for example, be more 

likely to ‘‘serve an unexpected in-person 

table, while a server is staffing a takeout 

counter or preparing to-go orders.’’ ROC 

United stated that managers and 

supervisors at full-service restaurants 

‘‘have performed tipped work on a daily 

and hourly basis over the last year.’’ 

Nearly all commenters supported 

regulatory language allowing managers 

and supervisors who receive their own 

tips for services they directly provide to 

keep those tips. See, e.g., Economic 

Policy Institute (EPI); Employee Rights 

Center; Public Justice Center; Kentucky 

Equal Justice Center; National 

Employment Lawyers Association; 

National Employment Law Project; 

NFIB; National Partnership for Women 

and Families; National Women’s Law 

Center; ROC United; and Worker Justice 

Center of New York. NFIB stated that 

this policy, ‘‘reasonably recognizes 

situations in which a manager or 

supervisor provides leadership services 

with respect to other employees, but 

also furnishes services to customers on 

the same basis as those employees, as 

happens frequently, for example, in the 

restaurant business.’’ One individual 

commenter, however, argued that 

managers and supervisors should not be 

able to keep the tips that they receive for 

their direct service, as this would 

incentivize managers or supervisors to 

‘‘use less staff, so they ‘have to’ lend a 

hand.’’ 

Commenters also described instances 

in which tips provided for work 

performed by a manager or supervisor 

may be commingled with tips provided 

to other tipped employees. Werman 

Salas commented that commingling 

frequently occurs in two scenarios: 

When a manager or supervisor 

‘‘performs tipped work alongside other 

tipped employees and there is a 

common tip jar,’’ or when the manager 

or supervisor assists with tipped work, 

but ‘‘is not solely responsible for the 

service that results in the gratuity being 

given by the customer.’’ For example a 

manager or supervisor might run food to 

a table, but the ‘‘server is otherwise 

responsible for the balance of the guest 

experience.’’ Id. 

The Department requested comments 

on whether it was possible to modify 

the regulations so that a manager or 

supervisor could retain tips in 

commingling scenarios without 

allowing the manager or supervisor to 

keep other employees’ tips in violation 

of 3(m)(2)(B). Commenters who 

responded to this question generally 

stated that such an approach was not 

feasible because it will often be 

impossible to determine the amount of 

the tip ‘‘earned’’ by the manager or 

supervisor. See Werman Salas; NWLC. 

For example, NWLC stated that when a 

customer leaves a single tip for a service 

experience in which both a manager or 

supervisor and a non-managerial tipped 

employee participate, it is not possible 

to attribute a portion of the tip to the 

manager or supervisor. Rather than 

revise the language in § 531.52(b)(2) to 

allow a manager or supervisor to keep 

commingled tips, these commenters 

proposed revising the regulation to 

‘‘state the opposite’’ and provide that a 

manager or supervisor may keep a tip he 

or she directly receives for service he or 

she directly provides only if the tip is 

not commingled with and is segregable 

from other employees’ tips. Werman 

Salas Law Firm; see also NWLC. NRA, 

on the other hand, agreed generally that 

‘‘tips to managers and supervisors 

should not be ‘commingled’ with tips 

provided to tipped employees,’’ but 

suggested that managers and supervisors 

could pool tips among themselves. 

According to the NRA, ‘‘no tipped 

employee shares tips with a supervisor 

or manager’’ in these scenarios. 

Having carefully considered the 

comments, the Department has decided 

to slightly modify the statement in 

§ 531.52(b)(2) that a manager or 

supervisor may keep tips that ‘‘he or she 

receives directly from customers based 

on the service that he or she directly 

provides.’’ In this final rule, the 

Department amends the regulatory 

language to clarify that a manager or 

supervisor may keep tips only for 

services the manager or supervisor 

directly and ‘‘solely’’ provides. 

Particularly given comments 

highlighting the prevalence of tipped 

work among managers and supervisors 

in the service industry, it is important 

that the Department’s regulations 

continue to reflect the fact that section 

3(m)(2)(B) does not prohibit managers 

and supervisors who are tipped 

employees from keeping tips that are 

theirs alone. Moreover, as one 

individual commenter noted, if 

managers and supervisor cannot keep 

such tips, it is unclear who would be 

entitled to them. 

However, by clarifying that a manager 

or supervisor may keep tips only for 

services the manager or supervisor 

directly and ‘‘solely’’ provides, the 

modified regulatory text will prevent 

managers and supervisors from keeping 

tips when it is not possible to attribute 

the tip solely to the manager or 

supervisor. The modified regulatory text 

thus helps to ensure that managers and 

supervisors do not keep ‘‘any portion’’ 

of other employees’ tips, see 29 U.S.C. 

203(m)(2)(B). With respect to 

commenters’ suggestion that the 

Department specify that such tips must 

be segregable from or not commingled 

with other employees’ tips, the 

Department believes that the clarified 

language of § 531.52(b)(2) makes clear 

that a manager or supervisor may keep 

only those tips that the manager or 

supervisor receives directly for a service 

that the manager or supervisor directly 

and solely provides. Thus, a manager 

who serves her own tables may keep her 

own tips, for example. However, when 

a manager simply runs food to a table 

for which a server is otherwise 

responsible, she may not keep any 

portion of the tip the customer leaves 

for the server since that tip was not 

earned solely by the manager or 

supervisor. 

52982 Federal Register / Vol. 86, No. 183 / Friday, September 24, 2021 / Rules and Regulations 

15A manager or supervisor who performs tipped 

work may satisfy the definition of a ‘‘tipped’’ 

employee under section 3(t) because they are 

engaged in an occupation in which they 

‘‘customarily and regularly receive[ ] more than $30 

a month in tips.’’ See 29 U.S.C. 203(t). Under those 

circumstances, an employer may take a tip credit 

for the hours worked in the tipped occupation 

pursuant to section 3(m)(2)(A), assuming that all 

other requirements for the tip credit are satisfied. 

