The Department of Labor (DOL) has published a final rule that will further delay some changes to tipped employee regulations, but other changes will go into effect on April 30, 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.
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.
Regulatory Developments:
Near the end of the Trump Administration, the DOL published a final rule revising the tipped employee regulations. The final rule was scheduled to take effect March 1, 2021, but the Biden Administration pushed back the effective date and will only require a portion of the changes to take effect on April 30, 2021. . Other components of the final rule have been delayed until December 31, 2021.
Some Changes to Be Implemented April 30, 2021:
As a result of a final rule announced by the DOL on April 28, 2021, portions of the final rule will take effect April 30, 2021, but others will now be delayed until December 31, 2021.
Changes Effective April 30, 2021:
The following changes to the regulations for tipped employees will take effect on April 30, 2021:
- Explicitly prohibiting 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;
- Aligning 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;
- Making clear 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
- Establishing 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).
Changes Delayed Until at Least December 31, 2021:
A component of the rule addressing the application of the FLSA's tip credit provision to tipped employees who perform both tipped and non-tipped duties has been delayed until at least December 31, 2021. Two provisions addressing the assessment of civil money penalties have also been delayed until that date. The DOL says the delay will provide time to evaluate whether to amend, withdraw, or retain those three provisions.
Compliance Recommendations:
Employers that have tipped employees should review the changes in full and determine whether updates 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.