DOL final rule: FLSA tipped employee regulations amended

Employers may allow more employees to participate in tip pools

Posted December 31, 2020

On December 22, 2020, the Department of Labor (DOL) issued a final rule that amended the tipped employee regulations under the federal Fair Labor Standards Act (FLSA).

Key changes in the final rule include the following:

  • Employers that pay the full minimum wage and do not take a tip credit* may now include a broader group of workers, such as cooks or dishwashers, in a mandatory tip pool.
  • Employers cannot keep employees’ tips.
  • Managers/supervisors can keep tips they get from customers for services only they provide.
  • The “80/20” rule is gone. Generally, employers can take a tip credit for all work (tipped or non-tipped).
  • Employers that don’t take a tip credit but have a tip pool have new recordkeeping rules to follow.
  • If a city/state has a standard that’s more protective for employees than the FLSA, an employer in those locations must follow the higher standard.

With employers having more flexibility regarding pay, employees (like cooks and dishwashers) who are newly added to a tip pool may see a bump in pay.

Allowing more workers into a tip pool might also help reduce wage disparity among all workers involved in providing a good customer experience.

The final rule goes into effect March 1, 2021.

* Tip credit (‘wage break’): Paying tipped workers a lower direct wage since they earn tips towards their income.

This article was written by Michelle Higgins of J. J. Keller & Associates, Inc.

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