If the employer does so, it may not require the 

tipped manager to contribute tips to a 

nontraditional tip pool, and may only require the 

tipped manager or supervisor to contribute their 

tips to a traditional tip pool comprised of other 

tipped employees. Regardless of whether an 

employee is engaged in a tipped occupation, 

however, if the employee satisfies the duties test for 

managers and supervisors, including the 

requirement that management is the employee’s 

primary duty, the employee cannot receive other 

employees’ tips from a mandatory tip pool or tip 

sharing arrangement pursuant to section 3(m)(2)(B). 

Thus, even if a manager or supervisor is engaged 

as a tipped employee under section 3(t) and can be 

paid with a tip credit and participate in a tip pool 

under section 3(m)(2)(A), they may also still qualify 

as manager or supervisor under 3(m)(2)(B), in 

which case they would be prohibited from receiving 

tips from the tip pool, and from otherwise keeping 

other employees’ tips. 

16Several commenters argued that permitting 

managers and supervisors to contribute to 

mandatory tip sharing arrangements ‘‘makes it all 

the more important that only employees who are 

bona fide managers and supervisors are classified 

as such,’’ and urged the Department to reconsider 

the definition of ‘‘manager or supervisor’’ adopted 

in its 2018 FAB and 2020 Tip final rule. ROC 

United; NELP; National Partnership for Women and 

Families. These commenters urged the Department 

to include a salary component in the definition. The 

CMP NPRM did not contemplate changes to the 

regulatory definition of the terms ‘‘manager or 

supervisor,’’ however, and revisions incorporating a 

salary level are outside of the scope of this 

rulemaking. The Department lacks sufficient 

information to consider such changes as part of the 

final rule. 

The Department also declines to 

amend the regulations to allow 

mandatory tip pools comprised only of 

managers and supervisors, as proposed 

by NRA. The statute does not permit 

such arrangements: Managers and 

supervisors are employees under the 

FLSA, see 29 U.S.C. 203(e)(1), and 

3(m)(2)(B) prohibits employers from 

allowing managers or supervisors to 

keep other ‘‘employees’ tips.’’ 15 This 

includes other managers and 

supervisors’ tips. Moreover, to permit 

scenarios in which a higher-ranking 

manager or supervisor—for example, the 

general manager of a restaurant—could 

keep tips from a lower-ranking manager 

or supervisor—for example, a shift 

supervisor who also tends bar—would 

undermine the CAA’s mandate of 

preventing employers and their agents 

from keeping employees’ tips. 

2. Managers and Supervisors May 

Contribute Tips To, But Not Receive 

Tips From, Tip Pools 

In this final rule, the Department also 

amends §§ 531.54(c)(3) and 531.54(d) to 

clarify that an employer may not allow 

a manager or supervisor to receive tips 

from employer-mandated tip pools or 

tip sharing arrangements, but may 

require a manager and supervisor to 

contribute tips to such an arrangement. 

As discussed above, section 3(m)(2)(B) 

prohibits managers and supervisors 

from keeping any portion of other 

employees’ tips. See also § 531.52(b)(2). 

Sections 531.54(c)(3) and (d), as 

amended by the 2020 Tip final rule, 

implement this prohibition by barring 

employers from ‘‘includ[ing]’’ such 

managers and supervisors in mandatory 

tip pools. The preamble accompanying 

the 2020 Tip final rule interpreted 

§ 531.54(c)(3) and (d) to prohibit 

employers from requiring managers and 

supervisors to contribute, as well as 

from allowing them to receive, tips from 

mandatory tip pooling or sharing 

arrangements. 85 FR 86764. As a result 

of the Department’s interpretation in the 

2020 Tip final rule, a restaurant 

employer, for example, can require nonmanagerial servers to give a portion of 

their tips to the bussers, but is 

prohibited from requiring a manager 

who also serves tables to similarly 

contribute. Or a salon employer may 

require non-supervisory stylists to share 

a portion of tips with the shampoo 

assistant, but cannot require a stylist 

who is also a supervisor to do the same. 

In the CMP NPRM, the Department 

therefore sought comment on whether it 

should adjust its regulations to allow 

managers and supervisors, like other 

employees who receive tips, to 

contribute tips to eligible employees in 

mandatory tip pools or tip sharing 

arrangements, so long as: (1) They do 

not receive any tips from a pool; or (2) 

alternatively, so long as they receive out 

of the tip pool no more than what they 

contributed. 

Commenters overwhelmingly 

supported a change to allow employers 

to require managers and supervisors, 

like other employees who receive tips, 

to contribute to tip pooling or sharing 

arrangements. See, e.g., EPI; Employee 

Rights Center; Public Justice Center; 

ROC United; North Carolina Justice 

Center; Workplace Justice Project; 

National Employment Lawyers 

Association; National Employment Law 

Project; Kentucky Equal Justice Center; 

National Partnership for Women and 

Families; National Women’s Law 

Center; Worker Justice Center of New 

York; NRA.16 NRA noted that 

mandatory tip sharing arrangements in 

which managers or supervisors who 

have ‘‘responsibility for serving tables’’ 

share a portion of their tips with 

bartenders, bussers, or other employees 

who help them, are common in the 

restaurant industry. Commenters also 

stated that allowing managers and 

supervisors who earn tips to contribute 

them to eligible employees in 

mandatory tip pools would benefit nonmanagerial employees. See Werman 

Salas; NRA. In addition, the Center for 

Workplace Compliance commented that 

modifying the regulations to allow 

managers and supervisors to contribute 

to mandatory tip pools would benefit 

employers by giving them ‘‘a little more 

flexibility to adopt tip pooling practices 

that work best in their industry.’’ NRA 

also stated that the statute does not 

prohibit employers from requiring 

managers and supervisors to share their 

own tips. 

