DOL tips its hand on tip sharing and credit rules

Employers in the service and hospitality industries take note

Posted October 8, 2019

On Monday, October 7, the U.S. Department of Labor (DOL) announced a proposed rule for tip provisions of the Fair Labor Standards Act (FLSA) implementing provisions of the Consolidated Appropriations Act of 2018 (CAA). The proposal would also codify existing Wage and Hour Division (WHD) guidance into a rule.

Under the CAA, employers are prohibited from keeping employees’ tips. The proposed rule would generally make it easier for employers to require what’s commonly known as "front-of-the-house" employees — such as servers and bartenders — who earn at least the standard minimum wage and customarily receive tips to share those gratuities with "back-of-the-house" — such as cooks, dishwashers, and other workers who aren't usually tipped.

The FLSA allows employers that meet certain requirements to count a limited amount of the tips its tipped employees receive as a credit toward its federal minimum wage obligation — known as a “tip credit.” This requirement, however, does not preclude employers that take a tip credit from implementing a tip pool in which tips are shared only among those employees who customarily and regularly receive tips.

The proposed rule would not impact regulations providing that employers who take a tip credit may only have a tip pool among traditionally tipped employees. An employer may take a tip credit toward its minimum wage obligation for tipped employees equal to the difference between the required cash wage (currently $2.13 per hour) and the federal minimum wage. Establishments utilizing a tip credit may have a tip pool only among traditionally tipped employees.

The proposed rule also allows employers to take a tip credit for any amount of time an employee in a tipped occupation performs related non-tipped duties with tipped duties. For employers to use the tip credit, the employee must perform non-tipped duties contemporaneous with, or within a reasonable time immediately before or after, performing the tipped duties. The proposed regulation also addresses which non-tipped duties are related to a tip-producing occupation.

Interested in this proposed rule? Comments are being accepted for 60 days from October 8, 2019. The rule was scheduled to be published in the October 8, 2019 Federal Register.

This article was written by Darlene M. Clabault, SHRM-CP, PHR, CLMS, of J. J. Keller & Associates, Inc.

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