Changes to Tip Pooling Rules - Congress Amends the FLSA and DOL Issues Field Guidance on Tip Pooling


In a prior post I discussed the Department of Labor's (DOL) proposed changes to the tip sharing rules of the Fair Labor Standards Act (FLSA), which would allow employers to require mandatory tip pooling if the employer did not take a tip credit for minimum wage compliance purposes. The proposed rule change quickly received negative criticism from restaurant workers and labor advocates due to the fear that the proposed rule would result in employers paying tipped employees minimum wage in order to retain employee tips.

In response to the proposed rule change and the negative criticism it received, Congress amended the FLSA, effective March 23, 2018, to explicitly prohibit employers, including managers and supervisors, from keeping any portion of an employee's tip, regardless of whether the employer takes a tip credit. The amendment still permits mandatory tip pooling if an employer does not take a tip credit (i.e. pays tipped employees at least the full FLSA minimum wage) and limits who can participate in tip pooling by specifically excluding employers, managers, and supervisors.

The DOL added further clarity to tip pooling in its April 6, 2018 Field Assistance Bulletin No. 2018-3. The Bulletin clarifies that employers who pay the full FLSA minimum wage may permit non-tipped employees, such as cooks and dishwashers, to participate in tip pools, but that managers and supervisors are excluded for participation. The Bulletin further explains that whether an employee is excluded from tip sharing as a manager or supervisor will be determined by applying the duties portion of the FLSA's executive exemption test. The Bulletin, thus, provides clarity to employers concerning which employees are allowed to participate in tip pooling.

Given the stiff penalties associated with FLSA violations, employers who engage in tip pooling should review their tip pooling practices to ensure both that tip pooling is permitted under the FLSA (and applicable state laws) and that no tip pooling participants qualify as managers or supervisors.

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