DOL Issues Final Rule Regarding Tip Regulations Under the Fair Labor Standards Act

On December 22, 2020, I reported that the Department of Labor (DOL) announced a final rule (Rule) revising its tipped employee regulations. This Final Rule would eliminate certain regulatory restrictions on an employer’s use of tips if the employer pays at least the full federal minimum wage and does not take a tip credit.  According to reports, The U.S. Department of Labor on February 24, 2o21, indicated it is postponing these tip pool and tip credit regulations that had yet to take effect.   In support of its action it referred to public comments on the rule arguing a  postponement was in order.  Those making the argument included nine attorneys general and advocacy groups.

The final rule included a remaining restriction prohibiting employers, regardless of whether they take a tip credit, from keeping employees’ tips for any purpose. This prohibition keeps the Rule prohibiting managers and supervisors from keeping employees’ tips or participating in a tip pool.

However, there are significant changes. Specifically, employers that pay the full minimum wage and do not take a tip credit may include all workers in a mandatory tip pool. This includes workers who do not customarily and regularly receive tips, such as cooks and dishwashers.  This change is likely to increase pay for back-of-the-house workers, who have been excluded from tip pools in the past.

With regards to the tip credit, the Rule states that an employer may take a tip credit for the time that a tipped employee performs related non-tipped duties either coat the same time or immediately before or after performing tipped duties. Non-tipped duties related to a tip-producing occupation include cleaning and setting tables, toasting bread, making coffee, and occasionally washing dishes or glasses.

Lastly, the Rule allows a manager or supervisor to keep tips that they receive directly from customers based on the manager or supervisor’s service.

The rule would not require employers to make any changes to their existing tip pools. Nor would it require employers to create tip pools. However, it would allow for more flexibility from the DOL if an employer does choose to mandate a tip pool.