To the extent that commenters 

addressed the possibility of allowing 

managers and supervisors who 

contribute tips to a tip pool to receive 

tips from the arrangement up to the 

amount they contributed, commenters 

opposed this alternative. See Werman 

Salas; NRA. Werman Salas asserted that 

a policy allowing managers or 

supervisors to receive some tips from a 

tip pool, but no more than what the 

manager or supervisor contributes, 

‘‘would be difficult or impossible to 

apply.’’ In contrast, allowing employers 

to require managers and supervisors to 

contribute a portion of their tips to 

mandatory tip pooling or sharing 

arrangements, while preserving ‘‘the 

prohibition on managers and 

supervisors receiving any tips from such 

pooling or sharing arrangements’’ would 

maintain ‘‘the integrity of the tip 

pooling arrangements without improper 

participation from managers or 

supervisors.’’ 

Having considered the comments, the 

Department adopts changes to its 

regulations to clarify that, while an 

employer may not allow a manager or 

supervisor to keep other employees’ tips 

by receiving tips from a tip pool or tip 

sharing arrangement, section 3(m)(2)(B) 

does not prohibit an employer from 

requiring a manager and supervisor who 

receives tips directly from customers to 

contribute some portion of those tips to 

eligible employees in an employermandated tip pooling or tip sharing 

arrangement. The final rule similarly 

provides that employers—some of 

whom may themselves be managers or 

supervisors who perform tipped work— 

may not receive tips from a tip pool or 

sharing arrangement, but does not bar 

employers who receive tips directly 

from customers from sharing those tips 

with their employees. 

The Department agrees with 

commenters that allowing employers to 

require managers and supervisors to 

Federal Register / Vol. 86, No. 183 / Friday, September 24, 2021 / Rules and Regulations 52983 

17See 58 FR 51735, 51741 (Oct. 4, 1993). 

share their tips with other eligible 

employees will benefit non-managerial 

employees. When managers or 

supervisors contribute tips to mandatory 

tip pools, non-managerial employees 

(e.g., bussers, other servers, and 

bartenders) may earn more from the 

pool and tipped non-managerial 

employees (e.g., servers and bartenders) 

may be required to contribute less to the 

pool. The Department believes that 

allowing employers to require managers 

and supervisors, like other employees 

who receive tips, to contribute to tip 

sharing is particularly important given 

that managers or supervisors may have 

the opportunity to serve the largest 

tables or groups of customers, or work 

the more desirable shifts. In addition, 

the Department takes note of 

commenters’ statement that section 

3(m)(2)(B) does not expressly prohibit 

employers from requiring managers or 

supervisors to share tips. 

The Department expressed concerns 

in the 2020 Tip final rule that allowing 

managers and supervisors to participate 

in tip pools for one purpose 

(contributing tips) and not for another 

(receiving tips) could ‘‘create confusion 

among employers and employees,’’ and 

lead to situations in which compliance 

is difficult. 85 FR 86764. On further 

consideration, however, the Department 

has determined that any compliance 

difficulties created by this policy are 

minimal and are outweighed by the 

benefits noted above. The far more 

intractable challenge for compliance 

and enforcement, as commenters noted, 

would be to allow managers and 

supervisors to contribute to employermandated tip pooling or tip sharing 

arrangements and also receive tips from 

the pool. Under such a policy, it would 

be very difficult to ensure that managers 

and supervisors are not taking more 

than the equivalent of their own tips in 

violation of the statute. The Department 

believes, however, that employers can 

more easily implement a bright line rule 

in which managers or supervisors 

contribute tips to mandatory tip sharing 

arrangements, but do not receive any 

tips from those arrangements. 

As finalized, § 531.54(c)(3) and (d) 

provide that, consistent with section 

3(m)(2)(B) of the FLSA, an employer 

may not receive and may not allow a 

manager or supervisor to receive any 

tips from a tip pool or tip sharing 

arrangement. As amended, the 

regulations do not prohibit an employer 

from contributing tips to, or from 

requiring a manager and supervisor who 

receives tips to contribute tips to, 

eligible employees in an employermandated tip pooling or tip sharing 

arrangement. When a manager or 

supervisor directly receives tips for a 

service the manager or supervisor 

directly and solely provides, an 

employer may allow the manager or 

supervisor to keep the tips, and may 

also require the manager or supervisor 

to share some portion of the tips with 

other eligible employees. Neither of 

these options runs afoul of section 

3(m)(2)(B)’s prohibition on managers 

and supervisors ‘‘keep[ing]’’ other 

employees’ tips. 

IV. Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

(PRA), 44 U.S.C. 3501 et seq., and its 

attendant regulations, 5 CFR part 1320, 

require the Department to consider the 

agency’s need for its information 

collections, their practical utility, the 

impact of paperwork and other 

information collection burdens imposed 

on the public, and how to minimize 

those burdens. This final rule does not 

contain a collection of information 

subject to OMB approval under the 

PRA. 

V. Analysis Conducted in Accordance 

With Executive Order 12866, 

Regulatory Planning and Review and 

Executive Order 13563, Improved 

Regulation and Regulatory Review 

A. Introduction 

Under Executive Order 12866, OMB’s 

Office of Information and Regulatory 

Affairs (OIRA) determines whether a 

regulatory action is significant and, 

therefore, subject to the requirements of 

the Executive Order and OMB review.17

Section 3(f) of Executive Order 12866 

defines a ‘‘significant regulatory action’’ 

as a regulatory action that is likely to 

result in a rule that may: (1) Have an 

annual effect on the economy of $100 

million or more, or adversely affect in 

a material way a sector of the economy, 

productivity, competition, jobs, the 

environment, public health or safety, or 

state, local, or tribal governments or 

communities (also referred to as 

economically significant); (2) create 

serious inconsistency or otherwise 

interfere with an action taken or 

planned by another agency; (3) 

materially alter the budgetary impact of 

entitlements, grants, user fees, or loan 

programs, or the rights and obligations 

of recipients thereof; or (4) raise novel 

legal or policy issues arising out of legal 

mandates, the President’s priorities, or 

the principles set forth in the Executive 

Order. OIRA has determined that this 

rule is not economically significant 

under section 3(f) of Executive Order 

12866. 

