This week, the U.S. Department of Labor (DOL) published a final rule altering its regulations concerning tipped employees. If your business falls in an industry where tipping is customary, you will want to be acquainted with this change.
By way of background, the Fair Labor Standards Act (FLSA) generally requires employers to pay their employees at least the Federal minimum wage (currently $7.25/hour). However, the FLSA allows certain employers to count a limited amount of the tips received by “tipped employees” as a credit toward the employers’ Federal minimum wage obligation. This “tip credit” may be taken for tipped employees only if, among other things, those tipped employees retain all their tips. Further, an employer that takes a tip credit is not precluded from implementing a tip pool in which employees who “customarily and regularly receive tips” share their tips.
In 2018, Congress amended the tip credit provisions of the FLSA and added a new section that prohibits employers from keeping their employees’ tips “for any purposes, including allowing managers or supervisors to keep any portion of employees’ tips” even if the employer does not claim a tip credit. The DOL’s new rule is designed to address this 2018 amendment of the FLSA tip credit provisions.
Under the DOL’s final rule, employers who do not take a tip credit are now permitted to implement mandatory “nontraditional” tip pools that include employees who do not customarily and regularly receive tips, for example, cooks and dishwashers. The rule, however, does not change the statutory requirements that apply to employers that do take a tip credit. Thus, employers who take a tip credit may continue to institute a mandatory “traditional” tip pool that is limited to employees who “customarily and regularly” receive tips.
The DOL’s final rule also reiterates Congress’s 2018 amendment to the FLSA, prohibiting employers, managers, and supervisors from receiving employees’ tips as part of any tip pooling arrangement and/or from operating tip pools in any manner such that employers keep tips. In doing so, the final rule does not alter the DOL’s existing regulations and guidance on the matter. The final rule, however, does impose a new recordkeeping requirement on employers that do not take a tip credit but do collect employees’ tips to operate a mandatory tip pool. Specifically, the revised regulations obligate employers who do not take a tip credit but do operate a mandatory tip pool to identify on their payroll records each employee who receives tips and to keep records of the weekly or monthly amount of tips received by each such employee (as reported by the employee to the employer).
If you have questions about the DOL’s new rule or any other employment related matters, please contact Frank Laws (FLaws@tandllaw.com), Sima Fried (SFried@tandllaw.com), or Jennifer Ciarrocchi (JCiarrocchi@tandllaw.com) and we will be happy to help.