The Department of Labor (DOL) has published a final rule revising its tipped employee regulations. The final rule takes effect March 1, 2021.
Background:
Tip Credit:
Under the Fair Labor Standards Act (FLSA), employers may take a "tip credit" against their minimum wage obligations for employees who customarily and regularly receive more than $30 a month in tips. A tip credit is permitted as long as the employee receives at least the minimum wage per hour when their tip credit is combined with tips received. The maximum tip credit under the FLSA is $5.12 per hour, and it can only be used if tipped employees receive a direct cash wage of at least $2.13 per hour.
Note: Several states and local jurisdictions prohibit employers from taking a tip credit toward their minimum wage obligations. Some other states require a higher direct cash wage to claim a tip credit.
Tip Pooling:
Tip pooling is an arrangement among employees to share a portion of their tips received with others in the pool. The FLSA allows employers to institute mandatory tip pooling among employees who customarily and regularly receive tips if certain conditions are met.
20 Percent Limitation on Non-Tipped Duties:
In the past, the DOL has advised that an employer may not take a tip credit for the time a tipped worker spends performing non-tipped duties when that time exceeded 20 percent of the employee's workweek.
Consolidated Appropriations Act of 2018:
The Consolidated Appropriations Act (CAA) was enacted in 2018 and allows mandatory tip pooling between tipped and non-tipped employees as long as the employer pays tipped employees the full minimum wage in direct cash wages and doesn't take the tip credit. However, if employers take the tip credit, tip pooling with non-tipped employees is still prohibited. The CAA also amended the FLSA to clarify that employers, managers, and supervisors are prohibited from participating in tip pools, regardless of whether the employer takes a tip credit.
Final Rule:
The final rule makes the following changes:
- Aligns the regulations with the CAA by removing the portions of the regulations that prohibited employers that don't take a tip credit from implementing mandatory "nontraditional" tip pools;
- Explicitly prohibits employers—regardless of whether they take a tip credit—from keeping employees' tips for any purpose, which includes prohibiting managers and supervisors from keeping tips received by employees;
- States that an employer that collects tips to facilitate a mandatory tip pool must fully redistribute the tips no less often than when it pays wages; and
- Incorporates a new recordkeeping requirement for employers that don't take a tip credit but collect employees' tips to operate a mandatory tip pool (see below).
New Recordkeeping Requirement:
If employers don't take a tip credit but collect employees' tips to operate a mandatory tip pool, they must maintain records containing the information required in 29 CFR § 516.2(a) and the following:
- A symbol, letter, or other notation placed on the pay records identifying each employee who receives tips; and
- The weekly or monthly amount reported by the employee, to the employer, of tips received (this may consist of reports made by the employees to the employer on IRS Form 4070).
Removal of 20-percent Limit:
The final rule also codifies recent guidance by removing the 20 percent limitation on the amount of time that an employee for whom an employer takes a tip credit can perform non-tipped duties. The final rule explains that an employer may take a tip credit for time that an employee in a tipped occupation performs related non-tipped duties—as long as those duties are performed contemporaneously with tip-producing activities or within a reasonable time immediately before or after the tipped duties.
Under the rule, non-tipped duties related to a tip-producing occupation include a server spending part of their time performing such non-tipped duties as "cleaning and setting tables, toasting bread, making coffee, and occasionally washing dishes or glasses." In addition to these examples listed in the regulation, the final rule provides that a non-tipped duty is presumed to be related to a tip-producing occupation if the duty is listed as a task of the tip-producing occupation in the Occupational Information Network (O*NET).
Compliance Recommendations:
Employers that have tipped employees should review the final rule in full and determine whether changes to policies and practices are necessary. Employers should also make note that states and local jurisdictions may have different rules that provide greater protections to employees. Please contact your dedicated service professional with any questions.