Executive Order 13563 directs 

agencies to, among other things, propose 

or adopt a regulation only upon a 

reasoned determination that its benefits 

justify its costs; that it is tailored to 

impose the least burden on society, 

consistent with obtaining the regulatory 

objectives; and that, in choosing among 

alternative regulatory approaches, the 

agency has selected those approaches 

that maximize net benefits. Executive 

Order 13563 recognizes that some costs 

and benefits are difficult to quantify and 

provides that, when appropriate and 

permitted by law, agencies may 

consider and discuss qualitatively 

values that are difficult or impossible to 

quantify, including equity, human 

dignity, fairness, and distributive 

impacts. The analysis below outlines 

the impacts that the Department 

anticipates may result from this rule and 

was prepared pursuant to the abovementioned executive orders. 

Pursuant to Subtitle E of the Small 

Business Regulatory Enforcement 

Fairness Act of 1996 (also known as the 

Congressional Review Act) (5 U.S.C. 801 

et seq.), OIRA has not designated this 

rule as a major rule, as defined by 5 

U.S.C. 804(2). 

B. Background 

In this final rule, the Department 

modifies the portion of the 2020 Tip 

final rule incorporating the CAA’s new 

provisions authorizing the assessment of 

CMPs for violations of section 

3(m)(2)(B) of the Act. The Department 

also modifies an additional portion of 

its CMP regulations addressing willful 

violations. Because these changes will 

only apply when an employer violates 

the FLSA, the Department does not 

believe that they will have an impact on 

costs or transfers. The Department has 

also decided to clarify in this final rule 

that while managers and supervisors 

may not receive tips from tip pools or 

tip sharing arrangements, managers or 

supervisors are not prohibited from 

contributing to mandatory tip pools or 

sharing arrangements. The Department 

has discussed this change qualitatively 

due to data limitations. Other provisions 

codifying the CAA amendments were 

already discussed and quantified in the 

2020 Tip final rule, and so have not 

been quantified again here. The only 

costs quantified here are the rule 

familiarization costs associated with 

reviewing the rule. The Department 

qualitatively discusses possible benefits 

associated with this rule. 

52984 Federal Register / Vol. 86, No. 183 / Friday, September 24, 2021 / Rules and Regulations 

18An establishment is a single economic unit that 

produces goods or services. Establishments are 

typically at one physical location and engaged in 

one, or predominantly one, type of economic 

activity. An establishment is in contrast to a firm, 

or a company, which is a business and may consist 

of one or more establishments. 

19Statistics of U.S. Businesses 2017, https://

www.census.gov/data/tables/2017/econ/susb/2017- 

susb-annual.html, 2017 SUSB Annual Data Tables 

by Establishment Industry. 

20Occupational Employment and Wages, May 

2020. https://www.bls.gov/oes/current/ 

oes131141.htm. 

21The benefits-earnings ratio is derived from the 

Bureau of Labor Statistics’ Employer Costs for 

Employee Compensation data using variables 

CMU1020000000000D and CMU1030000000000D. 

C. Costs 

1. Rule Familiarization Costs 

Regulatory familiarization costs 

represent direct costs to businesses 

associated with reviewing the new 

regulation. It is not clear whether 

regulatory familiarization costs are a 

function of the number of 

establishments or the number of firms.18

Presumably, the headquarters of a firm 

will conduct the regulatory review for 

businesses with multiple locations, and 

may also require these locations to 

familiarize themselves with the 

regulation at the establishment level. To 

avoid underestimating the costs of this 

rule, the Department uses both the 

number of establishments and the 

number of firms to estimate a potential 

range for regulatory familiarization 

costs. The lower bound of the range is 

calculated assuming that one specialist 

per firm will review the rule, and the 

upper bound of the range assumes one 

specialist per establishment. 

The most recent data on private sector 

entities at the time this rule was drafted 

are from the 2017 Statistics of U.S. 

Businesses (SUSB).19 The Department 

limited this analysis to a few industries 

that were acknowledged to have tipped 

workers in the 2020 Tip final rule. 

These industries are classified under the 

North American Industry Classification 

System (NAICS) as 713210 (Casinos), 

721110 (Hotels and Motels), 722410 

(Drinking Places (Alcoholic Beverages)), 

722511 (Full-service Restaurants), 

722513 (Limited Service Restaurants), 

and 722515 (Snack and Nonalcoholic 

Beverage Bars). The Department 

understands that there may be entities 

in other industries with tipped workers 

who may review this rule, but did not 

receive any comments about other 

industries that should be included in 

the analysis. See Table 1 for a list of the 

number of firms and establishments in 

each of these industries. 

TABLE 1—FIRMS AND ESTABLISHMENTS IN TIPPED INDUSTRIES

Industry Firms Establishments 

NAICS 713210 (Casinos) ............................................................................................................................ 221 292 

NAICS 721110 (Hotels and Motels) ............................................................................................................ 42,795 53,869 

NAICS 722410 (Drinking Places (Alcoholic Beverages)) ............................................................................ 39,323 40,156 

NAICS 722511 (Full-Service Restaurants) .................................................................................................. 217,111 250,871 

NAICS 722513 (Limited Service Restaurants) ............................................................................................ 157,353 251,100 

NAICS 722515 (Snack and Nonalcoholic Beverage Bars) ......................................................................... 47,112 65,010 

Total ...................................................................................................................................................... 503,915 661,198 

Source: Statistics of U.S. Businesses 2017. 

The Department believes 30 minutes 

per entity, on average, to be an 

appropriate review time for this rule, 

because most of the information related 

to the CAA amendments that employers 

would have to familiarize themselves 

with was already captured in the 2020 

Tip final rule. The changes in this rule 

are small, and one is consistent with the 

Department’s existing enforcement. This 

review time represents an average of 

employers who will spend less than 30 

minutes reviewing, and others who will 

spend more time. In the NPRM, the 

Department estimated that average 

review time would be 15 minutes, but 

has increased it here to account for the 

additional provisions on managers’ 

participation in tip pools. 

