Federal Updates – Federal Contractors, Independent Contractors, and Tip Rules

As part of its ongoing review of current rules, the federal government made some recent changes employers need to be aware of. The current administration issued an executive order impacting federal contractors and tipped workers. The recent independent contractor final rule was withdrawn. Plus, portions of the 2020 Tip final rule were delayed.

Beginning January 30, 2022, federal contractors and subcontractors must begin paying workers a minimum of $15 per hour. This will be a required term for contracting with and being paid by the federal government. The minimum wage rate may be adjusted annually thereafter as may be determined by the Secretary of Labor. Of the federal contract workers who are tipped workers, they must begin receiving $10.50 per hour as of January 30, 2022, 85% of the applicable federal contractor minimum wage in 2023, and 100% of the applicable wage in 2024. In 2022 and 2023, when the federal contractor tipped workers’ minimum wage combined with tips received does not equal 100% of the applicable federal contractor minimum wage requirement, employers must pay the difference.

Effective May 6, 2021, the U.S. Department of Labor (DOL) withdrew the recent “Independent Contractor Rule” (published January 7, 2021) because it was not consistent with the Fair Labor Standards Act (FLSA) and other current laws. Specifically, the two “core factor” test was not aligned with the existing economic realities test for determining independent contractor status. Employers should continue to scrutinize independent contactor status consistent with current federal, state, and local rules.

Finally, the DOL issued a final rule delaying until December 31, 2021 three portions of the 2020 Tip final rule relating to assessing penalties under the FLSA and the application of the FLSA tip credit to tipped employees who perform tipped and non-tipped duties (dual jobs). The DOL is expected to propose new versions of the provisions that have been delayed. As of April 30, 2021, the 2020 Tip rule went into effect for the remaining portions of the 2020 Tip rule, including prohibition on employers keeping tips, recordkeeping requirements for including non-tipped workers in nontraditional tip-sharing arrangements, and pay timing for tips received in tip pools.

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