The U.S. Department of Labor has announced a Notice of Proposed Rulemaking regarding the tip regulations under the Fair Labor Standards Act.

Under the proposed rule, workplaces would be permitted to allow sharing of tips among more employees.

Officials say the proposal would help decrease wage disparities between tipped and non-tipped workers—an option that is currently restricted by a rule promulgated under the Obama administration in 2011 that has been challenged in the courts.

The 2011 rule, a source of considerable controversy, prohibits employers from requiring tipped employees who are paid less than minimum wage to share their tips with workers who are traditionally non-tipped.

The proposed rule applies only where employers pay a full minimum wage and do not take a tip credit. It allows sharing tips through a tip pool with employees who do not traditionally receive direct tips—such as restaurant cooks and dish washers.

These "back of the house" employees contribute to the overall customer experience but may receive less compensation than their traditionally tipped coworkers, the department argued in a Dec. 4 statement. The proposal would not affect current rules applicable to employers that claim a tip credit under the FLSA.

Significant Litigation

DOL officials say that since 2011, there has been a significant amount of litigation involving the tip pooling and tip retention practices of employers that pay a direct cash wage of at least the federal minimum wage and do not claim a FLSA tip credit.

There has also been litigation directly challenging the DOL's authority to promulgate the provisions of the 2011 regulations that restrict sharing of tips.

Moreover, in the past several years, several states have changed their laws to require employers to pay tipped employees a direct cash wage that is at least the federal minimum wage. This means that fewer employers can take the FLSA tip credit.

The DOL's proposed new rule follows these developments, along with concerns that it incorrectly construed the statute when promulgating the 2011 regulations.

The Notice of Proposed Rulemaking will be published in the Federal Register on Dec. 5, 2017, and be available for public comment for 30 days.

The DOL encourages interested parties to submit comments on the proposed rule.