The Department’s analysis assumes 

that the rule would be reviewed by 

Compensation, Benefits, and Job 

Analysis Specialists (SOC 13–1141) or 

employees of similar status and 

comparable pay. The median hourly 

wage for these workers was $32.30 per 

hour in 2020, the most recent year of 

data available.20 The Department also 

assumes that benefits are paid at a rate 

of 46 percent 21 and overhead costs are 

paid at a rate of 17 percent of the base 

wage, resulting in a fully loaded hourly 

rate of $52.65. 

The Department estimates that the 

lower bound of regulatory 

familiarization cost range would be 

$13,265,562 (503,915 firms × $52.65 × 

0.5 hours), and the upper bound, 

$17,406,037 (661,198 establishments × 

$52.65 × 0.5 hours). The Department 

estimates that all regulatory 

familiarization costs would occur in 

Year 1. 

Additionally, the Department 

estimated average annualized costs of 

this rule over 10 years. Over 10 years, 

it would have an average annual cost of 

$1.8 million to $2.3 million, calculated 

at a 7 percent discount rate ($1.5 million 

to $1.9 million calculated at a 3 percent 

discount rate). All costs are in 2020 

dollars. 

D. Transfers Associated With Managers’ 

Contributing to Tip Pools 

As noted above, in the 2020 Tip final 

rule, the Department implemented 

section 3(m)(2)(B) of the FLSA by 

prohibiting employers from including 

managers or supervisors in mandatory 

tip pooling or sharing arrangements. See 

29 CFR 531.54(c)(3), (d) (April 30, 

2021). The preamble accompanying the 

2020 Tip final rule interpreted 

§ 531.54(c)(3) and (d) to prohibit 

employers from requiring managers and 

supervisors to contribute, as well as 

from allowing them to receive, tips from 

mandatory tip pooling or sharing 

arrangements. 85 FR 86764. This final 

rule clarifies that managers and 

supervisors are not prohibited from 

contributing to eligible employees in 

mandatory tip pools or sharing 

arrangements, but they may not receive 

tips from tip pools or tip sharing 

arrangements. If, prior to this final rule, 

a manager was prevented from 

contributing to tip pools, but is now 

able to contribute following this rule, 

their tipped income and overall 

earnings could decrease, while the 

tipped income and overall earnings of 

the other employees in the tip pool 

could increase. The magnitude of this 

change could be estimated by observing 

how managers’ and non-manager 

employees’ tipped income and overall 

earnings changed following the 

provisions of the 2020 Tip final rule that 

Federal Register / Vol. 86, No. 183 / Friday, September 24, 2021 / Rules and Regulations 52985 

22The Department notes that this analysis relies 

on data from 2019, which is prior to the COVID 

pandemic, because it believes that 2019 data 

provides a more accurate picture of the restaurant 

industry going forward than 2020 data. Due to the 

COVID–19 pandemic, many food services and 

drinking places (NAICS 722) adjusted their business 

models, and employment in this industry subsector 

fell in 2020. See Ansell, R. and Mullins, J. (2021), 

‘‘COVID–19 ends longest employment recovery and 

expansion in CES history, causing unprecedented 

job losses in 2020,’’ Monthly Labor Review, U.S. 

Bureau of Labor Statistics, June 2021, https://

doi.org/10.21916/mlr.2021.13. However, although 

employment in this industry subsector has 

recovered significantly in 2021, it still remains 

below its January 2020 level. See Id. 

23Statistics of U.S. Businesses 2017, https://

www.census.gov/data/tables/2017/econ/susb/2017- 

susb-annual.html, 2016 SUSB Annual Data Tables 

by Establishment Industry. 

prevented managers from contributing 

to tip pools. Although the Department 

lacks comprehensive data on the 

number of managers who perform 

tipped work, the Department used data 

from the Current Population Survey 

(CPS) to estimate the number of people 

in the occupation ‘‘First-Line 

Supervisors of Food Preparation and 

Serving Workers.’’ The Department 

acknowledges that this could be an 

undercount of the number of food 

service managers or supervisors who 

receive tips, and that this is not the only 

industry in which managers may receive 

tips. According to CPS, in 2019 there 

were 590,900 First-Line Supervisors of 

Food Preparation and Serving 

Workers.22 Their overall average hourly 

earnings were $17.48 (includes hourly 

and non-hourly workers and tipped and 

non-tipped workers). Of those workers 

who are paid hourly, 24 percent report 

regularly receiving tips, overtime, or 

commissions (this question is only 

asked of hourly workers). After backing 

out estimated overtime pay, the 

Department estimates that these FirstLine Supervisors of Food Preparation 

and Serving Workers earned an average 

of $19.71 per hour, which includes 

$5.68 per hour in tips. Several 

commenters asserted that it is common 

for managers and supervisors to perform 

tipped work. For example, Werman 

Salas stated, ‘‘Our experience from 

litigation is that managers and 

supervisors who arguably satisfy the 

executive employee duties test also 

frequently perform tipped work. For 

example, in litigation against a national 

casual dining establishment, both 

assistant managers and managers who 

arguably met the duties test for 

executive employees, frequently greeted 

customers and ran food to tables as part 

of promoting the ‘guest experience.’ ’’ 

The Department did not receive any 

comments with data on the earnings of 

these managers and supervisors. 

It would also be difficult to discern 

whether any change in earnings would 

be related to the provisions of the 2020 

Tip final rule that prevented managers 

from contributing to mandatory tip 

pools, because the rule had only been in 

effect since April 30, 2021. Prior to the 

2020 Tip final rule, it was unclear to the 

regulated community whether an 

employer could require a manager to 

contribute to tip pools following the 

2018 CAA amendments. See NRA, 

Comment on the 2019 Tip NPRM 

(requesting clarity on this issue). 

E. Benefits 

This rule replaces regulatory language 

in the CMP regulations so that the 

Department is not limited in its 

assessment of tip CMPs to only repeated 

and willful violations of section 

3(m)(2)(B). This change is consistent 

with the text of section 16(e) of the 

FLSA, which provides that ‘‘[a]ny 

person who violates section 3(m)(2)(B) 

shall be subject to a civil penalty . . . 

for each such violation, as the Secretary 

determines appropriate.’’ 29 U.S.C. 

