DOL Aims to Address Tip Credits, Young Workers and Employment Status

The U.S. Department of Labor (DOL) on Friday, July 3, submitted a series of regulatory updates to the White House Office of Management and Budget (OMB) that call out its formal intent to release proposed or final wage-and-hour rules in the coming months on:

• Tip credits;
• Working hours for minors;
• Independent contractor status; and,
• Joint employment status.

Tip Credits

The DOL will reportedly address tip credits under the Fair Labor Standards Act (FLSA) with a proposed rule that is slated for August. This would be the latest attempt by the DOL to tackle tip credits and have any changes withstand legal challenges.

The upcoming rulemaking follows recent legal shifts, including the Fifth Circuit Court of Appeals striking down the previous federal 80/20 restriction, which dictated that employers couldn’t claim a tip credit if a tipped employee spent more than 20% of their time on non-tipped duties. While the DOL withdrew this rule, the broader “dual jobs” regulation still requires employers to pay full minimum wage for non-tipped roles.

The tip credit currently allows employers to pay tipped employees less than the standard minimum wage (e.g., $2.13 per hour federally), provided their tips make up the difference.

The forthcoming DOL proposal will provide updated clarity on how these regulations are applied.

Young Workers

Another DOL proposal, reportedly slated for September, would amend permissible working hours for 14- and 15-year-olds.

Under the FLSA, minors in this age range currently have strict hours limits:

• When school is in session, the work-hour maximums are three per day and 18 per week. Also, work must only be performed between 7 a.m. and 7 p.m.
• When school is not in session, the maximums are eight per day and 40 per week. Work hours can be extended to 9 p.m. from June 1 through Labor Day.

Comparatively, for workers aged 16 and 17, there is no federal law on work hour limits. Many states, though, have their own regulations and limits.

A DOL proposal would build onto momentum occurring at the state and local levels, where a growing number of laws have been passed or proposed to allow younger workers to take on additional hours to address employers’ labor shortages.

Independent Contractor Status

The federal agency reportedly has established an October deadline for its independent contractor rule to be finalized. First proposed in February, the rule shifts the FLSA interpretation closer to the approach proposed by the agency during President Donald Trump’s first term. That standard:

• Applies an “economic reality test” to determine whether the worker is in business for themselves as an independent contractor or is an employee economically dependent on an employer for work.
• Identifies and explains two “core factors” to help determine if the worker is economically dependent on an employer for work or in business for themselves. Those factors are:
  • The nature and degree of control over the work.
  • The worker’s opportunity for profit or loss based on initiative and/or investment.
• Identifies other factors to help determine the worker’s status, including the amount of skill required for the work, the degree of permanence of the working relationship and whether the work is part of an integrated unit of production.

The proposed rule supplanted previous guidance issued in 2024 during the administration of President Joe Biden that made it harder for workers to be classified as independent contractors.

Joint Employment Status

The DOL also reportedly will continue mobilizing the joint employment proposed rule that it announced in April. The agency did not release a final timeline in its OMB filing; however, the proposal’s 60-day comment period expired on June 22.

The DOL is seeking to establish a single, nationwide standard for determining joint employer status under the FLSA, the Family and Medical Leave Act (FMLA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA).

The harmonized rule would be based on commonalities in federal court precedents. This would include adoption of a four-factor analysis that would strongly consider whether the potential joint employer: 

1. Has the ability to hire and/or fire the worker;
2. Supervises and controls the individual’s work schedule or conditions of employment to a substantial degree;
3. Determines the individual’s rate and method of payment; and,
4. Maintains the individual’s employment records.

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