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Federal Register / Vol. 86, No. 183 / Friday, September 24, 2021 / Rules and Regulations 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 22 The 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 COVID19 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, COVID19 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.

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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 3m2B. This change is consistent with the text of section 16e of the FLSA, which provides that any person who violates section 3m2B
shall be subject to a civil penalty . . .
for each such violation, as the Secretary determines appropriate. 29 U.S.C.
216e. The Department believes that this change, by ensuring that the Department has the ability to impose CMPs for violations of section 3m2B 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 Departments 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 16e. As discussed above, these portions of the Departments 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 FLSAs minimum wage or overtime requirements, which may enhance the penaltys deterrent effect.
This rule revises the Departments regulation addressing managers and supervisors who cannot keep other
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employees tips under section 3m2B
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 104121 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 12 hour thirty minutes. Because this cost is minimal for small business entities, and well below one percent of 23 Statistics of U.S. Businesses 2017, https
www.census.gov/data/tables/2017/econ/susb/2017susb-annual.html, 2016 SUSB Annual Data Tables by Establishment Industry.

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