216(e). The Department believes that 

this change, by ensuring that the 

Department has the ability to impose 

CMPs for violations of section 

3(m)(2)(B) when it deems appropriate, 

can help improve the enforcement of the 

statute, potentially discourage more 

employers from violating the FLSA, and 

better ensure that employees keep the 

tips they receive. 

This rule also revises portions of the 

Department’s CMP regulations regarding 

when a violation of section 6 (minimum 

wage) or section 7 (overtime) of the 

FLSA is ‘‘willful,’’ and thus subject to 

a CMP under section 16(e). As discussed 

above, these portions of the 

Department’s regulations are based on 

McLaughlin v. Richland Shoe Co., 486 

U.S. 128, 133 (1988), which held that a 

violation is willful if the employer 

‘‘knew or showed reckless disregard.’’ 

This rule modifies the CMP regulations 

to clarify that multiple circumstances, 

including those not specified in the 

rule, can be sufficient to show a 

knowing violation of section 6 or 7. The 

Department also reinserts language in 

the CMP regulations to address the 

meaning of reckless disregard. The 

Department believes that these revisions 

will better align its CMP regulations 

with how it actually litigates willfulness 

and make clearer to the regulated 

community when a violation is knowing 

or in reckless disregard and thus willful. 

This increased clarity will enable 

employers to better understand when 

they may be subject to a CMP for 

violating the FLSA’s minimum wage or 

overtime requirements, which may 

enhance the penalty’s deterrent effect. 

This rule revises the Department’s 

regulation addressing managers and 

supervisors who cannot keep other 

employees’ tips under section 3(m)(2)(B) 

of the FLSA. The final rule provides that 

managers and supervisors cannot 

receive tips from tip pools or tip sharing 

arrangements, but does not prohibit 

managers and supervisors, who may 

earn their own tips from customers, 

from contributing tips to such 

arrangements. The Department believes 

that these changes will result in 

increased flexibility in tip pooling 

arrangements. 

VI. Regulatory Flexibility Act (RFA) 

Analysis 

The Regulatory Flexibility Act of 1980 

(RFA), 5 U.S.C. 601 et seq., as amended 

by the Small Business Regulatory 

Enforcement Fairness Act of 1996, 

Public Law 104–121 (1996), requires 

federal agencies engaged in rulemaking 

to consider the impact of their proposals 

on small entities, consider alternatives 

to minimize that impact, and solicit 

public comment on their analyses. The 

RFA requires the assessment of the 

impact of a regulation on a wide range 

of small entities, including small 

businesses, not-for-profit organizations, 

and small governmental jurisdictions. 

Accordingly, the Department examined 

this rule to determine whether it would 

have a significant economic impact on 

a substantial number of small entities. 

The most recent data on private sector 

entities at the time this rule was drafted 

are from the 2017 Statistics of U.S. 

Businesses (SUSB).23 The Department 

limited this analysis to a few industries 

that were acknowledged to have tipped 

workers in the 2020 Tip final rule. 

These industries are classified under the 

North American Industry Classification 

System (NAICS) as 713210 (Casinos), 

721110 (Hotels and Motels), 722410 

(Drinking Places (Alcoholic Beverages)), 

722511 (Full-service Restaurants), 

722513 (Limited Service Restaurants), 

and 722515 (Snack and Nonalcoholic 

Beverage Bars). The SUSB reports that 

these industries have 503,915 private 

firms and 661,198 private 

establishments. Of these, 501,322 firms 

and 554,088 establishments have fewer 

than 500 employees. 

The per-entity cost for small business 

employers is the regulatory 

familiarization cost of $26.33, or the 

fully loaded mean hourly wage of a 

Compensation, Benefits, and Job 

Analysis Specialist ($52.65) multiplied 

by 1⁄2 hour (thirty minutes). Because this 

cost is minimal for small business 

entities, and well below one percent of 

52986 Federal Register / Vol. 86, No. 183 / Friday, September 24, 2021 / Rules and Regulations 

24See 2 U.S.C. 1501. 

25Calculated using growth in the Gross Domestic 

Product deflator from 1995 to 2019. Bureau of 

Economic Analysis. Table 1.1.9. Implicit Price 

Deflators for Gross Domestic Product. 

their gross annual revenues, which is 

typically at least $100,000 per year for 

the smallest businesses, the Department 

certifies that this rule will not have a 

significant economic impact on a 

substantial number of small entities. 

VII. Unfunded Mandates Reform Act of 

1995 

The Unfunded Mandates Reform Act 

of 1995 (UMRA) 24 requires agencies to 

prepare a written statement for rules 

with a federal mandate that may result 

in increased expenditures by state, 

local, and tribal governments, in the 

aggregate, or by the private sector, of 

$165 million ($100 million in 1995 

dollars adjusted for inflation) or more in 

at least one year.25 This statement must: 

(1) Identify the authorizing legislation; 

(2) present the estimated costs and 

benefits of the rule and, to the extent 

that such estimates are feasible and 

relevant, its estimated effects on the 

national economy; (3) summarize and 

evaluate state, local, and tribal 

government input; and (4) identify 

reasonable alternatives and select, or 

explain the non-selection, of the least 

costly, most cost-effective, or least 

burdensome alternative. This rule is not 

expected to result in increased 

expenditures by the private sector or by 

state, local, and tribal governments of 

$165 million or more in any one year. 

VIII. Executive Order 13132, 

Federalism 

The Department has (1) reviewed this 

rule in accordance with Executive Order 

13132 regarding federalism and (2) 

determined that it does not have 

federalism implications. The rule would 

not have substantial direct effects on the 

States, on the relationship between the 

national government and the States, or 

on the distribution of power and 

responsibilities among the various 

levels of government. 

VII. Executive Order 13175, Indian 

Tribal Governments 

This rule would not have substantial 

direct effects on one or more Indian 

tribes, on the relationship between the 

Federal Government and Indian tribes, 

or on the distribution of power and 

responsibilities between the Federal 

Government and Indian tribes. 

