What Employers Need to Know About the Proposed Changes to the FLSA Tip Sharing Rules

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On December 5, 2017, the Department of Labor (DOL) published a Proposed Rule rescinding its 2011 regulations concerning mandatory tip pooling.

Under the Fair Labor Standards Act (FLSA), employers may, in certain situations, take a "tip credit" for some of the tips a tipped employee receives to satisfy the employer's minimum wage obligations. A full discussion of the requirements an employer must satisfy to take a tip credit is beyond this post, but if those requirements are satisfied, an employer may pay an employee at least $2.13 an hour and use tips an employee receives to satisfy the $7.25 per hour Federal minimum wage under the FLSA (subject to variation depending on applicable state laws).

One of the requirements for an employer to take a tip credit is that the tipped employee retain all of their tips. The FLSA does permit mandatory tip pooling -- sharing of tips with certain other employees -- in limited situations. Employers that take a tip credit can only require mandatory tip pooling amongst other employees who customarily and regularly receive tips, such as servers, bartenders, and bussers. 

 The FLSA does not expressly set forth this limitation on mandatory tip pooling for employers that do not take a tip credit. The 2011 regulations, however, imposed that same restriction on employers that do not take a tip credit and instead pay the full minimum wage to their tipped employees.

The Proposed Rule rescinds the 2011 restriction and would again allow employers that do not take a tip credit to require the sharing of tips with "back of the house workers" and other employees who do not customarily and regularly receive tips. The DOL's stated benefit from the Proposed Rule is that it will allow employers to reduce wage disparities among employees who collectively contribute to a customer's experience, incentivize all employees to improve the customer experience, and reduce the litigation that has resulted from the 2011 regulation.

 A public comment period on the Proposed Rule will remain open until January 4, 2018. Interested parties can submit their comments here.

If you have questions about your business's use of the tip credit, or other wage and hour compliance issues, please contact us at (201) 345-5412 or info@morealaw.com.