U.S. DOL Issues Final Rule on Employee Tips

Employers cannot keep tips their employees receive, nor can they allow managers or supervisors to keep any portion of those tips, the U.S. Department of Labor said.

The agency issued a final rule that addressed changes made to the Fair Labor Standards Act by the Consolidated Appropriations Act of 2018.

It said the CAA prohibits employers or managers from keeping any part of employees’ tips, regardless of whether the employer takes a credit for tips earned by workers toward its minimum wage obligation to those employees under the FLSA.

“This final rule provides clarity and flexibility for employers and could increase pay for back-of-the house workers, like cooks and dishwashers, who have been excluded from participating in tip pools in the past,” Wage and Hour administrator Cheryl Stanton said in a statement.

“Newly allowed tip sharing may incentivize the inclusion of these previously excluded workers and reduce wage disparities among all workers who contribute to customers’ experience.”

Clarification

By clarifying the rule, the department said it’s helping employers and workers throughout food service industries.

The agency said the final rule also largely codifies its guidance on an employer’s ability to claim the tip credit when workers do tipped and non-tipped duties, clarifying when employers can continue to claim the tip credit while the employee performs duties that do not generate tips.

The guidance clarifies which non-tipped duties are considered related to a tip-producing occupation.

The guidance clarifies which non-tipped duties are considered related to a tip-producing occupation.

The CAA did not impact established regulations that apply to employers who take a tip credit under the FLSA.

Tip Pools

An employer who claims a tip credit must ensure that a mandatory “traditional” tip pool includes only workers who customarily and regularly receive tips, meaning employees such as cooks or dishwashers aren’t included.

However, the CAA removed the regulatory restrictions on an employer’s ability to require tip pooling when it does not take a tip credit and instead pays tipped employees the full minimum wage in direct wages.

Employers may now implement mandatory nontraditional tip pools.

Those employers may now implement mandatory nontraditional tip pools, which can include employees such as cooks and dishwashers.

The final rule takes effect 60 days after publication in the Federal Register.