List of Subjects 

29 CFR Part 531 

Wages. 

29 CFR Part 578 

Penalties, Wages. 

29 CFR Part 579 

Child labor, Penalties. 

29 CFR Part 580 

Administrative practice and 

procedure, Child labor, Penalties, 

Wages. 

For the reasons set forth above, the 

Department amends title 29, parts 531, 

578, 579, and 580 of the Code of Federal 

Regulations as follows: 

PART 531—WAGE PAYMENTS UNDER 

THE FAIR LABOR STANDARDS ACT 

OF 1938 

■ 1. The authority citation for part 531 

continues to read as follows: 

Authority: 29 U.S.C. 203(m) and (t), as 

amended by sec. 3(m), Pub. L. 75–718, 52 

Stat. 1060; sec. 2, Pub. L. 87–30, 75 Stat. 65; 

sec. 101, sec. 602, Pub. L. 89–601, 80 Stat. 

830; sec. 29(B), Pub. L. 93–259, 88 Stat. 55 

sec. 3, sec. 15(c), Pub. L. 95–151, 91 Stat 

1245; sec. 2105(b), Pub. L. 104–188, 110 Stat 

1755; sec. 8102, Pub. L. 110–28, 121 Stat. 

112; and sec. 1201, Div. S., Tit. XII, Pub. L. 

115–141, 132 Stat. 348. 

■ 2. Revise § 531.52(b)(2) to read as 

follows: 

* * * * * 

(b) * * * 

(2) An employer may not allow 

managers and supervisors to keep any 

portion of an employee’s tips, regardless 

of whether the employer takes a tip 

credit. A manager or supervisor may 

keep tips that he or she receives directly 

from customers based on the service 

that he or she directly and solely 

provides. For purposes of section 

3(m)(2)(B), the term ‘‘manager’’ or 

‘‘supervisor’’ shall mean any employee 

whose duties match those of an 

executive employee as described in 

§ 541.100(a)(2) through (4) or § 541.101 

of this chapter. 

■ 3. Amend § 531.54 by revising 

paragraphs (c)(3) and (d) to read as 

follows: 

* * * * * 

(c) * * * 

(3) An employer may not receive tips 

from such a tip pool and may not allow 

managers and supervisors to receive tips 

from the tip pool. 

(d) Employers that do not take a 

section 3(m)(2)(A) tip credit. An 

employer that pays its tipped employees 

the full minimum wage and does not 

take a tip credit may impose a tip 

pooling arrangement that includes 

dishwashers, cooks, or other employees 

in the establishment who are not 

employed in an occupation in which 

employees customarily and regularly 

receive tips. An employer may not 

receive tips from such a tip pool and 

may not allow supervisors and 

managers to receive tips from the tip 

pool. 

PART 578—TIP RETENTION, MINIMUM 

WAGE, AND OVERTIME 

VIOLATIONS—CIVIL MONEY 

PENALTIES 

■ 4. The authority citation for part 578 

continues to read as follows: 

Authority: 29 U.S.C. 216(e), as amended 

by sec. 9, Pub. L. 101–157, 103 Stat. 938, sec. 

3103, Pub. L. 101–508, 104 Stat. 1388–29, 

sec. 302(a), Pub. L. 110–233, 122 Stat. 920, 

and sec. 1201, Div. S., Tit. XII, Pub. L. 115– 

141, 132 Stat. 348; Pub. L. 101–410, 104 Stat. 

890 (28 U.S.C. 2461 note), as amended by 

sec. 31001(s), Pub. L. 104–134, 110 Stat. 

1321–358, 1321–373, and sec. 701, Pub. L. 

114–74, 129 Stat 584. 

■ 5. Revise § 578.3 to read as follows: 

§ 578.3 What types of violations may result 

in a penalty being assessed? 

(a) In general. (1) A penalty of up to 

$1,162 per violation may be assessed 

against any person who violates section 

3(m)(2)(B) of the Act. 

(2) A penalty of up to $2,074 per 

violation may be assessed against any 

person who repeatedly or willfully 

violates section 6 (minimum wage) or 

section 7 (overtime) of the Act. The 

amount of the penalties stated in 

paragraphs (a)(1) and (2) of this section 

will be determined by applying the 

criteria in § 578.4. 

(b) Repeated violations. An 

employer’s violation of section 6 or 

section 7 of the Act shall be deemed to 

be ‘‘repeated’’ for purposes of this 

section: 

(1) Where the employer has 

previously violated section 6 or section 

7 of the Act, provided the employer has 

previously received notice, through a 

responsible official of the Wage and 

Hour Division or otherwise 

authoritatively, that the employer 

allegedly was in violation of the 

provisions of the Act; or 

(2) Where a court or other tribunal has 

made a finding that an employer has 

previously violated section 6 or section 

7 of the Act, unless an appeal therefrom 

which has been timely filed is pending 

before a court or other tribunal with 

jurisdiction to hear the appeal, or unless 

the finding has been set aside or 

reversed by such appellate tribunal. 

(c) Willful violations. (1) An 

employer’s violation of section 6 or 

section 7 of the Act shall be deemed to 

be ‘‘willful’’ for purposes of this section 

where the employer knew that its 

conduct was prohibited by the Act or 

Federal Register / Vol. 86, No. 183 / Friday, September 24, 2021 / Rules and Regulations 52987 

showed reckless disregard for the 

requirements of the Act. All of the facts 

and circumstances surrounding the 

violation shall be taken into account in 

determining whether a violation was 

willful. 

(2) For purposes of this section, the 

employer’s receipt of advice from a 

responsible official of the Wage and 

Hour Division to the effect that the 

conduct in question is not lawful, 

among other situations, can be sufficient 

to show that the employer’s conduct is 

knowing, but is not automatically 

dispositive. 

(3) For purposes of this section, 

reckless disregard of the requirements of 

the Act means, among other situations, 

that the employer should have inquired 

further into whether its conduct was in 

compliance with the Act and failed to 

make adequate further inquiry. 

■ 6. Revise § 578.4(a) to read as follows: 

§ 578.4 Determination of penalty. 

(a) In determining the amount of 

penalty to be assessed for any violation 

of section 3(m)(2)(B) or repeated or 

willful violation of section 6 or section 

7 of the Act, the Administrator shall 

consider the seriousness of the 

violations and the size of the employer’s 

business. 

* * * * * 

PART 579—CHILD LABOR 

VIOLATIONS—CIVIL MONEY 

PENALTIES 

■ 7. The authority citation for part 579 

continues to read as follows: 

Authority: 29 U.S.C. 203(m), (l), 211, 212, 

213(c), 216; Reorg. Plan No. 6 of 1950, 64 

Stat. 1263, 5 U.S.C. App; secs. 25, 29, Pub. 

L. 93–257, 88 Stat. 72, 76; Secretary of 

Labor’s Order No. 01–2014 (Dec. 19, 2014), 

79 FR 77527 (Dec. 24, 2014); 28 U.S.C. 2461 

Note. 

■ 8. Amend § 579.1 by redesignating 

paragraph (a)(2) as paragraph (a)(2)(i), 

revising newly designated paragraph 

(a)(2)(i) and adding paragraph (a)(2)(ii) 

to read as follows: 

§ 579.1 Purpose and scope. 

(a) * * * 

(2)(i) Any person who repeatedly or 

willfully violates section 206 or 207 of 

the FLSA, relating to wages, shall be 

subject to a civil penalty not to exceed 

$2,074 for each such violation. 

(ii) Any person who violates section 

203(m)(2)(B) of the FLSA, relating to the 

retention of tips, shall be subject to a 

civil penalty not to exceed $1,162 for 

each such violation. 

* * * * * 

■ 9. Amend § 579.2 by revising the 

definition of ‘‘Willful violations’’ to read 

as follows: 

§ 579.2 Definitions. 

* * * * * 

Willful violations under this section 

has several components. An employer’s 

violation of section 12 or section 13(c) 

of the Act relating to child labor or any 

regulation issued pursuant to such 

sections, shall be deemed to be willful 

for purposes of this section where the 

employer knew that its conduct was 

prohibited by the Act or showed 

reckless disregard for the requirements 

of the Act. All of the facts and 

circumstances surrounding the violation 

shall be taken into account in 

determining whether a violation was 

willful. In addition, for purposes of this 

section, the employer’s receipt of advice 

from a responsible official of the Wage 

and Hour Division to the effect that the 

conduct in question is not lawful, 

among other situations, can be sufficient 

to show that the employer’s conduct is 

knowing, but is not automatically 

dispositive. For purposes of this section, 

reckless disregard of the requirements of 

the Act means, among other situations, 

that the employer should have inquired 

further into whether its conduct was in 

compliance with the Act and failed to 

make adequate further inquiry. 

PART 580—CIVIL MONEY 

PENALTIES—PROCEDURES FOR 

ASSESSING AND CONTESTING 

PENALTIES 

■ 10. The authority citation for part 580 

continues to read as follows: 

Authority: 29 U.S.C. 9a, 203, 209, 211, 212, 

213(c), 216; Reorg. Plan No. 6 of 1950, 64 

Stat. 1263, 5 U.S.C. App; secs. 25, 29, 88 Stat. 

72, 76; Secretary’s Order 01–2014 (Dec. 19, 

2014), 79 FR 77527 (Dec. 24, 2014); 5 U.S.C. 

500, 503, 551, 559; 103 Stat. 938. 

■ 11. Revise the first sentence of § 580.2 

to read as follows: 

§ 580.2 Applicability of procedures and 

rules. 

The procedures and rules contained 

in this part prescribe the administrative 

process for assessment of civil money 

penalties for any violation of the child 

labor provisions at section 12 of the Act 

and any regulation thereunder as set 

forth in part 579 of this chapter, and for 

assessment of civil money penalties for 

any violation of the tip retention 

provisions of section 3(m)(2)(B) or any 

repeated or willful violation of the 

minimum wage provisions of section 6 

or the overtime provisions of section 7 

of the Act or the regulations thereunder 

set forth in 29 CFR subtitle B, chapter 

V. * * * 

■ 12. Revise the first sentence of § 580.3 

to read as follows: 

§ 580.3 Written notice of determination 

required. 

Whenever the Administrator 

determines that there has been a 

violation by any person of section 12 of 

the Act relating to child labor or any 

regulation thereunder as set forth in part 

579 of this chapter, or determines that 

there has been a violation by any person 

of section 3(m)(2)(B), or determines that 

there has been a repeated or willful 

violation by any person of section 6 or 

section 7 of the Act, and determines that 

imposition of a civil money penalty for 

such violation is appropriate, the 

Administrator shall issue and serve a 

notice of such penalty on such person 

in person or by certified mail. * * * 

■ 13. Amend § 580.12 by revising the 

first sentence of paragraph (b) to read as 

follows: 

§ 580.12 Decision and Order of 

Administrative Law Judge. 

* * * * * 

(b) The decision of the Administrative 

Law Judge shall be limited to a 

determination of whether the 

respondent has committed a violation of 

section 12, a violation of section 

3(m)(2)(B), or a repeated or willful 

violation of section 6 or section 7 of the 

Act, and the appropriateness of the 

penalty assessed by the Administrator. 

* * * 

* * * * * 

■ 14. Amend § 580.18 by revising the 

third sentence in paragraph (b)(3) to 

read as follows: 

§ 580.18 Collection and recovery of 

penalty. 

* * * * * 

(b) * * * 

(3) * * * A willful violation of 

sections 6, 7, or 12 of the Act may 

subject the offender to the penalties 

provided in section 16(a) of the Act, 

enforced by the Department of Justice in 

criminal proceedings in the United 

States courts. * * * 

Signed in Washington, DC, this 8th day of 

September, 2021. 

Jessica Looman, 

Acting Administrator, Wage and Hour 

Division. 

[FR Doc. 2021–19795 Filed 9–23–21; 8:45 am] 

BILLING CODE 4510–27–P